Affected staff being notified today.
Ottawa-based e-commerce company Shopify Inc. is laying off roughly 1,000 people as explosive growth in the company’s online selling business model slows.
“For a company like ours this news will be difficult to digest,” founder and CEO Tobi Lütke said in an email to staff that was later published on the company’s website.
According to regulatory filings, the company had about 10,000 employees at the end of 2021, twice the amount they had before the pandemic. The cuts amount to 10 per cent of the company’s entire work force.
Affected staff are being notified on Tuesday. Most of the lay-offs will be in recruiting, support and sales, the company says.
Anyone affected will get 16 weeks of severance pay, plus an extra week for every year they’ve been with the company. And the company will remove limitations on any stock options they may be entitled to.
Aggressive expansion in pandemic
Like many digital-focused companies, Shopify saw demand for its services explode during the pandemic, as lockdowns forced consumers and businesses to adapt quickly to buying and selling online.
In response to this increased demand, Shopify expanded aggressively, hiring staff to keep up with the mass of new customers for its core service of helping real-world retailers sell goods online.
The boom was so massive that at one point in mid-2020, Shopify became the most valuable company in Canada, topping the Royal Bank of Canada, with a valuation of almost $300 billion.
David Baskin, head of Toronto-based money manager Baskin Wealth Management, said the company hit those lofty highs based on the assumption that exponential growth was here to stay.
“People extrapolated their very rapid growth into the future and said, look, if they’re doing $2 billion a year now and they’re growing it 300 per cent a year, they’ll be doing $8 billion and then $40 billion and the $100 billion,” he said in an interview.
“The next thing you know, they’re going to rival Amazon. That’s sometimes what happens with these smaller companies is people just crank up their spreadsheets.”
Tech companies feel the pinch
Maintaining that momentum indeed proved difficult, as the growth showed signs of slowdown toward the end of 2021. Today, the company is worth about $50 billion. Shares in the company fell about 15 per cent when the TSX opened on Tuesday.
Shopify isn’t the only tech company to feel the pinch of a slowdown. U.S. giants like Netflix, Google, Apple, Microsoft and Paypal all saw their prospects dim as the spectre of inflation took a bite out of consumer spending.
In his letter to staff, Lütke says demand for online shopping is growing, but no longer at the frenzied pace seen in 2020. All in all, e-commerce is about where it would have been had the pandemic surge not happened, he said.
Shopify had boosted its staffing levels on the assumption that the explosive growth would continue.
“We bet that the … share of dollars that travel through e-commerce rather than physical retail would permanently leap ahead,” Lütke said. “It’s now clear that bet didn’t pay off.”
The company is slated to reveal its quarterly results Wednesday morning, and financial analysts who cover the company have been scrambling to downgrade their expectations, but regardless of what the numbers show, Baskin says the sell-off in the shares Tuesday tells people everything they need to know.
“I’m not really even sure that their numbers tomorrow are going to matter. What really matters is the growth going forward, and the fact that they’re shedding 10 per cent of their workforce tells you that they don’t see great things ahead.”
ABOUT THE AUTHOR
Senior Business Writer
Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, and Canadian Business Magazine. Twitter: @p_evans Email: firstname.lastname@example.org
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