Jul 26, 2022 - Economy

Shopify cutting 10% of workforce as e-commerce sales cool off

E-commerce as a percentage of total retail&nbspsales
Data: U.S. Census Bureau; Chart: Erin Davis/Axios Visuals

Shopify said Tuesday that a slowdown in the pace of e-commerce sales growth caught it by surprise, prompting the online retail platform to announce layoffs.

Why it matters: A tapering off in e-commerce sales growth suggests the economy is rebalancing as the pandemic's grip eases.

  • E-commerce sales were 14.3% of total U.S. retail sales in the first quarter of 2022, having declined for two straight quarters and down from 14.9% a year earlier, according to U.S. Census data.

Driving the news: Shopify Tuesday said it would cut 10% of its workforce, which totaled more than 10,000 people at the end of 2021.

The intrigue: The company grew its workforce during the pandemic as CEO Tobias Lütke said he "bet" that e-commerce sales growth would accelerate by five to 10 years.

  • "It’s now clear that bet didn’t pay off," he said Tuesday in a note to employees. "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."

The bottom line: E-commerce is still growing, but at a much slower pace than when the pandemic began.

  • "Put bluntly, this was a huge strategic mistake that was driven by an insufficient understanding of customer behavior, a lack of rigor in analyzing the market, and a bit of hubris," GlobalData managing director Neil Saunders wrote Tuesday, adding that Shopify had become "very bloated."
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