Shopify, often touted as a growing rival to Amazon in the eCommerce space, has made significant strategic changes, divesting its major fulfillment assets and shifting away from its logistics aspirations.
In a blog post, the company announced a reduction of approximately 20% of its workforce, marking the second substantial round of layoffs within a year. The affected employees will receive 16 weeks of severance pay and medical benefits. Shopify’s CEO, Tobias Lütke, acknowledged the challenging decision, emphasizing the company’s commitment to offering the best possible support to those impacted.
These shifts represent a remarkable reversal of Shopify’s multiyear efforts to establish its warehousing and delivery services. Investors, however, reacted positively to the company’s pivot towards focusing on its core retail business, driving its stock price up by as much as 17% in premarket trading following the announcement.
Shopify’s first-quarter earnings report revealed $1.5 billion in revenue, surpassing Wall Street’s expectations and reporting a profit when analysts had predicted a loss.
The majority of Shopify’s fulfillment assets will be acquired by logistics provider Flexport in an all-stock deal, which also includes the sale of shipping service company Deliverr. Shopify had purchased Deliverr just the previous year for $2.1 billion. In exchange, Shopify will receive a stake of approximately 13% in Flexport, expanding its ownership in the privately held company to the high-teens. Flexport will become Shopify’s official logistics partner, further acquiring Shopify’s warehouses.
Additionally, British grocery-tech company Ocado Group announced its acquisition of a significant part of Shopify’s network, specifically the warehouse automation firm 6 River Systems (6RS).
Rick Watson, CEO and Founder of RMW Commerce Consulting, commented on the move, stating that while it appears to be the right long-term decision, it raises questions about Shopify’s management team in the short-to-medium term.
The decision to divest these assets and shift focus comes as Shopify seeks to cut costs amid a post-pandemic slowdown in online shopping and rising inflation. It also enables the company to part ways with employees associated with these divested assets.
Harley Finkelstein, President of Shopify, emphasized that this shift allows the company to return to its core strength—the retail side of the business.
Flexport’s CEO, Dave Clark, praised Shopify’s willingness to adapt its strategy when necessary, acknowledging the challenges posed by such strategic shifts.
Despite Flexport’s last valuation at $8 billion, it refrained from disclosing additional financial details. Analysts speculate that the company’s valuation may have dipped in recent months due to the challenging investment landscape. Even at its prior valuation, Shopify is selling the assets at a loss compared to the $2.1 billion it spent on Deliverr just last year. Under the previous valuation, Shopify would receive approximately $1 billion worth of Flexport stock.
Shopify and Ocado Group did not disclose the specific terms of their deal. Ocado Group had acquired 6 River Systems in 2019 for $450 million.
