Shopify is tightening its belt in the face of slowing sales growth as consumers return to their old shopping habits and decrease their reliance on e-commerce.
The e-commerce company announced Tuesday it was laying off about 10% of its workforce. The move will impact roughly 1,000 employees, with the bulk of the cuts in recruiting, support, and sales roles.
The company said it would also cut “overspecialized” and duplicate roles, along with some groups “that were convenient to have but too far removed from building products,” CEO Tobi Lutke told staff in a memo. The Wall Street Journal first reported news of the memo, which the company later posted on its website.
Shopify, which powers merchants’ e-commerce businesses by handling everything from payments to shipping, is just the latest tech company to announce layoffs amid a tough economic environment as interest rates surge and consumers brace for a potential recession. Companies that have trimmed their headcount so far include Netflix, Unity, Lyft, and Vimeo.
The downsizing announcement marks a precipitous drop for a company that was one of the pandemic’s early darlings, as merchants relied on their online shops to make up for lost brick-and-mortar sales.
That led Shopify to expand its team to keep up with projected sales growth. But Lutke told employees that he overestimated how long the e-commerce pandemic boom would last, expecting, at the time, that the adaptation of online shopping would have permanently jumped ahead by 5 or 10 years.
“It’s now clear that bet didn’t pay off,” Lutke said in the memo to employees. “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 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.”
Shares of Shopify have plunged from its pandemic highs in recent months, dipping more than 77% year-to-date. The company is set to report earnings Wednesday before the bell.