Online shopping

Shopify shares plunge as the online shopping giant cuts its workforce by 10%

This big pandemic bump for online shopping? It seems like it wasn’t permanent after all.

Ottawa-based online shopping giant Shopify announced on Tuesday that it was laying off 10% of its workforce, with CEO Tobias Lutke admitting the company had bet too much on the COVID-19 pandemic crisis in commerce electronic.

“We’re betting the channel mix — the share of dollars flowing through e-commerce rather than brick-and-mortar retail — would jump five or even 10 years permanently,” Lutke said in a note on the company’s website.

“It is now clear that the bet did not pay off. What we’re seeing now is that the mix is ​​back to roughly where pre-COVID data would have suggested it should be at this point. …In the end, placing that bet was my call to make and I was wrong. Now we have to adapt. »

This move will eliminate approximately 1,000 jobs out of about 10,000 total employees at Shopify. Most of the roles involved are in recruiting, support, and sales. Terminated employees will receive 16 weeks of pay, plus an additional week for each year with Shopify.

On the Toronto Stock Exchange after the layoffs were announced, Shopify shares plunged and at one point were down more than 17%. By the closing bell, they had recovered a bit, but were still down $6.42 at $40.69, down 13.63% on the day.

It’s been a disastrous year for Shopify shares, which started 2022 at $155.22. Shopify reports its second quarter results on Wednesday. Analysts expect revenue of $1.33 billion for the period ending June 30, up just 11% from the first quarter.

Dan Romanoff, equity research analyst at Morningstar, says the cuts are the right move for Shopify, although the magnitude was a bit surprising.

“A 10% reduction is very significant,” Romanoff said.

Shopify is far from the only company making overly optimistic assumptions about online sales, Romanoff said.

“People are definitely going back to stores a bit. It hurts Amazon, it hurts Shopify. … And now that the surge of COVID has subsided, everyone is kind of struggling to find the new normal,” Romanoff said.

A plummeting North American economy also means all retailers are swimming upstream right now, Romanoff added, pointing to a profit warning from Walmart on Monday.

Veteran retail analyst Lisa Hutcheson said Shopify’s biggest mistake was underestimating the enduring appeal of the in-person shopping experience.

“Shopify really bet on the e-commerce part and didn’t think about retail holistically. People are back to brick and mortar, and Shopify is in no position to play,” said Hutcheson, managing director of retail consultancy JC Williams Group. “In the apparel business, they’ve seen crazy growth because they were down the drain at the start of COVID. These are people who are back in the stores and really having fun shopping.

While Shopify offers point-of-sale software for brick-and-mortar retailers as part of its “enterprise solution,” Hutcheson said it’s not particularly good.

Instead, the company seemed almost solely focused on e-commerce, particularly trying to cash in on the online sales boom triggered by the global pandemic.

“I think you get caught up in the moment and think ‘this is great, and I better capitalize on that trend,’ because you don’t want to lose this opportunity,” Hutcheson said.

The company has stepped up hiring during the pandemic as brick-and-mortar retailers whose stores were suddenly closed by repeated closings rushed to log on. Many new hires — and much of Shopify’s existing workforce — Hutcheson argued, lacked the benefit of a longer-term perspective.

“Although they are innovative and creative, they are still not strategic and they have not understood that it is not sustainable. The trajectory they went on just wasn’t something that was sustainable,” Hutcheson said.

In May 2021, e-commerce sales accounted for 7.4% of all retail sales in Canada, according to Statistics Canada data. A year later, that share had fallen to 4.9%, Hutcheson pointed out.

“That’s a huge indicator right there,” Hutcheson said.

Still, she added, it’s not like e-commerce is going away.

“Now it’s just back to realistic numbers. People want to be able to shop how they want, when they want, where they want,” Hutcheson said.

With Star wires files