The pandemic was supposed to impact consumer habits with the force of a giant asteroid. Instead, it may be something closer to a small stone skipping across water and spurring a few ripples. For proof, look no further than Shopify.
The site, which helps companies launch e-commerce portals, is laying off 1,000 employees (about 10% of its workforce), according to an internal memo seen by The Wall Street Journal and confirmed by the company on Tuesday. Leadership is blaming a return to old shopping habits — and themselves.
Shopify pursued a strategy of aggressive growth during the pandemic with hopes to become the predominant e-commerce alternative to Amazon. Its workforce ballooned from 1,600 in 2016 to about 10,000 last year, WSJ reports, while its share price exploded some 380% from March 2020 to November 2021 (now down roughly 80% from its peak). And even as recently as this May, the company dropped $2.1 billion in a major acquisition for order-fulfillment specialists Deliverr.
“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,” CEO Tobi Lütke wrote in the memo, which Shopify has since published publicly. But the good times, they don’t last. And the company is seeing a rapid cooling after consecutive years of accelerating growth:
- Shopify saw annual revenue jump 86% in 2020, and then another 57% in 2021. But in its first quarter earnings report this year, released in February, revenue increased just 22% year-over-year, while the company posted a net loss of $371 million in the quarter after earning a $124 million profit the year before.
- “It’s now clear that [betting on e-commerce growth] didn’t pay off,” Lütke wrote. “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.”
Shares of Shopify fell as much as 15% after news broke Tuesday, ahead of its second-quarter earnings report today.
Hitting a Wal: Shopify is far from the only retailer feeling the heat. Blaming fuel and food inflation, Walmart issued its second profit warning in 10 weeks after the closing bell on Monday. Its shares dropped 8%, while the broad S&P 500 share index fell 1%. We’re going to need a cleanup on aisle… well, maybe on all the aisles.