Ecommerce darling Shopify was held up by many as a possible solution for merchants seeking an alternative to Amazon, but the platform’s eyes were bigger than its belly when it came to ramping up hiring to meet demand driven by the pandemic. Shopify informed employees of a major reduction in staff on Tuesday and laid off an estimated 10% of employees.
Shopify CEO Tobi Lütke noted that its customers were already feeling the impact from economic challenges, writing in a letter to employees: “Our customers are merchants, entrepreneurs, and small businesses owners – the bedrock of our economy and precisely those that are typically hit hardest during recessions. Most are already feeling it.”
As recently as February, ecommerce guru Juozas Kaziukėnas of Marketplace Pulse had pointed to Shopify’s impressive growth: “Shopify is now nearly 50% as large as Amazon Marketplace after surpassing $54 billion in GMV in the fourth quarter of 2021.”
But Kaziukėnas had issued warnings as well, writing that there were stark differences between Amazon and Shopify – “All Amazon third-party sellers sell through one channel – Amazon. Shopify merchants each run their independent channel.”
“Few third-party sellers could be transported to Shopify and be successful,” he said.
Lütke, who also founded Shopify, told employees that before the pandemic, ecommerce growth had been steady and predictable, and said he had to predict if the pandemic-fueled surge in growth would “permanently leap ahead by 5 or even 10 years.”
“It’s now clear that bet didn’t pay off,” he said. “What we see now 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 ecommerce 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.”
In addition to what appears to be a generous severance package and assistance, Shopify will provide laid-off employees with a free account “for those who find themselves drawn to the path of entrepreneurship.” (He didn’t specify how long the company would provide the free accounts.)
CBC spoke to a disappointed employee who got today’s bad news only two months after joining the company. But the publication also spoke to a retail store owner in Toronto who said turning to Shopify during the pandemic saved her business.
Shopify was set to announce second-quarter earnings on Wednesday morning and will host a conference call to discuss results at 8:30 am Eastern.