Shopify lays off 10% of workers over email

A recession is on the horizon, and economic headwinds are already forcing employers to rethink their hiring strategies.

The tech sector is being particularly affected, and, as a result, companies of all different shapes and sizes are implementing hiring freezes and job cuts.

In terms of lay offs, 2022 has seen almost 60,000 employees lose their jobs, according to tracker layoffs.fyi. Examples include Netflix, Lyft, Degreed, Twitter and Gemini.

The latest company to take the job cut route is Canada-based e-commerce giant Shopify. Its share price fell 14.5% following the announcement; this is down almost 80% from the beginning of the year, according to the Financial Times.

In a memo to employees, CEO Tobi Lütke shared the next part of Shopify’s journey “will involve fewer teammates than we have picked up along the way”.

He went on to announce that 10% of workers will be laid off – Business Insider reported represents is around 1,000 employees. The majority of the job cuts will be in recruiting, support and sales, and those in overly specialized or duplicate roles will also be affected.

Lütke added that “some groups that were convenient to have but too far removed from building products” would also be impacted in the layoff. As a result, “every team here is now either focused on building products or directly supporting those who do”.Lütke added that “some groups that were convenient to have but too far removed from building products” would also be impacted in the layoff. As a result, “every team here is now either focused on building products or directly supporting those who do”.

Shopify chose to announce the decision by individual emails to employees, and they would then be invited to a meeting with their team lead or manager.

Lütke concluded the memo by stating: “I want to express my sincere gratitude to each of you for everything you’ve given to support merchants and our mission of making commerce better for everyone.”

The e-commerce giant further shared that all employees who are laid off would receive a severance package. This includes 16-weeks of pay (plus an additional week for every year of tenure), medical benefits, as well as outplacement services like interview and CV help, as well as career coaching.

In addition, laid off workers would be able to keep all their office furniture paid for by Shopify, and have their internet paid for the next 16 weeks. Although employees will need to return their laptops, the employer will provide them with an allowance to buy a new computer.

The generosity of the package has not stopped Shopify employees taking to social media to express their sadness at the decision.

An employee in Shopify’s marketing team, tweeted:

https://twitter.com/_aishahfg/status/1551927914714775553

While a technical education worker at Shopify shared on Twitter:

https://twitter.com/isabel_klee/status/1551924072363212801

The financial reasoning behind the job cuts

Lütke used his memo to employees to explain the exact reasoning behind the job cuts at this point in time. Particularly given that Shopify just completed an acquisition, which requires it to integrate and onboard 450 new team members.

The CEO noted that COVID-19 caused a surge in demand for e-commerce because of stay at home orders to stem the threat of the virus.

As a result, Shopify made a bet that the “channel mix” aka “the share of dollars that travel through e-commerce rather than physical retail” would permanently shift and leap ahead. “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”.

But Lütke admits “that bet didn’t pay off”, and takes full responsibility for the bad decision: “Ultimately, placing this bet was my call to make and I got this wrong”.But Lütke admits “that bet didn’t pay off”, and takes full responsibility for the bad decision: “Ultimately, placing this bet was my call to make and I got this wrong”.

Instead, “what we see now is the mix reverting to roughly where pre-COVID-19 data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful five-year leap ahead. Our market share in ecommerce is a lot higher than it is in retail, so this matters”.

The broader financial impact of this wrong “bet” is clear from Shopify’s second quarter (Q2) earnings, which were reported earlier today.

While revenue was up 16% year-on-year in Q2 to a total of $1.3 billion, Shopify's operating loss for the quarter was $190.2 million (15% of revenue), compared to $139.4 million of operating income (12% of revenue).

Therefore, Shopify is adjusting its outlook for 2022 - it now expects its operating loss for the second half of 2022 to be $50 million.

The company wrote in a release: "We now expect 2022 will end up being different, more of a transition year, in which ecommerce has largely reset to the pre-COVID trend line and is now pressured by persistent high inflation."

Ultimately, the cost of living crisis is going to upset Shopify's business even more. This begs the question, could more lay offs be on the horizon?

UNLEASH has reached out to Shopify for comment, but is yet to receive a response.

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