Shopify on Tuesday announced it was laying off 10% of its workforce because the company misjudged e-commerce growth.
Posted at 10:20 a.m.
Updated at 1:51 p.m.
The Ottawa-based company’s CEO, Tobi Lütke, said in a blog post that most of the employees affected by the decision work in recruiting, support and sales.
Shopify will also eliminate “overspecialization” and “duplicated” positions, as well as certain groups that Lütke said were “hands-on, but too far removed from product realization.”
Shopify did not specify the total number of workers affected by the cuts, but the latest management information circular said the company had 10,000 employees and contractors at the end of 2021, including 3,000 added the year. last only. Ten percent of this total would encompass 1,000 workers.
According to Lütke, the company must make the layoffs because the COVID-19 pandemic has caused demand for Shopify’s software to surge while consumers have begun to shop more online.
Shopify bet that the amount of purchases consumers would make online rather than in physical stores would jump five or 10 years ahead of its pre-pandemic predictions.
“We couldn’t know for sure at the time, but we knew that if there was any chance it was true, we had to grow the business accordingly,” Lütke explained.
“It is now clear that this bet did not pay off. »
Shopify recently found that consumers are returning to their pre-pandemic shopping habits, it hasn’t jumped back in five years, forcing the company to make cuts.
“Ultimately making this bet was my decision and I was wrong. Now we have to adjust,” said Lütke.
“As a result, we have to say goodbye to some of you today, and I am deeply sorry for that. »
Incorrect assumptions are largely to blame for Shopify’s extravagance, observed Neil Saunders, chief executive of GlobalData, in a note to investors.
“Quite frankly, it was a huge strategic mistake that was fueled by an insufficient understanding of customer behavior, a lack of rigor in market analysis and a bit of hubris,” he said.
More layoffs in the tech sector
Yet Shopify isn’t alone in laying off workers. In recent months, Wealthsimple, Klarna, Twitter and Netflix have all laid off staff as investor exuberance around tech stocks waned, annual inflation hit a nearly 40-year high and rumors of a recession are looming.
Data aggregator Layoffs.fyi counted 401 global start-ups that have laid off a total of 57,552 employees so far this year.
Amid broad market divestment, which has particularly weighed on the tech sector, Shopify’s stock price has fallen more than 70% from its late 2021 high of $2,228.73. The stock was trading at $40.19 in the early afternoon on the Toronto Stock Exchange, down more than 14% from the previous day’s close.
Those affected by the layoffs announced Tuesday will receive 16 weeks of severance pay, plus an additional week for each year of service with Shopify. The company will also remove the minimum period that workers must have worked before they can start receiving certain benefits.
Laid-off workers will have access to career counselling, interview assistance, resume writing services, and Shopify will cover some of their internet access costs during the layoff period.
Workers will also be able to keep home office furniture for which the company gave an allowance at the start of the pandemic. Shopify will additionally provide a stipend that can be used to purchase new laptops.
But Shopify will have to do more than lay off workers, Saunders pointed out.
“As Amazon ramps up its services to merchants and expands its solutions to businesses outside of its platform, Shopify needs to redouble its efforts to attract new businesses and retain existing customers who use its services,” he said. -he argues.