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The pandemic caused an unprecedented boom in eCommerce. Shipping and logistics companies quickly realized that their traditional operations would undoubtedly change due to the dramatic increase in demand for pretty much everything. Suddenly, companies were making revenue predictions that far outpaced any numbers they could imagine just a few years ago. The uptick in production caused an uptick in stock, which caused many companies to hire new teams to handle the latest volumes of transactions. Major players like Amazon and Shopify purchased thousands of acres of land in warehouses to keep up with pandemic shopping habits.
However, as the economy worsens and stimulus checks have come and gone, eCommerce companies realize that they may have bitten off more than they can chew. Shopify is starting to feel the burn.
The Wall Street Journal reported that the eCommerce platform is laying off 10% of its workforce, affecting about 1,000 employees. CEO Tobi Lütke says the company “has to go through a reduction in workforce” that influences the recruiting, support, and sales sectors.
Shares of Shopify dropped over 14% following the announcement.
Lütke notes that Shopify eliminates “over-specialized” roles and “groups that were convenient to have but too far removed from building products.” He says the layoffs are primarily due to a vast overestimation of order volume fueled by the pandemic that never actually came to fruition.
Shopify’s workforce spiked from 1,900 in 2016 to a whopping 10,000 by 2021 to meet the expected growth. But Lütke notes that things are “reverting to roughly where pre-Covid data would have suggested.”
Lütke adds that impacted employees will receive 16 weeks of severance pay plus one week for every year the employee has been at the company. Shopify is also providing career coaching to help those affected find another job.
They’ve also been allotted a “kickstart allowance” to replace the company laptop that employees must return to Shopify. It seems like a few bandaids to cover a large wound.
Impending Recession Looms Over eCommerce
Unfortunately, Shopify isn’t the only heavy-hitter who grossly overestimated post-pandemic spending. After subscriptions plummeted, Netflix laid off hundreds of workers, while Peloton released almost 3,000 employees due to several organizational shifts. Crypto is also struggling with the economic drop-off, with firms like Coinbase, Gemini, BlockFi, and Crypto.com dealing with layoffs.
While the company continues to invest in more efficient logistics procedures and machines, there are problems on the horizon regarding this warehouse space. Shopify has recently acquired Deliverr to help meet these goals. The company’s technology integrates third-party sellers with major eCommerce sites, including Amazon, eBay, and Walmart to assist in moving their products to consumers in one to two days.
Using predictive analytics and machine learning, Deliverr’s software anticipates demand for products based on geography, among other variables. This helps to optimally “pre-position” inventory in its network of more than 80 leased warehouses, where third-party logistics partners pick, pack and deliver orders.
However, a recent Bloomberg report indicates more overestimations regarding logistics and warehousing. Amazon currently has over 10 million square feet of warehouse storage space (roughly the same size as 12 of the company’s largest fulfillment centers) sitting empty. Some sources even report that they have triple that amount of vacant space. The company is stuck with too much warehouse capacity since the dramatic surge in pandemic-era shopping has subsided.
Now Amazon is attempting to sublet some of the space on short-term contracts (1-2 years) while also negotiating existing lease terminations to eliminate any financial burden. Since they’re choosing to sublet the massive spaces instead of getting rid of it, it’s speculated that the eComm giant is expecting another shopping surge in the near future.
Overall, the pandemic had eCommerce giants shaking in their boots, clamoring to ensure they had the space to meet the surging demand of bored, quarantined people. Since the economy is worsening and people have shopping fatigue across the goal, all of the warehousing and logistical efforts made over the past couple of years could have been in vain. But the shopping will commence when the dust settles, and the economy rolls again.