Shopify to lay off 20% of global work force, sell logistics operations

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Shopify Inc. SHOP-T is slashing nearly 20 per cent of its entire work force and selling off its delivery and warehousing operations, as the Ottawa-based company strives to recapture momentum in its core e-commerce business.

It’s a sharp retreat on several levels for what was once Canada’s most valuable company. Shopify spent billions of dollars building up its freight and logistics capabilities. Last year, it bought San Francisco startup Deliverr Inc. for US$2.1-billion, its largest acquisition to date.

Those expansions, all of which are now being sold to Silicon Valley-based Flexport Inc. for an equity interest, were part of Shopify’s broader push to compete against Seattle-based tech giant Amazon.com Inc.

Investors applauded Shopify’s moves Thursday, sending the stock soaring as it also reported results. National Bank of Canada analyst Richard Tse said the changes will make the company “a lot more nimble once again.” Shares of the company closed at $77.65, up by more than 23 per cent on the Toronto Stock Exchange.

But Shopify emphasized earlier this year that it would not be making any cuts beyond its 10-per-cent layoffs in July, 2022. Chief executive officer Tobias Lutke at the time apologized for the cuts because he miscalculated how far e-commerce would grow based on trends from earlier in the pandemic. “There’s no cuts coming for us,” Shopify president Harley Finkelstein said in February.

On Thursday, however, ahead of its first quarterly earnings report for 2023, Shopify told staffers about the new job cuts in a memo from Mr. Lutke, fears of which had been circling internally among employees for weeks in advance.

Jobs across all geographies and in most departments of the company will be affected by the cuts, Shopify executives said. Employees laid off were told they would be receiving 16 weeks of severance pay and an extra week for every year they’ve been with Shopify. They were also to receive an extension of their medical benefits, an allowance for purchases and outplacement services. And they can keep home-office furniture provided by Shopify.

The company says it’s unsure what the rest of the year will look like. Chief financial officer Jeff Hoffmeister told investors in a conference call on Thursday to stand by until the impact of Shopify’s jobs reduction and the sale of its fulfilment network is able to fully play out.

Mr. Lutke did not attend that call to answer questions from analysts, with the company stating that he “insisted on focusing his time and attention on our team.”

In his memo, Mr. Lutke described the past few days as “a consequential and hard week” for Shopify. He characterized both news items on Thursday as a return to the company’s main mission, upon which it was founded as a startup nearly two decades ago. He referred to the expansion of its logistics operations as a “side quest” and the job cuts as recalibration toward Shopify’s core offerings.

“As a small startup, companies are intensely focused. It’s often said that larger companies are more sluggish but this is not because of their size, it’s because of all the side quests and distractions they accumulate along the way,” he said.

“This happens because larger companies can afford to be somewhat inefficient, especially during stable economic boom times. But once they need to adapt to some new paradigm, they can’t. They will get replaced by more focused competitors, or collapse outright.”

Mr. Lutke said Shopify had been “subtracting everything that’s in the way of making the best possible product” as of late. “This is extremely important, because we are heading into a decade of high velocity and massive change,” he said, mentioning the rapid advances in artificial intelligence, which Shopify is slowly making more investments toward.

Last year, Shopify shares plummeted as e-commerce growth slowed and some consumers began to cut back on discretionary spending, with people increasingly turning away from online shopping habits. This led to many challenges, as Shopify navigated a downturn that continues to affect the technology sector.

Thursday’s financial results from Shopify showed that the company is still struggling on the bottom line.

Shopify reported an operating loss of US$193-million, or a loss of US$31-million on an adjusted basis, compared with an operating loss of US$98-million or operating income of US$32-million on an adjusted basis, a year earlier. Revenue climbed 25 per cent to US$1.5-billion. Including other income of US$269-million, Shopify reported net income of US$68-million or 5 cents a share.

Shopify said it will record a charge in the second quarter for the job severances in the range of US$140-million to US$150-million.

Shopify’s market value and headcount have swung wildly in recent years. The company hired furiously during the pandemic, as e-commerce took off. It grew from about 5,000 employees and contractors in 2019 to roughly 7,000 in 2020 and around 10,000 as of Dec. 31, 2021. Despite its round of cuts in mid-2022, the company reported that it had more than 11,600 employees as of the end of that year.

The company would not say exactly how many people will be affected by Thursday’s headcount reduction. But two sources familiar with the situation said it represents roughly 2,000 people. That brings the company’s current staff to around 9,000 people, one of the sources added. The Globe and Mail is not identifying the sources because they were not authorized to speak publicly about the matter.

The price of Shopify’s stock quadrupled early in the pandemic before collapsing last year.

Shopify’s market value hit more than $200-billion by late 2021 before going into freefall last year. It now stands at around $100-billion.

With a report from The Canadian Press