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Shopify cuts 10 per cent of workforce as online shopping slows

Canada’s Shopify Inc is laying off 10 per cent of its workforce as the e-commerce company struggles with slowing growth due to a pullback in online shopping after benefiting from a pandemic-fueled surge in demand.

Its shares tumbled 14.7 per cent on the US bourses and on the Toronto Exchange, they shed 14 per cent on Tuesday, pulling Canada’s wider main stock index lower. The shares have lost 75 per cent of their value so far in the year.

Shopify’s turn of fortunes from the most valuable company in Canada last year to its present-day struggle to increase sales come as easing lockdowns have led consumers to return to brick-and-mortar stores.

Its sales growth during the pandemic led the Ottawa-based company to ramp up hiring and invest in technology, betting that the shift to online from physical retail shops would not subside.

“It’s now clear that bet didn’t pay off,” CEO Tobi Lütke said in a blogpost, adding that roles in recruiting, sales and support are the most affected.

The company had 10,000 employees as of December 31, regulatory filing showed, up from 7000 at the end of 2020.

“Ultimately, placing this bet was my call to make and I got this wrong.”

Faced with competition from Amazon and other brick-and-mortar stores, Shopify is now tying up with social media firms including Twitter and YouTube as influencers start to sell their own brands.

The 18-year-old company will report its quarterly results on Wednesday, with investors keen to know if the partnerships with social media platforms to tap into the creator economy would be enough to lift it out of a slump.

“One of the positives for Shopify is that they’re seeing some meaningful traction in social networking related e-commerce sales,” DA Davidson analyst Tom Forte said.

Neil Saunders, MD at GlobalData, said Shopify is the latest retailer “coming off a pandemic-induced high” and like other companies in the e-commerce sector has been hit by a general slowdown in demand.

However, he said Shopify had also misjudged the trajectory of online shopping. “It incorrectly assumed that the acceleration seen during the pandemic – when people were forced to stay at home more – would continue indefinitely. Put bluntly, this was a huge strategic mistake that was driven by an insufficient understanding of customer behavior, a lack of rigour in analysing the market, and a bit of hubris,” he said.

“With top line numbers coming in below where Shopify anticipated, its cost base – which became very bloated during the pandemic – is no longer justified. This is one of the reasons why it made an operating loss of $98 million in its last fiscal quarter,” said Saunders.

“The steps taken today start to right-size the company and rebalance the costs. However, they are only part of the moves needed to course correct. With Amazon ramping up its services to merchants and opening its solutions to businesses that are not part of its platform, Shopify needs to work harder to appeal to new businesses and retain those existing clients using its services.”

  • Reporting by Chavi Mehta, Nivedita Balu and Tiyashi Datta in Bengaluru; Editing by Shailesh Kuber, Ankur Banerjee and Arun Koyyur, of Reuters.
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