Shopify narrows its ambitions, sells Deliverr, reduces staff

NEW YORK (AP) – Shopify, the e-commerce company seen as a growing competitor to Amazon, is selling the two largest parts of its fulfillment network and abandoning its logistics ambitions.

On Thursday, the company announced in a blog post that it would also lay off about 20% of its workforce, its second mass layoff in less than a year. Last year, Shopify laid off 10% of its workforce and reportedly laid off dozens of other employees before and after this announcement. The company said on Thursday that those injured will receive 16 weeks of severance pay and medical benefits.

“There’s no way to break this good news, but we’ve designed a package that tries to make this the best possible version of a bad day,” Shopify CEO Tobias Lütke said in a blog post.

The business changes also mark a remarkable turnaround after the Canadian company’s years-long effort to build its own warehousing and delivery services. However, investors welcomed the company’s decision to focus more on its retail business on Thursday, causing the company’s share price to increase by as much as 17% in pre-opening trading.

Shopify also said in its earnings report that it had revenue of $1.5 billion in the first quarter, which exceeded Wall Street expectations. He observed a profit, although analysts expected a loss.

Most of Shopify’s assets will be acquired by logistics provider Flexport in an all-stock deal that also includes the sale of shipping services company Deliverr, the company said Thursday. Shopify bought Deliverr last year for $2.1 billion.

In return, Shopify will receive about a 13% stake in Flexport, bringing its total stake in the privately held company to a dozen years, the company said. Flexport will become the official logistics partner of Shopify, which provides e-commerce tools to sellers. It will also acquire Shopify warehouses.

On Thursday, British food technology company Ocado Group said it was buying another major part of the Shopify network – warehouse automation company 6 River Systems (6RS).

“It’s about removing distractions,” said Rick Watson, CEO and founder of RMW Commerce Consulting. “In the long term, it’s the right decision, but in the short to medium term it raises many more questions about Shopify’s management team.”

Shopify’s logistics network consists of Deliverr, 6RS, and the SFN app, which allows sellers to track shipments.

The sales come as the Ottawa, Ontario-based company seeks to cut costs amid a post-pandemic slowdown in online shopping and high inflation. These moves will also allow for the dismissal of employees acquired as part of the transaction.

Shopify is returning to its roots, CEO Harley Finkelstein said in an interview exclusively about the Flexport deal.

“It basically allows Shopify to get back to what we do better than anyone in the world, which is the retail side of the business,” Finkelstein said.

Meanwhile, Flexport CEO Dave Clark said he believes Shopify is doing “one of the hardest things a leadership team has to do, which is change direction when it learns new information.”

Flexport, last valued at $8 billion, declined to share further information about its finances. However, analysts say its valuation has likely fallen in recent months due to the difficult investment environment.

Even if the company was still valued at $8 billion, Shopify is selling the assets at a loss, considering the $2.1 billion it paid for Deliverr last year. According to an earlier valuation, the e-commerce company will receive Flexport shares worth about $1 billion.

Shopify and an Ocado Group representative declined to provide the terms of that deal. An Ocado Group spokesman said the deal did not meet the formal disclosure threshold. The e-commerce company bought 6 River Systems in 2019 for $450 million.