Shopify lays off workers as bet on pandemic shopping boost backfires

Shares in Shopify fell by more than 15 per cent on Tuesday after the Canadian ecommerce platform said it would lay off 10 per cent of its workforce.

In a blog post explaining the move, the company’s chief executive, Tobias Lütke, said his belief that online shopping habits would endure post-pandemic had backfired: “Ultimately, placing this bet was my call to make and I got this wrong.”

The redundancies, which equate to approximately 1,000 employees based on the most recent headcount disclosures, were mostly in areas related to “recruiting, support, and sales”.

Lütke added: “We’re also eliminating over-specialised and duplicate roles, as well as some groups that were convenient to have but too far removed from building products.”

Tuesday’s sharp drop — which wiped more than $6bn off the company’s value — leaves Shopify down almost 80 per cent on the beginning of the year. That makes it one of the technology companies most severely hit by the wide-reaching downturn in tech stocks, particularly among ecommerce groups.

Shopify is due to report its second-quarter earnings on Wednesday.

The company had been one of the pandemic’s big corporate winners, as brick-and-mortar stores flocked to the platform in order to quickly set up online stores and manage logistics.

But the “five-year” acceleration in ecommerce use during the pandemic had not held now that lockdown restrictions had lifted, Lütke said in his note to staff.

“What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful five-year leap ahead,” Lütke said.

GlobalData analyst Neil Saunders said the company was correct to “right size” its operations, but also pointed to its struggles in building out its platform, particularly in offering better delivery options for sellers.

“Shopify could move faster with features and benefits for merchants, especially as Amazon is doing a lot of work in this area,” Saunders said. “Shopify has made a start with this with the acquisition of [logistics provider] Deliverr but it has a lot more work to do in integrating this and building out other useful tools.”

The job cuts come weeks after the company announced pushes into several new business areas, such as allowing its users to offer customers non-fungible tokens (NFTs), and a move into the potentially more lucrative wholesale business-to-business sector.

In a note, analysts at Baird called the headcount reduction a “significant change in direction” for a company that had been aggressively hiring as recently as May this year.

“With many investors very concerned about the original level of planned spending this year, the silver lining from the bad news today is that Shopify management should now be more focused on operating efficiency,” the note read.

Baird said it was optimistic that the ecommerce sector may recover once consumer spending on travel — which has been elevated due to heavy pent-up demand post-lockdown — had subsided.

Exacerbated by supply chain problems and high inflation, the post-pandemic period has been particularly bruising for the ecommerce sector. Shares of Walmart, one of the world’s largest retailers, were down 8 per cent on Tuesday, a day after issuing a profit warning. Associated stocks, such as Amazon and Target, also fell.