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Shopify CEO Says He Bet Wrong on E-Comm Demand, Lays Off 10% of Workforce

Shopify co-founder and CEO Tobi Lütke said on Tuesday that the commerce tech company is laying off 10% of its staff as the pandemic rush to move retail business online has cooled.

In a letter to his employees today, Lütke said most of the impacted roles are in recruiting, support, and sales. Over-specialized and duplicate roles, as well as some groups that were “convenient to have but too far removed from building products” were also affected, Lütke wrote.

The founder and CEO said that those affected by the layoffs will get 16 weeks of severance pay, plus an additional week for every year of tenure at Shopify.

As for why these layoffs are happening, Lütke said that when the COVID-19 pandemic set in, demand for Shopify “skyrocketed” as more brands looked to build online during lockdowns.

“Before the pandemic, e-commerce growth had been steady and predictable,” Lütke said. “Was this surge to be a temporary effect or a new normal? And so, given what we saw, we placed another bet: We bet that the channel mix – the share of dollars that travel through e-commerce rather than physical retail – would permanently leap ahead by 5 or even 10 years. 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.”

“It’s now clear that bet didn’t pay off,” the CEO added. “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.”

This round of layoffs comes weeks after Shopify finalized its acquisition of Deliverr, which added over 400 employees to the company. The $2.1 billion transaction was hailed by Shopify as “the future of global logistics for independent brands,” adding that the acquisition will “create an end-to-end logistics platform to unlock fast and easy fulfillment for millions of merchants.”

Shopify is the latest fashion and retail tech company to implement layoffs among multiple industry headwinds. In June, buzzy online sneaker resale platform StockX laid off 8% of its total workforce, as the company looks to keep business strong during a tough environment for retailers. Impacted employees received severance packages and health benefits for a period of time after termination, StockX said.

In recent months, major tech platforms such as Coinbase, Tesla and Robinhood have announced layoffs across staff, while more have announced temporary hiring freezes as they brace for an economic downturn.

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