Shopify Inc., based in Ottawa, announced on Thursday that it would lay off 20% of its workforce, the second significant round of layoffs at the e-commerce company in less than a year.
“This means that some of you will leave Shopify today,” CEO Tobi Lutke wrote in a memo to employees. I am aware of the devastating impact this decision will have on some of you, and I did not make it carelessly.
The status of affected employees has already been communicated to them via email. Everyone will receive a minimum of 16 weeks of severance pay, plus an additional week for each year of service.
A portion of the layoffs result from Shopify’s transfer of its logistics division to Silicon Valley-based Flexport.
Only a year ago, Shopify bolstered its logistics division by purchasing delivery company Deliverr for more than $2 billion. In exchange for a 13 percent stake in the company, the company has decided to go in a new direction, transferring its complete logistics division to Flexport.
Flexport’s primary objective is to make global supply chains more efficient and software-addressable, so Shopify is the ideal home for this component.
According to regulatory filings, Shopify had 11,600 employees at the end of its last fiscal year, so the 20% reduction announced on Thursday affects more than 2,300 individuals. The company estimates that the reductions will incur approximately $150 million US in severance costs.
In addition, it will record a $1.5 billion impairment charge related to the disposal of the logistics business. That is less than the $2.1 billion it initially spent to acquire Deliverr.
Reduced managerial responsibilities
The company appears to be targeting managerial positions rather than software developers, as Lutke stated in his note to employees that there were too many managers.
“It is difficult to strike a balance between the quantity of makers and managers. Too few risks misalignment on the most important tasks, while too many adds burdensome layers of process, approvals, meetings, and… side missions. “Our numbers were unhealthy, just as they are in the majority of the technology sector,” he said.
It is the second significant round of layoffs at the company in less than a year, as the company announced last summer, after aggressively expanding during the pandemic, that it would lay off 10% of its staff due to a slowdown in sales growth on its e-commerce platform.
James Bowen, a management professor at the University of Ottawa, asserts that while the company is thriving, it is not immune to the forces affecting the entire technology industry.
In an interview with CBC News, he stated, “There have been many layoffs in the tech industry over the past year or two as the industry reorients itself from some of the growth projections we saw in the early days of the pandemic.”
The company declared the layoffs at the same time it reported quarterly results that exceeded expectations with a 25% increase in revenue. At the opening of the stock market, the company’s shares were up by 25%.
An analyst at Bloomberg Intelligence, Anurag Rana, deems the decision to reduce staff to be the correct one.
“This strategy shift, while painful in the short-term due to writedowns and layoffs, will increase the company’s focus on selling more products through its platform,” he explained.
