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Shopify Layoffs: E-Comm Growth Gamble ‘Didn’t Pay Off’

Shopify’s bet on the pandemic permanently accelerating e-commerce proved to be the wrong one as the company announced layoffs Tuesday to adjust to a broader snap back to pre-Covid levels in online shopping’s growth.

Shopify CEO and founder Tobi Lütke informed employees of the changes in a letter sent Tuesday.

The cuts amount to 10 percent of the company’s overall headcount and were made in departments such as recruiting, support and sales, along with the removal of redundant positions.

Shopify, which helps merchants set up their e-commerce businesses, grew like many companies during the pandemic in response to the surge in online shopping habits and hired in parallel with that shift on the basis that those changes would be more than a passing fad.

“It’s now clear that bet didn’t pay off,” Lütke said in his letter to employees. “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. Our market share in e-commerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust.”

Lütke said employees impacted by the layoffs will receive a minimum of 16 weeks of severance, along with healthcare benefits.

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Shopify counted more than 10,000 employees and contractors globally at the end of last year, according to its filing with the Securities & Exchange Commission. That’s up about 43 percent from the company’s 2020 headcount of more than 7,000.

Shopify also owns fulfillment tech company Deliverr Inc., which it paid $2.1 billion for in a cash and stock deal announced in May.

Digital habits clearly changed during the height of the pandemic with shelter-in-place orders pushing consumers toward streaming services, Zoom calls, more online media consumption and, of course, e-commerce for everything from groceries and consumer packaged goods to meal delivery.

“Before the pandemic e-commerce growth had been steady and predictable,” Lütke said. “Was this surge to be a temporary effect or a new normal? And, so given what we saw, we placed another bet: We bet that the channel mix—the share of dollars that travel through e-commerce rather than physical retail—would permanently leap ahead by five or even 10 years. We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match.”

Behaviors changed once again amid loosening restrictions for going out and travel and companies responded with adjustments to their business strategies. That’s been particularly the case within the tech sector.

Netflix felt the sting of subscribership fall and said last month it would lay off 300. That followed a cut of 150 workers in May. Twitter, earlier this month, cut about 30 percent of its recruiting team.

Other companies have begun exercising caution in hiring. Google said this month it would slow its rate of hiring. Meta also said it would freeze hiring in certain departments, while online home goods marketplace Wayfair put in place a 90-day pause on hiring beginning in May.

Shopify ended last year with revenue of $4.6 billion, up 57 percent from the prior year. The company’s net income grew to $2.9 billion in 2021, compared to $319.5 million in the prior year.

Shares of Shopify were trading down about 15 percent Tuesday to $31.22 and a recent market cap of $40.4 billion.