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E-Commerce Slips to Pre-Covid Trajectory: Shopify Announces 10% Workforce Reduction

Thomas Paulson
Jul 29, 2022
E-Commerce Slips to Pre-Covid Trajectory: Shopify Announces 10% Workforce Reduction

  • Shopify Founder and CEO Toby Lütke wrote a memo to all which included his own admission of fault for overbuilding and outlines a 10% workforce reduction. The reduction impacts roles in recruiting, support, sales, and other roles.
  • Lütke's memo reads, "Shopify has always been a company that makes the big strategic bets our merchants demand of us - this is how we succeed. Before the pandemic, e-commerce growth had been steady and predictable. Was this surge to be a temporary effect or a new normal? And so, given what we saw, we placed another bet: We bet 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. We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match. It’s now clear that bet didn’t pay off. What we see now [in the graphic below] is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead. Our market share in e-commerce is a lot higher than it is in retail, so this matters. Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust. As a consequence, we have to say goodbye to some of you today and I’m deeply sorry for that."

Source: U.S. Census Bureau, Shopify

  • Thus, Shopify's story is the same story as Amazon’s and one of responsibility to its customers and stakeholders. The "leap" wasn’t permanent and things are now "settling" back into their pre-pandemic rhythms.
  • Shopify also reported 2Q22 results which included substantially slower revenue growth, more of a pivot to their in-store products and solutions (see Square, or Block, and Clover), and guidance to operating profit losses in 2H22. (Shopify is now 10% of all U.S. e-commerce, per the company, and a market share taker.)
  • On its 2Q22 update, Lütke said, "We've seen incredible growth in offline GMV on Shopify as more merchants come to us to modernize their point-of-sale software. Our world-class retail point-of-sale offering, which gives merchants a seamless view of their online and off-line operations, is quickly becoming the point of sale of choice...2Q22 offline GMV grew 47% year-over-year as we continue to take market share." (Online GMV grew +8%.)
  • Regarding Shopify's Fulfillment Network (SFN, a $1B investment) and its recent acquisition of Deliverr, Lütke said, "through Deliverr we are accelerating the simplification of the distribution phase...Using software and machine learning, these SFN hubs, leveraging Deliverr's capabilities, will unpack, scan and inspect all inventory, then compare against metadata in Shopify's back office throughout the goods to merchants' various distribution channels as well as forward position inventory into SFN's spoke direct-to-consumer fulfillment centers based on expected buyer demand. With this software-based approach, Deliverr is helping us expand two-day delivery across SFN...By leveraging Deliverr software in SFN hubs and SFN's spoke partner warehouses all equipped with Six River Systems technology, we can forward position merchants inventory to support timely fulfillment with a minimal inventory commitment for merchants. We've also continued our early access to Shop Promise, which lets merchants offer 2-day delivery promises across online storefronts and channels like Google, Facebook and Instagram."

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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