Behind Shopify's brakes: logistics failure and management missteps

It is learned that Shopify has announced several major adjustments this year, including large-scale layoffs, the sale of most of its logistics business, and a refocus on its main business, which is to develop software for platform merchants. In 2022 alone, Shopify is still acquiring logistics companies to compete with Amazon.

Such a big change in business direction within a year has caused a lot of turmoil in the industry. In the past four years, Shopify has invested billions of dollars to build its own distribution network. However, on May 4 this year, Shopify announced that it would sell most of its logistics business to Flexport, which surprised the industry.

Between 2020 and 2021, Shopify's sales doubled thanks to the e-commerce boom brought about by the epidemic, and the number of employees grew to more than 11,000 by the end of 2022. But in the past ten months, Shopify has announced two large-scale layoffs, the most recent of which was in May, when it announced that it would lay off 2,000 employees, equivalent to 20% of its total employees.

In fact, Business Insider reported, citing internal staff, that Shopify, which has a history of 17 years, is facing a mid-life crisis. In the past year, Shopify's management style has changed, and almost all of its management has been replaced, resulting in confusion in management decisions. In addition, Shopify has made many attempts in logistics, but none of them were satisfactory.

The logistics attempts were repeatedly frustrated and the team lost confidence

The report quoted a former Shopify employee as saying that Shopify initially had high hopes for its logistics project and launched large-scale acquisitions. However, as online shopping demand cooled and due to poor considerations in various aspects, the logistics projects acquired by Shopify became a burden.

In 2019, Shopify announced its entry into the logistics field for the first time and pledged to invest $1 billion to build a logistics warehouse network. Insiders revealed that many sellers were very excited when they learned the news and came to Shopify for consultation.

In September 2019, Shopify announced the acquisition of robotics company 6RiverSystems in an attempt to automate warehousing and logistics operations. However, the acquisition did not bring the desired effect, and for the smaller Shopify warehouses at the time, these technologies did not play a big role.

Finally, in 2022, Shopify acquired Deliverr, a fully functional network of independent warehouses bundled with software, for $2.1 billion. However, the logistics team soon discovered that integrating Deliverr with Shopify would be difficult because the two were built using different coding languages.

After many attempts, by early 2023, Shopify's internal attitude towards building its own logistics had turned into obvious frustration. Within six months of acquiring Deliverr, Shopify began looking to sell or shut down its logistics business.

Bureaucracy is rampant and management has undergone a major reshuffle.

Some employees reportedly said that the massive hiring during the pandemic led to a surge in the number of managers, bureaucracy began to appear within the company, and slowed down the work of employees. Before the pandemic, Shopify was known for its vibrant office culture. But during the pandemic, the company began to require "channel leaders" to monitor employees' conversations on the work communication tool Slack.

During Shopify's first round of layoffs in July last year, CEO Lütke expressed his regret for the incorrect e-commerce growth estimates in a letter to employees. The letter described the logistics business as a "side mission", which made the laid-off logistics department employees dissatisfied.

In addition, in 2022, Shopify's management team will undergo a major reshuffle, with almost all senior executives, including the chief operating officer and chief technology officer, replaced. At the same time, Kaz Nejatian, vice president of Shopify's business service products, was promoted to chief operating officer. Kaz Nejatian's impression in the minds of former Shopify employees is that he is "very decisive and resolute in his work."

Nejatian brought a Silicon Valley-style work style when he joined Shopify in 2019. He established a stricter system, which impacted Shopify's previous relaxed work culture. In 2021, Kaz Nejatian caused public outrage by advocating China's 996 work culture. He also added a new policy in January this year, including automatically canceling all meetings with more than two people.

Under these changes, Shopify's internal management began to become chaotic, and employees also worried that as the company's transparency decreased, their work became more difficult. Many employees believed that Shopify was no longer the Shopify of the past, and its internal and external values ​​had changed.

It can be said that Shopify's business adjustment is the result of internal and external troubles. Cutting off part of the logistics business can leave more room to resolve internal conflicts. After announcing the sale of the logistics project, Shopify's stock price rose by more than 20%. Investors no longer see it as the next Amazon, but more as the next Salesforce.

Editor✎ Ashley/

Disclaimer: This article is copyrighted and may not be reproduced without permission.