Shopify Inc. SHOP-T has made a flurry of strategic changes to kick off the new year, as the e-commerce company strives to exit a slump that sharply diminished its stock price and led to a slashing of its global work force.
The sweeping initiatives affect external and internal operations at Ottawa-based Shopify, which provides businesses in more than 170 countries with tools to set up online stores and retail point-of-sale systems. The raft of changes signals an urgency and illustrates wider problems plaguing the technology sector, as an era of risk-taking gives way to sobering up amid crumbling profitability and cratering stock market valuations.
Tech companies are under pressure to tighten their operations on all fronts. Rising interest rates and inflation have created macroeconomic challenges, forcing many companies – big and small – to slow their hiring and get leaner. Shopify saw its stock price drop by more than two-thirds last year, and is entering 2023 with fewer employees after laying off more than 10 per cent of its workers last fall.
Over just a matter of days, Shopify launched a new look for its website; announced a notable subscription product aimed at big retailers, called Commerce Components; and bolstered a tool dubbed Audiences that will allow those businesses to pool customer data and better target advertisements.
This week, employees returned after winter break to find smaller teams with tighter roles, and new rules in place. The internal changes include indefinitely barring any meetings of three or more people, according to Shopify memos and e-mails obtained by The Globe and Mail. Shopify is also reducing its use of Slack, an instant messaging program that has long been the company’s preferred method of internal communication.
The company now forbids all meetings from being scheduled on Wednesdays, the memos say. Thursdays will be the only day staff will be allowed to hold big meetings or events. But these rules only apply to “Shopifolk,” meaning Shopify staff can still set up work-related meetings with people who are not employed by the company.
Shopify plans to move its communications to Workplace by Meta Platforms Inc. instead of Slack, memos show. According to five mid-level employees at Shopify, who The Globe is not identifying because they are not authorized to discuss the matter publicly, staff found a majority of Slack channels were deleted when they returned to work this week. These changes have caused dissatisfaction among a number of employees, several said, who used the Slack channels for not only task-related conversations, but also friendly work banter.
But in an e-mail, Kaz Nejatian, who was recently promoted to become Shopify’s chief operating officer after serving as its vice-president of product, described Slack as “bloated, noisy and distracting.”
“We have endless channel updates mixed with broad announcements and pineapple on pizza debates,” Mr. Nejatian said in an e-mail to staff this week. He added that if the new changes “feel chaotic” for Shopify employees, it “is kind of the point.”
In another recent e-mail, chief executive and Shopify founder Tobias Lutke said, reiterating what he told The Globe almost a decade ago when he was named CEO of the year: “What I’m trying to create is an environment where almost everyone around me feels uncomfortable all the time, because I’m dragging them into the next box.”
The new products launched this week would typically have been spread out as individual announcements. But Shopify chose to announce them altogether, which Tom Forte, managing director and senior research analyst for investment firm D.A. Davidson, described “as an attempt to be pro-active, consistent with its long history.” Audiences, for example, positions Shopify directly against rival Amazon.com Inc.’s expanding advertising business and takes advantage of a potentially lucrative lull after a pullback by Apple Inc. over customer privacy concerns.
“Shopify had plenty of announcements last year as well, but the stock’s decline overshadowed pretty much everything else,” said Dan Romanoff, a Chicago-based senior analyst of e-commerce and software companies at Morningstar Inc., who believes a common theme this year is a renewed “focus on productivity.”
“I don’t think Shopify is doing this for shareholders, I think they always focus on the product. Yes, shareholders likely pressured them last year about profitability, hence the head count reduction, but as a rapidly growing software company, I think you always want to stay as nimble as possible.”
In 2021, Apple began to require mobile developers to obtain consent before collecting so-called “third-party data,” which track users between apps or websites so they can be shown targeted ads based on their online behaviour. The iPhone and iPad creator expanded this past year by introducing even more privacy features on its devices, and that’s made online advertising and marketing much more difficult.
But Amazon has been able to continue its ad business nevertheless. That’s because it is considered “first-party data,” as Amazon only uses customer information collected from its own platform for ads instead of tracking widely.
Shopify’s Audiences is designed to avoid those Apple guidelines by passing customer information on to other platforms, such as Instagram, Facebook or Google. It uses Shopify’s previous arrangements with those online platforms, allowing the Canadian company to compete directly with leading e-commerce giant Amazon.
“As reflected by the news of Amazon increasing the number of employees it intends to lay off, companies, including Shopify, are trying to gauge the current level of demand for e-commerce and adjust their go-to-market strategy, as needed,” Mr. Forte said.
Two senior sources at Shopify told The Globe that employees are now expected to routinely prove that they are intrinsic to the company’s mission to drive growth in e-commerce and make it the go-to platform for merchants and creators.
Broadly speaking, “these changes will help focus our time and attention,” a Shopify memo sent to staff this week reads. “It’ll help Shopify the company keep pace alongside Shopify the product.”
Together, the internal and external changes show there is renewed sense of meritocracy at Shopify, reminiscent of the company’s early years, before its boom during the COVID-19 pandemic, when its stock soared, then peaked and sank.
But Rick Watson, CEO of RMW Commerce Consulting LLC, a New York-based strategic e-commerce consultancy, said he’s skeptical about whether these changes will work. “They seem to do this every few years,” Mr. Watson said, adding that it’s only fitting for Shopify to come out of a period of hyper-growth and recalibrate its priorities.
“You see this in more extreme cases in Elon Musk’s Twitter changes. Shopify is a much milder version of this, with better PR, and perhaps more thoughtfully done,” he said. “Elon had to be in a hurry; Tobi has more time.”
Shopify declined interview requests from The Globe, citing a quiet period, which is customary before releasing financial statements. The company is expected to post its fourth-quarter 2022 earnings next month.