Shopify lays off 10% of staff as explosive growth from pandemic fades

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Ottawa-based e-commerce company Shopify Inc. is laying off about 1,000 people as the explosive growth of the company’s online sales business model slows.

“For a company like ours, this news will be hard to digest,” founder and CEO Tobi Lütke said in an email to staff that was later posted on the company’s website.

According to regulatory documents, the company had about 10,000 employees at the end of 2021, double the number it had before the pandemic. The cuts amount to 10 percent of the company’s workforce.

Affected staff will be notified Tuesday. Most of the layoffs will be in recruiting, support and sales, the company says.

Anyone affected will receive 16 weeks of severance pay, plus an additional week for each year they have been with the company. And the company will remove limitations on the stock options to which they may be entitled.

The wave of hiring stops

Josh Waldman was among those fired. A Washington DC-based content designer, Waldman had only been working for Shopify for two months when he was told this morning that he was among those laid off.

“There have been some rumors of maybe some weirdness on the message boards over the last week or so. [but I] I didn’t think much of it,” he told CBC News in an interview.

SEE | Shopify to lay off roughly 1,000 people:

Shopify lays off 10% of staff amid slower sales

Shopify has laid off 10 percent of its staff as sales fall far short of expectations. The Canadian online retail giant is the latest tech company forced to downsize in the face of rising inflation and fears of a recession.

He learned of the news when he received the aforementioned email from Lütke, followed by one from the company’s COO informing him of his fate.

While he enjoyed his time at the company, he says he’s angry about what he calls the “poor planning” that led to the hiring spree in the first place.

Like many digital-focused companies, Shopify saw demand for its services explode during the pandemic, as lockdowns forced consumers and businesses to quickly adapt to buying and selling online.

That led Shopify to aggressively expand, hiring staff to keep up with the mass of new customers.

“I think they made a lot of really naive decisions based on growth during COVID [but] operating as if that is a permanent increase in e-commerce and online shopping revenue is a mistake, a really big mistake,” Waldman said.

The company apparently acknowledges that in the CEO letter, in which Lütke says online shopping demand is growing, but no longer at the frenetic pace seen in 2020. Overall, he said, e-commerce is where it would have been. if the increase in the pandemic had not occurred.

But Shopify had increased its staffing levels on the assumption that the explosive growth would continue.

“We bet that the … part of the dollars that travel through e-commerce rather than physical retail would be permanently advanced,” Lütke said. “Now it is clear that the gamble was not worth it.”

Satisfied customers

Hiring too quickly may have been a bad bet for Shopify, but for many businesses that used the company to boost their eCommerce presence during the pandemic, the bet paid off.

Sam Care doesn’t mince words when it comes to the impact Shopify had on his Toronto-based toy store.

“Being online saved my business,” Care told CBC News in an interview.

Like many retailers, he spent much of 2020 without sales due to store closures, but by the fall of that year he had taken the plunge online and worked with Shopify to save his business.

Care now uses the company’s technology to process sales online and in its store, and says it’s not alone. “Everyone I know who has a retail business started with Shopify in the last two years,” she said.

Sam Care owns the Playful Minds toy store in Toronto. He started using Shopify during the pandemic to help move his business online, and today he also uses the company’s technology to process in-person sales. (Shawn Benjamin/CBC)

Shopify’s business grew along with Care’s, and so did the company’s stock price.

The boom was so massive that at one point in mid-2020, Shopify became the most valuable company in Canada, surpassing the Royal Bank of Canada, with a valuation of nearly $300 billion.

David Baskin, head of Toronto-based money manager Baskin Wealth Management, said the company hit those lofty highs based on the assumption that exponential growth was here to stay.

“People extrapolated their very rapid growth into the future and said, look, if they’re making $2 billion a year now and they’re growing it 300 percent a year, they’ll be making $8 billion and then $40 billion and then $100 billion,” he said in an interview.

CLOCK | The money manager says that Shopify’s problems are reminiscent of another tech sell-off:

Shopify’s liquidation is a reminder of the tech bubble

David Baskin says the drop in Shopify’s stock price draws uneasy parallels with another old Canadian tech favorite: Nortel.

“Next thing you know, they’re going to rival Amazon. That’s what happens sometimes with these smaller companies: People just add to their spreadsheets.”

In fact, maintaining that momentum proved difficult, as growth showed signs of slowing towards the end of 2021. Today, the company is worth around $50 billion. Shares of the company fell about 15 percent when the TSX opened on Tuesday.

Shopify isn’t the only tech company feeling the effects of a slowdown. US giants such as Netflix, Google, Apple, Microsoft and Paypal saw their prospects dim as the specter of inflation bit into consumer spending.

The company is scheduled to release its quarterly results on Wednesday morning, and financial analysts who cover the company have been at pains to lower their expectations. But regardless of what the numbers show, Baskin says Tuesday’s stock sell-off tells people all they need to know.

“I’m not even sure their numbers tomorrow are going to matter. What really matters is growth going forward, and the fact that they’re losing 10 percent of their workforce tells you they’re not seeing big things.” ahead.”


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