Shopify to reduce workforce by 20 per cent and sell logistics business

Shopify Inc. says it will reduce its head count by about 20 per cent and sell its logistics business to Flexport, a supply chain management company.

The Ottawa-based e-commerce giant announced the moves Thursday morning and positioned them as a way to help it focus on its main quest: making commerce easier.

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But achieving that feat means reducing "side quests" which chief executive Tobi Lutke described as "always distracting because the company has to split focus."

"Technological progress always arcs towards simplicity, and entrepreneurs succeed more when we simplify. But now we are at the dawn of the AI era and the new capabilities that are unlocked by that are unprecedented," he said, in an open letter announcing the changes.

"Our main quest demands from us to build the best thing that is now possible, and that has just changed entirely."

Lutke's note did not include the number of staff that would be departing the company, but before Shopify laid off about 1,000 workers last summer it had roughly 10,000 employees.

"I recognize the crushing impact this decision has on some of you, and did not make this decision lightly," Lutke wrote.

Twenty per cent of the remaining workers would amount to about 1,800 people.

In February, Shopify president Harley Finkelstein had said there were no more cuts in the works.

He told The Canadian Press on Thursday that the company has no further plans to cut more workers.

"We think on the other side of this, we're going to be in really, really good shape," he said.

Lutke promised departing staff at least 16 weeks of severance plus a week for every year of tenure at Shopify. Medical benefits and an employee assistance program will cover departing staff over the same period.

Those leaving will also be able to keep their office furniture and though they'll have turn in their company laptops, Lutke said Shopify will help pay for new ones.

"It's a hard day. This is not anything you want to do as a leader or as a company ever," Finkelstein said.

"But sometimes the easy thing and the right thing are not the same thing and in this case, the hard thing happens to be the right thing."

The changes will leave Shopify with "incredible talent density" and the ability to executive on its goals at a "much, much better speed, better pace and with better results," he added.

"I'm more optimistic now than I think ever before about the future of this company," he said.

In addition to the staff departures, Lutke's note announced the sale of Shopify Logistics, which it had marketed as a way for merchants to get products "from port to porch."

Under the terms of the agreement, Shopify will receive stock representing a 13 per cent stake in Flexport and the ability to name a director to Flexport's board. When added to its previous stake in the company, Finkelstein said Shopify's stake in Flexport is now in "the high teens."

Flexport will become the official logistics partner for Shopify.

The transaction is expected to close in the second quarter of 2023, but is subject to certain conditions and regulatory approval.

Shopify's announcements came as it revealed it made US$68 million in the first quarter of the year. That compared with a net loss of $1.4 billion in the same period a year earlier.

Net income for the company, which reports in U.S. dollars, amounted to earnings of five cents per share compared with a loss of $1.17 cents per share a year ago.

Revenue for the period ended March 31 was up 25 per cent from the year before to $1.5 billion.

This report by The Canadian Press was first published May 4, 2023.