Shopify Cuts Workforce By 10% Amid E-Commerce Downturn
Popular shopping cart platform Shopify announced that it would lay off 10% of its employees. It made this decision in response to slowing eCommerce growth worldwide. As more businesses offer online payments, people should pay attention to these trends.
Nowadays, two billion people use this mode of payment, and Bloomberg expects a higher total of 4.8 billion by 2025. If we project long-term growth for eCommerce, why must one of its biggest platforms reduce its workforce? Let us take a closer look at these recent trends.
First, we will discuss more details about the Shopify layoffs. Then, we will look beyond this platform and see why eCommerce companies are struggling. More importantly, we will talk about why eCommerce is bound for long-term growth amid the short-term slowdown.
Shopify admits to overestimating the eCommerce boom
Building companies comes with high highs and low lows. Today I had to share some sad news with Shopify. https://t.co/gNO37lWYpg
— tobi lutke (@tobi) July 26, 2022
On July 27, 2022, Shopify CEO Tobi Lütke stated it would reduce its staff by 10%. Yet, he admitted that the company grew quickly following the COVID eCommerce boom.
It expected more people to continue making online purchases. The company expected its share of online transactions to advance by five to ten years. Unfortunately, Lütke admitted that the projection did not pay off:
“It’s now clear that bet didn’t pay off. 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,”
“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.”
As a result, Shopify shares closed its trading day on the Toronto Stock Exchange at $40.69. This number meant its value dropped by 14%, so the stock is down 74% this year.
Regulatory filings show that the eCommerce firm had around 10,000 workers by the end of 2021. Consequently, the recent Shopify layoffs will remove roughly 1,000 employees.
Lütke said he would remove people from recruiting, sales, and support. Also, Shopify would remove “over-specialized and duplicate roles” and others that were “convenient to have but too far removed from building products.”
Shopify grew quarterly revenues past the $1 billion mark during the COVID-19 pandemic. Also, it expanded its list of merchants from 1.7 million to two million in 2021.
Now, the company struggles through post-pandemic recovery amid a broader tech stock crash. Fewer people shop online compared to the COVID-19 boom.
Factors to the eCommerce slowdown
Shopify is not the only tech firm that laid off employees. Twitter, Netflix, and Klarna have reduced their workforces due to numerous factors.
For example, the recent interest rate hikes significantly slowed the COVID eCommerce boom. The Federal Reserve’s zero-interest rate policy drove much of this growth during the pandemic.
Back then, it encouraged more people to invest in these companies. Now, the Fed has hiked interest rates significantly, causing more investors to avoid tech stocks.
The ongoing Ukraine-Russia conflict is another reason for Shopify layoffs and broader eCommerce woes. It caused companies to stop doing business in Russia.
The conflict also worsened supply shortages from the COVID pandemic. The reduced supply of basic commodities increased demand and raised prices.
As a result, the United States recorded 9.1% inflation in April 2022. The International Monetary Fund (IMF) projects 5.7% inflation in first-world countries and 8.7% in emerging ones.
People are cutting back on spending as the prices of goods and services increase. They usually start with luxury purchases like online streaming subscriptions and online shopping. This trend explains the challenges that Netflix and similar companies face, such as the recent Shopify layoffs.
Various tech firms had to reduce their employees due to several factors. Yet, eCommerce is still bound to be the future of shopping worldwide.
More countries like the Philippines are becoming fond of eCommerce. According to global strategy and economic advisory company AlphaBeta, it would help its economy grow to ₱5 trillion by 2030.
That is equivalent to 27% of the country’s GDP. That is why you should keep up with the latest tech trends. Fortunately, Inquirer USA provides all the latest information you need.
Frequently asked questions
Why did Shopify lay off employees?
Fewer people buy things on the internet, causing difficulties for Shopify. In response, the shopping cart platform reduced its workforce by 10%.
How many employees work at Shopify?
The tech company had roughly 10,000 employees in 2021. However, the recent Shopify layoffs would decrease the workforce by 10%, removing approximately a thousand employees.
Why is Shopify tanking?
Fewer people buy stuff online and invest in tech stocks as prices skyrocket. Also, the recent Shopify layoffs caused the stock price to drop by 14%.