In what has become an unsettling trend for businesses over the past few months, e-commerce player Shopify has decided to lay off around 10% of its global workforce. Most of the 1000 employees that are being laid off span across recruiting, sales, and support roles, although all of the company’s divisions will be affected, Shopify CEO Tobi Lütke informed in an internal memo.
“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,” the founder and CEO wrote in the memo. The affected employees were notified on Tuesday, and they will be granted 16 weeks of severance pay, along with an extra week for every year they have been with the company.
This development (which has become quite common this year) comes barely 24 hours before Shopify reveals its performance in the second-quarter of the year in its Q2 2022 results. Unsurprisingly, the market did not react well to the news, and shares of Spotify took a hit as they tumbled by more than 16% once the development was made public. They are currently placed at $30.81, a steep fall from its peak in November 2021.
It seems that the economic downturn and tough market conditions are not the major factors behind Shopify’s decision, and surprisingly, the Canadian firm has itself to blame.
The pandemic saw this dramatic shift to online shopping and e-commerce, which Shopify took full advantage of and grew aggressively over 2020 and 2021. This saw it become the most valued company in Canada in 2020 as its valuation reached great heights.
A prime example of the same is the size of its global workforce at the end of 2021 – about 10,000, which is twice the amount Shopify had before the pandemic. However, since then, the easing of lockdowns and renewed interest in offline shopping has proved to be detrimental for firms like Shopify, which had bet big on pandemic trends such as online shopping lasting for a longer period of time. With people being able to shop physically once again, Shopify discovered that it had bitten off more than it could chew, and it cannot juggle so many at once.
Lütke acknowledged the same, saying, “It’s now clear that our bet didn’t pay off. Ultimately, placing this bet was my call to make and I got this wrong.” He added, “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.”
