Ecommerce service provider Shopify announced major changes today, including a 20% workforce reduction and the sale of Shopify Logistics to Flexport. In a May 4, 2023 blog post, Shopify CEO Tobi Lütke said the company needs to focus on its primary mission – to make ecommerce simpler, easier, more democratized and more participatory – to eliminate “side quests” which are distracting. Lütke said, for the last year, Shopify has been trying to strip away non-essential services to focus on providing merchants with the best possible products and services. TechCrunch estimates the layoffs will affect about 2,300 workers.

“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.”

Among the opportunities for innovation is using AI to help their customers, who are entrepreneurs.

“A copilot for entrepreneurship is now possible. Our main quest demands from us to build the best thing that is now possible, and that has just changed entirely,” added Lütke.

Flexport to buy Shopify Logistics

As part of the company’s restructuring, Shopify will sell its logistics business to Flexport, a technology platform for global logistics, which will become Shopify’s preferred logistics partner. Logistics are sometimes a barrier to entry for entrepreneurs because of the many steps and partners required to get products from their point of origin to their final destination. While this was a worthwhile venture for Shopify, the company is ready for their logistics business to become a standalone business. The deal is worth about 13% in stock.

Balancing the crafter vs. manager scales

Shopify separates the roles at the company into two categories: crafters, who are the day-to-day ops staff, and managers, who transform individual crafters into teams and align the teams’ work with the company’s goals. Finding the balance between the two can be difficult.

“Too few and you risk misalignment on the most important things, too many and you add heavy layers of process, approvals, meetings and… side quests. Our numbers were unhealthy, just like it is in much of the tech industry,” Lütke explained. “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. A more-fit-for-purpose Shopify centered on its main quest has less scope creep, fewer meetings, and more shipping great features for our merchants.” 

Last July, Shopify laid off 10% of its workforce, or about 1,000 employees, according to the Wall Street Journal. At the time, Lütke said the company had to adjust staffing as consumers returned to pre-pandemic spending habits.

Severance packages

Employees departing Shopify will receive a minimum of 16 weeks of severance pay plus a week for every year at Shopify, along with medical benefits and access to the company’s employee assistance program for the same period of time. Employees can keep their office furniture, but Shopify said they legally need to return their work laptops. However, Shopify will pay to replace them for departing employees.  Shopify will also provide outplacement support. For those who want to try entrepreneurship, Shopify will give former employees free access to the Shopify advanced merchant subscription plan.

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“Fit for purpose”

In his closing remarks, Lütke said that these are important and necessary changes for Shopify though he recognizes they are also hard decisions to make.

“My belief is that any enduring company makes a habit of doing the right thing, even if easy outs present themselves. Yet it doesn’t get easier to make a decision like this, and I hope it never does,” the CEO wrote.

“Shopify is stacked with exceptionally talented, merchant-obsessed people. Crafters thrive in the best environment, given the best technology and tools with which to grow and develop their skills. Managers are deeply committed to the craft of management, all in on building incredible teams. Inspired tooling and systems will reduce the coordination tax. And everyone at Shopify is pursuing a singular, focused main quest – our ambition is greater than ever,” Lütke concluded.

Price increase now in effect

In February, Shopify announced price increases to their Basic, Shopify and Advanced merchant subscription plans, the company’s first price increase in 12 years. New merchants saw the price increase immediately, while existing merchants didn’t get hit with the price change until April 23.

“A small change that enables a big change. The idea behind the products we create has always been the same: we offer merchants the most powerful, innovative, and reliable tools in the industry at a price that’s unmatched in the market. But what that means, and the resources required to live up to that promise, have changed dramatically since we started,” said Kaz Nejatian, VP of product and chief operating officer, in Spotify’s January 24 announcement. “In order to not change the value of Shopify, we’ve had to change the price.”

Insider Take

Shopify is the latest in a long line of tech companies feeling the pain of a post-pandemic world, an uncertain economy, and the age of AI which can replace many human functions. While Shopify has struggled with profitability for years, the massive layoffs in the last year are significant. They will surely save the company money in the long run, but can AI truly replace the functionality of their staff? Will Shopify products and services suffer? Will merchants lose faith in the solution as the company continues to make major changes? Time will tell if this restructuring makes or breaks Shopify and the merchants who depend on it.

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