On July 26th 2022, Shopify CEO Tobi Lutke announced that the e-fulfilment company is laying off roughly 1,000 workers, around 10% of its global workforce. Following this announcement, Shopify shares fell 14%.
According to Lutke, these layoffs were a result of Shopify miscalculating how long the pandemic boost on e-commerce would last. Lutke believed that the channel mix (the share of dollars that travel through e-commerce rather than physical retail) would “permanently leap ahead by 5 or even 10 years,” which led to the company more than doubling its employee base since the end of 2019. Whilst Shopify stated that it believes e-commerce is still growing, growth is now aligned with pre-covid market expectations.
Layoffs were followed by disappointing second quarter financial results. The company reported a loss of three cents per share. Many analysts expected a three cents gain. The operating loss for the second quarter of 2022 was $190.2m, or 15% of revenue, versus income of $139.4m, or 12% of revenue, for the comparable period a year ago. Revenue for the second quarter was close to expectations, coming in at $1.3bn versus an expected $1.33bn. Shopify’s stock is down 74% in 2022.
Shopify isn’t the only major e-commerce company to see recent layoffs. On July 29th 2022, Amazon announced it is reducing its workforce by nearly 100,000 people, accounting for roughly 6% of its workforce. In its Q2 2022 press release, Amazon finished the quarter with 1,523,000 full-time and part-time employees, down from 1,622,000 at the end of March 2022. Chief Financial Officer Brian Olsasvky explains this reduction in staff is due to an intense hiring process in preparation for the Omicron variant of COVID, which Olsasvky states was more than Amazon otherwise would have. From the end of 2019, just before the pandemic, through to the March 2022 peak, Amazon roughly doubled its head count, adding about 800,000 jobs. Whilst this recent reduction is significant, its total employees is still up 14% from a year ago.
Some SMEs operating in the e-commerce market have also reported upcoming staff redundancies. Clearco, a Toronto-based fintech capital provider has been built around helping e-commerce businesses land non-dilutive capital, sales, and deals. On July 29th 2022 it announced that it had laid off 125 people, accounting for 25% of its entire staff. Clearco CEO Michele Romanow stated that the company expected e-commerce growth to stay consistent with pandemic levels and grew its headcount too quickly as a result, echoing statements released by Shopify and amazon.
Although slowing e-commerce numbers shouldn’t be over-emphasised, these layoffs are indicative that the market is stabilising more rapidly than industry heads had expected. As inflation gears up and customers rain in their spending, it is perhaps likely that the sector might continue to witness widespread layoffs.
Source: Transport Intelligence, August 2, 2022
Author: Michael Sinclair