Ottawa-based e-commerce company Shopify Inc. is laying off roughly 1,000 people as explosive growth in the company’s online selling business model slows.
“For a company like ours this news will be difficult to digest,” founder and CEO Tobi Lütke said in an email to staff that was later published on the company’s website.
According to regulatory filings, the company had about 10,000 employees at the end of 2021, twice the amount they had before the pandemic. The cuts amount to 10 per cent of the company’s workforce.
Affected staff are being notified on Tuesday. Most of the lay offs will be in recruiting, support and sales, the company says.
Anyone affected will get 16 weeks of severance pay, plus an extra week for every year they’ve been with the company. And the company will remove limitations on any stock options they may be entitled to.
Hiring spree grinds to a halt
Josh Waldman was among those let go. A content designer based in Washington D.C., Waldman had only been working for Shopify for two months when he was informed this morning that he was among those being laid off.
“There had been some rumblings of maybe some weirdness on message boards for the past week or so [but I] didn’t think much of it,” he told CBC News in an interview.
He found out about the news when he received the email mentioned above from Lütke, followed by one from the company’s chief operating officer informing him of his fate.
While he enjoyed his time at the company, he says he’s angry about what he calls the “poor planning” that lead to the hiring spree in the first place.
Like many digital-focused companies, Shopify saw demand for its services explode during the pandemic, as lockdowns forced consumers and businesses to adapt quickly to buying and selling online.
That prompted Shopify to expand aggressively, hiring staff to keep up with the mass of new customers.
“I think they made a lot of decisions really naively based off of growth during COVID [but] operating as if that would be a permanent increase in e-commerce and online shopping revenue was an error, a really big error,” Waldman said.
The company seemingly acknowledges that in the letter from the CEO, in which Lütke says demand for online shopping is growing but no longer at the frenzied pace seen in 2020. All in all, he said, e-commerce is about where it would have been had the pandemic surge not happened.
But Shopify had boosted its staffing levels on the assumption that the explosive growth would continue.
“We bet that the … share of dollars that travel through e-commerce rather than physical retail would permanently leap ahead,” Lütke said. “It’s now clear that bet didn’t pay off.”
Hiring too quickly may have been a bad bet for Shopify, but for many businesses that used the company to boost their e-commerce presence during the pandemic, the gamble worked.
Sam Care doesn’t mince words when it comes to the impact that Shopify had on her Toronto-based toy store.
“Going online saved my business,” Care told CBC News in an interview.
Like many retailers, she spent much of 2020 with zero sales due to closed stores, but by the fall of that year she had taken the online plunge and worked with Shopify to save her business.
Care now uses the company’s technology to process sales online and in her store, and says she isn’t the only one. “Everyone I know who has a retail business started with Shopify in the last two years,” she said
Shopify’s business boomed along with Care’s — and the price of the company’s stock did, too.
The boom was so massive that at one point in mid-2020, Shopify became the most valuable company in Canada, topping the Royal Bank of Canada, with a valuation of almost $300 billion.
David Baskin, head of Toronto-based money manager Baskin Wealth Management, said the company hit those lofty highs based on the assumption that exponential growth was here to stay.
“People extrapolated their very rapid growth into the future and said, look, if they’re doing $2 billion a year now and they’re growing it 300 per cent a year, they’ll be doing $8 billion and then $40 billion and then $100 billion,” he said in an interview.
WATCH | Money manager says Shopify woes reminiscent of another tech sell-off:
Shopify’s sell-off a reminder of tech bubble
David Baskin says the plunge in Shopify’s stock price draws uncomfortable parallels to another former Canadian technology darling: Nortel
“The next thing you know, they’re going to rival Amazon. That’s sometimes what happens with these smaller companies is people just crank up their spreadsheets.”
Maintaining that momentum indeed proved difficult, as the growth showed signs of slowdown toward the end of 2021. Today, the company is worth about $50 billion. Shares in the company fell about 15 per cent when the TSX opened on Tuesday.
Shopify isn’t the only tech company to feel the pinch of a slowdown. U.S. giants like Netflix, Google, Apple, Microsoft and Paypal all saw their prospects dim as the spectre of inflation took a bite out of consumer spending.
The company is slated to reveal its quarterly results Wednesday morning, and financial analysts who cover the company have been scrambling to downgrade their expectations. But regardless of what the numbers show, Baskin says the sell-off in the shares Tuesday tells people everything they need to know.
“I’m not really even sure that their numbers tomorrow are going to matter. What really matters is the growth going forward, and the fact that they’re shedding 10 per cent of their workforce tells you that they don’t see great things ahead.”