Company is selling its entire logistics division
- Stock price jumps 25% on news that company is slimming down
Ottawa-based Shopify Inc. said on Thursday it would cut 20 per cent of its workforce, the second major round of layoffs at the e-commerce company in under a year.
"This means some of you will leave Shopify today," CEO Tobi Lutke told staff in a memo. "I recognize the crushing impact this decision has on some of you, and did not make this decision lightly."
Affected employees have already been advised, via email, if they still have a job. Everyone will receive a minimum of 16 weeks severance plus a week for every year they worked at the company.
Part of the cuts come from Shopify's sale of its logistics division to Flexport, based in Silicon Valley, Calif.
Only last year, Shopify was beefing up its logistics unit, buying delivery firm Deliverr for more than $2 billion. But the company has decided to go in a new direction, handing the entire logistics business to Flexport in exchange for a 13 per cent stake in the company.
"Making the global supply chains efficient and software addressable is Flexport's main quest and so this is the perfect home for this part of Shopify," the company said.
According to regulatory filings, at the end of its last fiscal year, Shopify had 11,600 employees, so the 20 per cent reduction announced Thursday amounts to more than 2,300 people. While slashing costs over the long run, the company says the cuts will incur about $150 million US in severance costs.
In addition, it will book an impairment charge of $1.5 billion related to the sale of the logisitics business. That's less than then $2.1 billion it spent on buying Deliverr in the first place.
Managerial roles slashed
The company appears to be targeting managerial roles for the cuts, as opposed to people who work on the company's software, with Lutke saying in his note to staff that the company had too many of the former.
"The balance of crafter to manager numbers is a tricky one to strike. Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and… side quests. Our numbers were unhealthy, just like it is in much of the tech industry," he said.
It's the second major round of layoffs at the company in under a year, as the company announced last summer that after expanding aggressively during the pandemic, it would lay off 10 per cent of its staff, as sales growth on its e-commerce platform was slowing.
James Bowen, who teaches management at the University of Ottawa, says that while it is growing, the company is not immune to the forces that are impacting the entire technology sector.
"We have seen many layoffs in the tech industry in the last year or two, as tech reorients itself form some of the growth projections we saw in the early days of the pandemic," he told CBC News in an interview.
The company announced the layoffs as it revealed quarterly results, which beat expectations on a 25 per cent increase in revenue. The company's shares were up by 25 per cent when the stock market opened.
Bloomberg Intelligence analyst Anurag Rana says the move to cut staff is the right call.
"This strategy shift, while painful in the short-term due to writedowns and layoffs, will increase the company's focus on selling more products through its platform," he said.
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