Shopify announced Tuesday that it was laying off 10% of its workforce because the company miscalculated the growth of e-commerce.
Posted at 10:20 am
Updated at 5:44 pm
The Ottawa-based company’s CEO, Tobi Lütke, said in a blog post that most of the employees affected by the decision work in recruiting, support and sales.
Shopify will also remove “over-specialization” and “duplicate” positions, as well as certain groups that Lütke said were “handy, but too far removed from product realization.”
Shopify did not specify the total number of workers affected by the cuts, but the latest management information circular said the company had 10,000 employees and contractors at the end of 2021, including 3,000 added last year alone. Ten percent of this total would encompass 1,000 workers.
According to Lütke, the company must make the layoffs because the COVID-19 pandemic has led to an increase in demand for Shopify’s software, while consumers have begun to shop more online.
Shopify bet that the number of purchases consumers would make online rather than in physical stores would increase five to 10 years earlier than its pre-pandemic predictions.
“We couldn’t be sure at the time, but we knew that if there was any chance it was true, we had to grow the business accordingly,” Lütke explained.
“Now it is clear that this gamble did not pay off. »
Shopify recently found that consumers are returning to their pre-pandemic shopping habits, it hasn’t regressed in five years, forcing the company to make cutbacks.
“In the end, making this bet was my decision and I was wrong. Now we have to adapt,” said Lütke.
“As a result, we have to say goodbye to some of you today, and I am deeply sorry. »
Incorrect assumptions are largely to blame for Shopify’s extravagance, Neil Saunders, CEO of GlobalData, observed in a note to investors.
“Frankly, it was a huge strategic mistake fueled by an insufficient understanding of customer behavior, a lack of rigor in market analysis, and a bit of hubris,” he said.
More layoffs in the technology sector
However, Shopify is not alone in laying off workers. In recent months, Wealthsimple, Klarna, Twitter and Netflix have all laid off staff as investor exuberance around tech stocks ebbed, annual inflation hit a nearly 40-year high and rumors of a recession loomed.
Data aggregator Layoffs.fyi counted 401 global startups that have laid off a total of 57,552 employees so far this year.
Amid widespread market divestment, which has hit the tech sector particularly hard, Shopify’s stock price has fallen more than 70% from its late-2021 high of $2,228.73. Shares closed Thursday’s session at $40.69, down $6.42, or 13.6%, on the Toronto Stock Exchange. Exchange.
Those affected by the layoffs announced Tuesday will receive 16 weeks of severance pay, plus an additional week for each year of service with Shopify. The company will also eliminate the minimum period that workers must have worked before they can start receiving certain benefits.
Laid-off workers will have access to career advice, interview assistance, resume writing services, and Shopify will cover some of their internet access costs during the layoff period.
Workers will also be able to keep the home office furniture for which the company gave a subsidy at the start of the pandemic. Shopify will also provide a stipend that can be used to purchase new laptops.
But Shopify will have to do more than lay off workers, Saunders said.
“As Amazon increases its services to merchants and expands its solutions to businesses outside of its platform, Shopify needs to redouble its efforts to attract new business and retain existing customers who use its services,” he argues.
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