Shopify’s slim-down strategy: Cutting costs, selling logistics arm to bulk up e-commerce profits

Shopify Inc, a Canadian e-commerce giant, has decided to cut jobs and sell its majority stake in its logistics business to Flexport Inc. to focus on its core e-commerce business, media reports said on Thursday. 

The decision will make the company smaller by 20 percent, as 2,000 employees will be laid off, a CNBC report said. This move will cost the company nearly $150 million in severance charges, media reports added. 

Despite the significant change, Shopify’s stock price skyrocketed 27 percent in the Toronto stock market, marking its most significant intraday rise since 2015.

Meanwhile, the company’s first-quarter results exceeded analysts’ expectations, with revenue coming in at $1.51 billion and gross merchandise volume at $49.6 billion. 

During a conference call, Shopify executives explained that the company has to operate faster and move quickly toward its ideal size. CEO Tobi Lütke said that the company will focus on outcomes and impact with the “right numbers”. 

Shopify’s strategy to adapt and retrench

Shopify’s decision to sell its logistics business and cut jobs comes in response to the rise of Amazon’s ‘Buy with Prime’ program and the ever-changing online retail space.

The company initially made a bold move to bet on the long-term growth of online shopping during the pandemic, as customers were forced to stay home. However, as the situation evolved, Shopify’s CEO Tobi Lütke moved swiftly to cut about 1,000 jobs last summer, raise prices, and focus on enhancing client offerings.

Shopify’s plan to focus on its core business will undoubtedly shake up the e-commerce industry. The move comes amid macroeconomic risks, including slower consumer spending and inflationary pressures. According to a preliminary Statistics Canada estimate, retail sales fell 1.4 percent in March.

Whether Shopify’s renewed focus on its core business will help it remain a major player in the ever-changing online retail space remains to be seen. However, with its impressive first-quarter results and commitment to achieving free cash flow profitability for each quarter of 2023, the company seems poised to weather the storm.