Shopify Inc. SHOP-T has cut 10 per cent of its staff – about 1,000 people globally – as it deals with challenges posed by the slowing growth of e-commerce and its weakening financial results amid a broad-based stock selloff pummelling the technology sector.
In a memo to staff on Tuesday, shortly before announcing second-quarter financial results on Wednesday, chief executive officer Tobias Lutke said the reduction would take place by the end of the day. Most of the jobs affected are in the sales, accounting and recruiting departments. However, across the company, Shopify will also eliminate “over-specialized and duplicate roles,” Mr. Lutke said, adding that he is assessing “some groups that were convenient to have but too far removed from building products.”
On top of that, the Ottawa-based company is considering further layoffs before the end of this year, should the tech slowdown continue to squeeze its profit margins, according to two senior officials at Shopify. Those cuts could affect up to 300 more staffers, the two sources said in separate interviews. The Globe and Mail is not identifying the sources because they were not authorized to discuss the matter publicly.
Recent estimates suggest Shopify provides tools for around two million merchants to run their stores and sell their products or services online. The company made big bets on e-commerce as growth surged during the COVID-19 pandemic.
Mr. Lutke believed the share of dollars coming from online retail as opposed to physical, in-store shopping would quickly “leap ahead by five or even 10 years,” compared with previous forecasts, he said. It’s why Shopify doubled employment since early 2020 to more than 10,000 people around the world in order to meet that expected demand.
But now, Mr. Lutke regrets those decisions. “Ultimately, placing this bet was my call to make and I got this wrong,” he told staff in his memo on Tuesday. “As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that. ... For a company like ours, this news will be difficult to digest.”
Shopify’s share price plunged 13.6 per cent on Tuesday, closing at $40.69 on the Toronto Stock Exchange. It is a far cry from the early days of the pandemic, when Shopify eclipsed Royal Bank of Canada to become the country’s most valuable company. Shopify stock hit a record high of $222.87 late last year, before the bottom fell out.
At a meeting in June, shareholders voted to give Mr. Lutke a special “founder share” that entrenches his control of the company, with 40 per cent of the total voting power. He was also voted in as the combined CEO and chairman of the board at Shopify for at least the next year. Such increased control places Mr. Lutke more firmly in the hot seat when major decisions such as Tuesday’s layoffs are announced.
Over just a few months, a whirlwind of change has occurred at Shopify, and in the tech sector at large. Many tech companies have significantly scaled back hiring plans and reduced staff in order to combat economic uncertainty stemming from inflation, rising interest rates, the war in Ukraine and a reversal of pandemic trends.
Earlier this month, Shopify told The Globe it is cancelling internships and other job offers for people who were to begin working for the company this fall. Shopify had also already laid off at least 50 people in the past two months, The Globe reported.
At a town hall in April, Shopify told employees their compensation packages would be changing by July, giving them the flexibility to decide how much of their salary is paid in stock and how much in cash. It was part of an internal strategy designed to mitigate dissatisfaction among some employees, who saw the value of their compensation decrease this year because of the company’s fallen stock.
That compensation overhaul was quietly delayed until at least September, The Globe reported this month. “This is a massive undertaking that needs to be designed with consideration and rigor,” Shopify spokesperson Alex Lyons said in a statement issued after The Globe’s reporting. “We remain excited to roll out this new program as planned when it’s fully ready in the fall.”
Now, however, even that plan is in further jeopardy, three sources told The Globe. The company is assessing whether it will move up the ambitious pay overhaul to early 2023, the sources said, adding that financial results in the remainder of 2022 will dictate whether Shopify can afford to make those changes as planned.
On Tuesday, The Globe spoke to more than a dozen staffers laid off by Shopify. Some of them felt blindsided by the cuts, but others said they saw it coming. Given the current slowdown in the tech sector, many former staffers are now worried whether they will find another well-paid job.
Employees laid off said they were told they would be receiving 16 weeks of severance pay and an extra week for every year they’ve been with Shopify. They were also to receive an extension of their medical benefits, an allowance of $1,250 for purchases and outplacement services. And they can keep home office furniture provided by Shopify.
Those benefits were not provided to staffers who were let go by Shopify before Tuesday’s company announcement. Several of them received just four weeks of severance pay and had to sign non-disclosure agreements in order to get it, according to interviews with five of those former employees.
Ahead of Shopify’s second-quarter earnings report, which will be released Wednesday, many analysts are sharply cutting their estimates for the company’s earnings, with the average consensus forecast now just a penny or two a share.
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