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Shopify cuts 10% of workforce; CEO says, ‘I got this wrong’

Tobi Lutke says company bet on rapid e-commerce growth continuing

E-commerce sales boomed during the COVID-19 pandemic. Now, they are slowing, and e-commerce platform workers are feeling the pain.

“Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that,” Shopify CEO Tobi Lutke said in a blog post to employees on Tuesday.

Lutke said the e-commerce giant would lay off about 10% of its workforce — estimated to be roughly 1,000 people — by the end of the workday Tuesday.

Shopify’s (NYSE: SHOP) stock was down nearly 15% in midafternoon trading following the news. The company is set to announce its Q2 earnings Wednesday morning.

Lutke told employees that it is the company’s job to make “big strategic bets our merchants demand of us.” To that end, when pandemic e-commerce soared, Shopify went into action.

“Before the pandemic, e-commerce growth had been steady and predictable,” he wrote. “Was this surge to be a temporary effect or a new normal? And so, given what we saw, we placed another bet: We bet that the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by 5 or even 10 years. We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match.”

Lutke said Shopify will offer affected employees 16 weeks of severance pay plus an additional week for every year of tenure at the company. It is also removing any equity cliff on options and extending medical benefits, he added.

E-commerce sales in Q1 were $231.4 billion on a net adjusted basis, down 17.8 % from Q4 2021, according to the U.S. Census Bureau.

“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 5-year leap ahead,” Lutke wrote.

Shopify said most of the impacted roles would be in recruiting, support, sales, and overspecialized and duplicate roles.

In a Feb. 16 investor call announcing its 2021 results, Shopify said it expected growth to slow, citing market conditions and the lack of government stimulus to fuel spending. But the company remained upbeat about the year ahead.

“Our outlook for 2022 assumes continued secular tailwinds for entrepreneurship and digital commerce transformation against a more measured macro environment relative to 2021,” the company said in a release announcing its Q4 2021 and full-year economic results. “While we believe that the COVID-triggered acceleration of e-commerce that spilled into the first half of 2021 in the form of lockdowns and government stimulus will be absent from 2022, and there is caution around inflation and consumer spend near term, for the full year we see economic growth supporting the continued penetration of retail by e-commerce.

“We believe that changed behaviors adopted by merchants and consumers in 2020 and 2021 driven by COVID have significantly expanded the prospects for entrepreneurship and digital commerce,” the company added. “And these past two years have been transformational to Shopify, with our GMV, revenue and employee base doubling since the end of 2019 and with nearly twice the number of merchants leveraging Shopify to launch and scale their businesses. This momentum sets us up to expand our ambitions on behalf of merchants into 2022 as the world continues to find normalcy living with and moving beyond COVID.”

But, inflation running in the high single digits, aggressive rate hikes by the Federal Reserve and an overall slowing economy amid fears of recession have dampened consumer enthusiasm. The result is an e-commerce sector that is still growing but nowhere nearly as fast as it was even a year ago.

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Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and fleetowner.com. Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at bstraight@freightwaves.com.