Shopify announced 20 percent cuts across the business in a company letter that CEO Tobi Lütke sent out on May 4.
“I don’t want to bury the lede,” Lütke wrote. “After today Shopify will be smaller by about 20% and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today. I recognize the crushing impact this decision has on some of you, and did not make this decision lightly.”
In addition to selling Shopify Logistics, the company has also sold warehouse fulfillment solution company 6 River Systems.
Lütke wrote that team members would know within five minutes of seeing his letter whether or not they were impacted; and that they would receive a second follow-up letter.
Shopify also announced that Flexport would acquire Shopify Logistics, becoming the preferred logistics partner for Shopify.
“There’s no way to make this good news, but we designed a package that will attempt to make it the best possible version of a bad day,” the CEO wrote.
Laid-off employees will receive a minimum of 16 weeks severance plus a week for every year of tenure at Shopify. Medical benefits and access to Shopify’s employee assistance program (EAP) will be covered through this same period.
The company is offering those laid-off outplacement services if they’re wanted, and said that all office furniture it provided is the employee’s to keep. Shopify noted that legally it required the work laptops back, but said it will help pay for replacements. The company also said that it will keep Slack and internal email open today for everyone so we can share farewells.
The layoffs are across all geographies. Shopify did not specify within the company where the cuts might take place. Shopify previously laid off 10 percent of its staff, or about 1,000 employees, in 2022.
Amid the recent layoffs, Lütke admitted that following Shopify’s recent changes to its compensation model and how it labels employees, the balance of managers and crafters at the company has become “unhealthy”. Lütke called the balance of crafter to manager numbers a tricky one to strike. “One of the insidious consequences of this is that it leads to the company increasingly celebrating activities rather than crafter driven outcomes. With the right numbers we’ll fully focus on outcomes and impact.”
Shopify changed how it views and pays its manager in March, announcing that being a manager no longer impacted an employee’s compensation. Under the new compensation model, Shopify employees will be labelled either a manager or a crafter, and evaluated on their capacity to manage direct reports or deliver on products and projects, respectively. Shopify claimed the distinctions would eliminate confusion, create clear responsibilities, and lead to “unlimited growth potential for crafters.”
Added Lütke: “”Our numbers were unhealthy, just like it is in much of the tech industry.”
Shopify also announced that Flexport would acquire Shopify Logistics, becoming the preferred logistics partner for Shopify. Flexport, led by CEO Dave Clark and founder Ryan Petersen, is the best builder and operator in the world of logistics, Lütke wrote.
“Contributing our work to Flexport, under the leadership of Harish Abbott, allows everything about Shopify Logistics to be more ambitious and global in nature,” the CEO added. “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 transition of Shopify logistics assets to Flexport will be led by Harish Abbott, Co-founder and CEO of Deliverr, under the guidance of Clark. Under the terms of the agreement, Shopify will receive stock representing a 13 percent equity interest in Flexport, on top of its existing equity interest.
With the closing of the sale, Shopify is entitled to name a director to Flexport’s board. The transaction is expected to close in the second quarter of 2023, subject to certain conditions and regulatory approval.
San Francisco-based logistics platform Flexport secured over $900 million USD in funding at an $8 billion valuation in 2022. The startup’s Series E round was led by Andreessen Horowitz and MSD Partners, with a strategic investment from Shopify, and participation from existing investors like DST Global, Founders Fund, and SoftBank Vision Fund 1.
Lütke referred to logistics as a “side quest,” arguing that Shopify built a solution that would become an independent company at some point. However, he noted that in the last year the company has been subtracting everything that’s in the way of making the best product. “This is extremely important, because we are heading into a decade of high velocity and massive change, Lütke said. “We will require speed, agility, and a great deal of innovation.”
Shopify has also sold warehouse fulfillment company 6 River Systems, which it bought in 2019 for $450 million USD. The Ocado Group, a solution provider for online grocery fulfilment has purchased 6 River Systems from Shopify for an undisclosed amount.
6 River Systems is a collaborative AMR (Autonomous Mobile Robot) fulfilment solutions provider to the logistics and non-grocery retail sectors, based in Massachusetts. It was founded in 2015 and developed an Autonomous Mobile Robot product called ‘Chuck’ that provides automated assistance to pickers in a warehouse, working collaboratively with human operators.
Shopify bought 6 River Systems and added it to its Fulfillment Network in order to increase the speed and reliability of warehouse operations, including inventory replenishment, picking, sorting, and packing.
Lütke said the company’s “main quest” is to make commerce easier, more democratized, more participatory, and more common. “But now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented,” Lütke said.
He opined that Shopify has the privilege of being amongst the companies with the best chances of using AI to help its customers.
During the quarterly conference call, Finkelstein noted that Shopify has already integrated AI into a few areas, such as writing product descriptions for merchants.
The changes came as the e-commerce giant announced its first quarter results, with total revenue increasing 25 percent to $1.5 billion compared to the prior year, up 27 percent on a constant currency basis.
The company also posted an operating loss of $193 million, or 13 percent of revenue, versus $98 million, or eight percent of revenue, for the comparable period a year ago.
“Shopify’s strong first quarter results demonstrate once again that we’re the go-to solution powering businesses of all sizes, on every surface where they sell,” said Shopify’s president, Harley Finkelstein.
“The changes we’re announcing today will ensure we keep pace with the high velocity of change before us, delivering the cutting-edge solutions our customers have come to expect from Shopify,” Finkelstein added.
For the second quarter of 2023, Shopify forecasts revenue to grow at a similar rate to the first quarter’s growth rate on a year-over-year basis.
The company also expects stock-based compensation to be approximately $110 million, excluding one-time charges related to the sale of its logistics businesses.
Just two days before announcing the latest round of cuts, Shopify made an unspecified investment into Nomba, a Nigeria-based FinTech firm that raised $30 million in what it classified a “pre-Series B” funding.
Nomba is one of the latest additions to Shopify’s investment portfolio, which largely focuses on funding companies that support the Shopify merchant ecosystem as well as online retailers more generally.
During the first quarter 2023 conference call, Shopify’s president, Harley Finkelstein, said moving ahead Shopify will be more centred on its main mission. “We’re going to have less scope creep, fewer meetings. We’re going to have more shipping, great features to our merchants. This is going to set us up to take advantage of the opportunity we see in the future.”
Added Finkelstein: “The pace of change is unlike anything any of us have ever seen and this new shape of Shopify will help us to achieve and execute on what is an incredibly ambitious mission. I know that doesn’t make it any easier because it is a tough day for our company But that’s the reason why we’re doing this”
Finkelstein, who noted he is celebrating his 13th year at the company, called Shopify the most optimistic and focused company he’s seen. He said, despite today being a tough one for the company, the opportunities in the future are “massive” and that the new shape of the company is exactly what is needed to execute on that. “So I’m incredibly bullish on where we’re going, ad I’m excited about the future for this company,” Finkelstein said. “If you like what we’ve done in the past, you’re going to like what we’re going to do in the future.”