Shopify to lay off 20% of its workforce as it sells logistics business to Flexport

Shopify, a Canada-based online retail services platform that has struggled to gain traction with the brick-and-mortar delivery industry, said it would lay off around 20% of its workforce after the sale of the operations.

“We are significantly changing the shape of Shopify today to give undivided attention to our mission,” Chief Executive Tobi Lutke wrote in a letter to employees Thursday. The company’s stock price rose nearly 24%, closing at $57.30.

Some Shopify employees on the logistics team will move to Flexport or Ocado while others will be laid off, according to a person familiar with the deals. Shopify did not specify how many employees would be laid off and how many would move to the new businesses.

The transactions effectively end Shopify’s attempt to set up its own logistics operation alongside the e-commerce selling technology platform it offers merchants. Shopify bought Deliverr for $2.1 billion less than a year ago with plans to combine it with 6 River Systems into a single logistics unit. Shopify acquired 6 River Systems in 2019 for $450 million.

The sale price at Ocado was not disclosed.

Flexport Managing Director Dave Clark said the agreement to acquire Shopify’s logistics operations allows the San Francisco-based freight forwarder to offer logistics and tracking services to merchants in Chinese factories until delivery of the product. last mile to customers’ doorsteps.

Flexport is buying the portfolio in exchange for shares representing approximately 13% of Flexport’s capital. He did not disclose the value of this stake. The deal takes Shopify’s full interest in Flexport all the way to teens, the companies said.

Mr Clark, who joined Flexport last year after a long tenure building Amazon’s extensive logistics network, said the acquisition includes taking over about 50 warehouses and sorting centers from parcels all over the country.

“It’s like stepping back in time to the early days of Amazon,” Clark said. “When I started at Amazon in 1999, we had just opened our fourth or fifth warehouse. So Flexport is going to start with its 50 very small and three large here in a month or two, and it feels like we’re starting again the journey, just in a different way.

The acquisition of Flexport will put the company in competition for retailer delivery business with Amazon, which operates one of the largest e-commerce fulfillment networks in the world. It’s a space Mr. Clark knows well as the architect of Amazon’s vast distribution network.

Mr. Clark joined Flexport in September after a 23-year career at Amazon, where he was until recently CEO of Worldwide Consumer at the e-commerce giant. In this role, he was one of Amazon’s most senior executives.

Clark has engineered the Seattle-based company’s network of hundreds of warehouses, distribution centers and delivery stations to rapidly expand over the past few years, making it a larger-than-corporate logistics operation such as FedEx..

At the time he quit, he had over a million employees in his organization. During his tenure, Mr. Clark led the launch of Amazon Robotics and expanded Amazon’s logistics operations to include Amazon’s own aircraft, trailers and last-mile delivery vehicles.

Since joining Flexport, Clark has brought with him a group of former Amazon employees, including logistics manager Parisa Sadrzadeh and former Amazon Web Services executive Teresa Carlson.

Clark said Flexport’s logistics services will allow merchants to manage imports and last-mile delivery through a single platform, and allow them to process orders through their own websites and physical stores as well as through other stores. other retailers, including Amazon and Walmart..

Rather than competing with Amazon’s logistics network, “I consider it a lot more because I’d like to be an extension of that network,” Clark said.

When Shopify in May 2022 announced its deal to buy Deliverr, industry watchers and some shareholders expressed skepticism about the plan to deepen logistics services. The company had very little experience in warehousing and shipping items at the time. Its shares fell 14.9% on the day of the announcement.

The move also came just as the pandemic-driven e-commerce boom was fading. Last summer, Shopify announced that it was laying off 10% of its global workforce as its revenue slowed.

Earlier this year, Shopify announced it was bolstering its logistics and service offerings, including building an app with Flexport that allows shippers to book ocean freight and track shipments. Shopify said it will continue to run this app for its merchants to connect to Flexport’s logistics services.

“We’ve been incubating Shopify Logistics for about four or five years. And we think that’s just going to make the product even faster,” said Shopify President Harley Finkelstein. “The fact that now (Flexport is going to) take it all on and allow our merchants to get this amazing product to happen faster at scale, we think it’s a great match for us.”

Amazon focused on Shopify as a competitive threat. In 2020, Amazon created a secret unit within the company called “Project Santos” dedicated to studying the company and copying parts of it, the Journal reported.

Project Santos has evolved into a service that Amazon offers to fulfill any business’s e-commerce orders through its fulfillment centers, which typically manage inventory for sellers on Amazon.com.

—Paul Berger contributed to this article.

Write to Liz Young at liz.young@wsj.com and Dana Mattioli at dana.mattioli@wsj.com