Popular Ottawa-based ecommerce company Shopify announced in a staff memo yesterday that it is laying off 20 per cent of its workforce and selling its logistics division to California-based supply chain management company, Flexport.
Affected employees were notified right after the announcement, and have received a severance package that Shopify says, “will attempt to make it the best possible version of a bad day.”
That includes a minimum of 16 weeks severance, medical benefits, access to Shopify’s employee assistance program, and optional outplacement services. Laid off employees also get to keep their Shopify-provided office furniture, and will receive assistance in replacing their company-provided laptops, which must be returned for legal reasons.
This is the second round of cuts by the company in under a year, as the company announced last summer that it would lay off 10 per cent of its staff amid slowing sales growth.
Some of the cuts this time were due to the sale of Shopify’s logistics business to Flexport.
The company’s logistics unit seemed to be going strong, as it even acquired delivery firm Deliverr for more than US$2 billion last summer.
But CEO Tobias Lütke, announcing the divestiture, referred to the logistics division as “a side quest” that Shopify built from 0 to 1, but which now, he says, needs to be taken from 1 to N, as “the main quest”.
As part of the deal, Shopify will receive stock representing a 13 per cent equity interest in Flexport.
Lütke also suggested that the company’s “unhealthy” number of managers might have accounted for some cuts. “The balance of crafter to manager numbers is a tricky one to strike. Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and… side quests.” This, he added, led to the company celebrating activities rather than “crafter driven outcomes.”
The cuts, Lütke explained, are also due to the need to adapt to a new paradigm, especially during economic uncertainty, characterized by “speed, agility, and a great deal of innovation.”
He also stressed the need for simplicity on the platform and the company’s increased focus on AI and its “unprecedented capabilities”.
Based on the company’s most recent regulatory filings, Shopify had 11,600 employees, so a 20 per cent cut would affect about 2,300 employees.
Shopify noted in its earnings report that it would incur about US$150 million in severance costs. However, its quarterly revenue was US$1.5 billion, representing a 25 per cent increase over the same period last year.
The news of the cuts and the strong earnings seemed to have heartened investors, as the company’s stock price surged by 25 per cent yesterday.