Canadian e-commerce platform Shopify has announced that it is cutting 20% of its workforce and selling most of its logistics business to supply chain tech firm Flexport. The move marks a pivot for Shopify, which will now be focusing more on the use of artificial intelligence (AI) in e-commerce. Flexport is set to become Shopify’s official logistics partner and the companies will swap equity, with the e-commerce platform selling Deliverr and any progress it made on Shopify-operated warehouses for a 13% equity stake in Flexport. Shopify’s CEO Tobi Lütke reveals that the company’s stake in Flexport is in the “high teens”.
Previously, the logistics business had become a problem for the e-commerce giant, drawing investor concerns. Shopify had laid off 10% of its workforce in July 2022 and acquired Deliverr later that year for $2.1bn, then bought warehouse automation and robotics firm 6 River Systems for $450m in 2019. The sale of its logistics arm marks a return to Shopify’s roots in e-commerce following an attempt to keep up with Amazon and offer corporate clients a fully integrated service.
The shift in focus to AI comes amid the company’s announcement of Q1 2022 profits of $1.26 per share, beating predictions that it would have a 4 cent loss. Despite the pandemic-related growth, Shopify has plans to introduce a series of sustainability-focused programmes and incentives for merchants to become more sustainable.
While the decision to sell the logistics business may have caught some off guard, it is believed to be a strategic move in the right direction. Shopify’s shares have surged by almost 28% since the announcement. William Blair analyst Matthew Pfau believes that “their positioning for post-pandemic growth is very strong”. Furthermore, Baird analyst Colin Sebastian notes that the sale of Shopify’s logistics business is “the first significant change to Shopify’s strategy of handling fulfilment “end to end””.
In conclusion, Shopify’s shift towards AI and focus on core e-commerce strengths looks likely to pay dividends in the long run, as the company readies itself for post-pandemic growth.
