Shopify is laying off approximately 20 percent of its employees and leaving its logistics ambitions behind as the e-commerce giant embarks on a massive overhaul—selling off its Deliverr e-commerce fulfillment technology business to digital freight forwarder Flexport and divesting its 6 River Systems warehousing robotics unit to online grocery fulfillment company Ocado.
The Toronto-based company, which enables merchants to build online storefronts, didn’t detail how many employees would be laid off, but the company had approximately 11,600 employees and contractors worldwide as of Dec. 31, 2022. The news comes 10 months after the company reduced its workforce by 10 percent.
The sales of Deliverr and 6 River Systems would represent an immense about-face for the business, which had built up its own warehousing and delivery network in an effort to compete with Amazon. But it appears Shopify is shifting more of its go-ahead focus to the front-end e-commerce operations that put it front and center in the world of digital retail.
In a publicly posted letter to employees, Shopify CEO and co-founder Tobi Lütke referred to the company’s logistics ambitions as “side quests,” saying they “are always distracting because the company has to split focus. Sometimes this can be worth it, especially when engaging the side quest creates the conditions by which the main quest can become more successful.”
These “side quests” have come at a steep cost. Shopify acquired Deliverr for $2.1 billion in May last year to build out its Shopify Fulfillment Network (SFN). Two years prior, it purchased 6 River Systems for $450 million to automate warehouse picking, packing, sorting and inventory replenishment.
“For the past year we’ve been subtracting everything that’s in the way of making the best possible product,” said Lütke. “This is extremely important, because we are heading into a decade of high velocity and massive change. We will require speed, agility, and a great deal of innovation.”
In exchange for its fulfillment assets, Shopify will receive a 13 percent equity stake in Flexport and a seat on its board.
Prior to the Deliverr divestment, which is expected to close in the second quarter, the Shopify Fulfillment Network aimed to help prepare and route inventory for distribution across multiple channels, including forward-positioning inventory to optimal warehouses based on predicted merchant demand. But with the sale, Flexport will now take charge of these roles.
In integrating Deliverr and leveraging a network of Shopify-operated warehouse hubs and largely third-party owned and operated warehouse spokes, Shopify built its logistics offering to help fulfill merchants’ orders to their buyers quickly and cost effectively. The network was fortified by Shopify’s deep machine learning tools, including demand forecasting, predictive inventory allocation across warehouses and intelligent order routing.
Shopify still will maintain ownership of the SFN app, which allows sellers on the platform to track shipments.
For Flexport, which laid off 20 percent of its own workforce to kick off 2023, the Shopify integration is designed to make it easier for the freight forwarder’s businesses to plan, visualize and execute the movement of goods from manufacturer to the customer’s store or door unified under one technology platform.
“This acquisition enables our vision for a full digital transformation of the global supply chain that we will bring to all customers. This democratization and pooling of scale will level the playing field for cost and speed of delivery for all businesses, not just the largest corporations in the world,” said Dave Clark, CEO of Flexport, in a statement. “The end-to-end supply chain industry has not undergone the technological breakthroughs and data platforming we have seen in other sectors. Flexport is changing that. After the past several years of public discourse focusing on what’s wrong with the supply chain, it’s exciting to look ahead to how Flexport can bring solutions and make the global supply chain better for everyone.”
Flexport will also become the exclusive official logistics partner of Shopify, and will provide Shop Promise for millions of Shopify merchants. Shop Promise is a verified badge merchants can apply that signifies that a product will be reliably delivered in five calendar days or less, including two-day and next-day delivery options.
Shopify and Flexport entered into the agreement on Wednesday. The transition of Shopify’s logistics assets to Flexport will be led by Harish Abbott, co-founder and CEO of Deliverr, under the guidance of Clark.
According to Lütke, logistics was “clearly a worthwhile” side quest for Shopify, in that it helped the company create conditions for its “main quest” to succeed due to partnerships across warehouses, robotics, transportation, crossdock and freight.
“We iteratively built a solution, step by step, through software, leases and M&A deals, that could be an independent company one day,” said the co-founder. “Shopify was the perfect place to bootstrap this effort from 0 to 1 and we have done this. The next step is to take what we have and take it from 1 to N as a main quest.”
Lütke said that Shopify’s main quest is to make commerce simpler, easier and more democratized, alluding in his post that the company will prioritize artificial intelligence (AI)-driven offerings. In February, the company introduced Shopify Magic, a tool designed to generate automated product descriptions for e-commerce sellers on the platform.
“Now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented,” Lütke said. “Shopify has the privilege of being amongst the companies with the best chances of using AI to help our customers.”
Shopify and Flexport already have a working relationship, with the companies teaming up in 2022 to help merchants more easily and cost-effectively inbound freight to the U.S. Shopify also invested in Flexport’s $935 million Series E funding round last year.
Earlier this year, Flexport launched the Flexport App on Shopify, a one-stop solution for small-and-medium-sized businesses (SMBs) to book ocean freight and track shipments to the U.S. Through the Flexport App, Shopify merchants can now quote, book, track and ship products to the U.S., with additional port coverage coming later in 2023.
As for the sale of the 6 River Systems business, terms of that deal remain undisclosed. 6 River offers an autonomous mobile robot (AMR) called “Chuck” that provides automated assistance to pickers in a warehouse, working collaboratively with human operators. Chuck robots are currently deployed in over 100 warehouses worldwide, with more than 70 customers, said James Matthews, CEO of Ocado technology, in a statement.
The layoffs and logistics sale overshadowed Shopify’s first quarter earnings, which saw total revenue increase 25 percent to $1.5 billion compared to the prior year, and rise 27 percent on a constant-currency basis.
The e-commerce giant also reported net income of $68 million on diluted earnings per share (EPS) of 5 cents, a massive improvement over the $1.5 billion net loss the company incurred in the year-ago quarter. Both earnings and revenue beat Wall Street analysts’ estimates.
In Thursday morning trading, investors reacted to the news by sending Shopify’s stock soaring more than 25 percent.
For the second quarter, Shopify expects revenue to grow at a similar rate to the first quarter on a year-over-year basis. It expects to achieve free cash flow profitability for each quarter of 2023.
Laid off employees will receive a minimum of 16 weeks’ severance plus a week for every year of tenure at Shopify. Medical benefits and access to to Shopify’s employee assistance program (EAP) will be covered through the same period.