“I don’t want to bury the lede: after today, Shopify will be smaller by about 20% and Flexport will buy Shopify Logistics; this means some of you will leave Shopify today,” CEO Tobi Lütke said in a memo to staff. “I recognize the crushing impact this decision has on some of you, and did not make this decision lightly.”

The company expects to incur severance charges of $140 million to $150 million.

“Our numbers were unhealthy, just like it is in much of the tech industry,” Lütke said. “With the right numbers, we’ll fully focus on outcomes and impact.”

Shopify earnings

The ecommerce platform provider also announced its fiscal first-quarter earnings on May 4. It said revenue increased 25% to $1.5 billion compared to the prior year.

Gross merchandise volume, the total value of merchant sales across Shopify’s platforms, was $49.6 billion. That’s above Wall Street projections of $47.68 billion, and some $6.4 billion higher than comparable quarter of 2022.

The Ottawa-based company also gave an outlook for the second quarter, saying it expects revenue to grow at a similar rate to the first quarter growth rate on a year-over-year basis. It also expects to achieve free cash flow profitability for each quarter of 2023.

Shopify bet early in the pandemic that a rapid rise in online shopping, fueled by customers staying home, would become permanent. As that wager soured, Lütke has attempted to turn the company around. It cut about 1,000 jobs last summer, raised prices and focused on building out client offerings and its in-house fulfillment network. Shopify had 11,600 employees at the end of 2022.

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The Canadian retailer reported net revenue grew 47%, and it reached $2 billion in sales for the first time in 2023.

Aritzia ranks No. 211 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers by web sales.

Ecommerce boomed

Ecommerce sales were up 51% year over year for the fourth quarter, Aritzia said. Online sales accounted for about 43% of revenue in the quarter.

Traffic growth in both the U.S. and Canada fueled the sales record. Conversion also grew due to improvements in Aritzia’s website experience and search functionality, CEO Jennifer Wong said.

The clothing retailer is already gearing up for further online growth. Wong says Aritzia is now working toward better functionality to bring consumers “a captivating personalized experience.” Those improvements will allow Aritzia.com to make intelligent recommendations to shoppers based on style and preferences. Wong said Aritzia expects this plan to more than double ecommerce revenue by 2027. Tests of these tools show higher conversion rates and revenue per session, she said, without providing exact details.

Influencers and celebrities drive sales

Outlets including Bloomberg and Business of Fashion have praised Aritzia for winning over Gen Z consumers in a difficult retail environment. Much of that success is due to successful partnerships with celebrities and influencers on social media. Wong noted relationships with Martha Stewart, Lupita Nyong’o, and Tracey Ellis Ross as names strengthening the brand in the last quarter. Influencer Emma Chamberlain’s role as the face of the retailer’s spring campaign also had “strong” results, she said without revealing more.

US growth

Aritzia is based in Canada, but in 2023, the U.S. became the retailer’s largest market, generating more than half of total revenue. U.S. sales grew 56% year over year, compared with 32% growth in Canada. Aritzia still has a “long runway of growth” in the U.S., Wong told investors.

Aritzia opened seven new stores in the U.S. in its fiscal 2023. Physical stores remain the retailer’s top tool for acquiring new customers, who then go on to shop online.

For the fourth quarter ended Feb. 26, 2023, Aritzia reported:

• Net revenue increased 43.5% year over year to $637.6 million.
• U.S. net revenue increased 55.7% to $337.5 million, making up 52.9% of net revenue.
• Ecommerce net revenue increased 50.8% from the year-ago period to $274.5 million, 43.1% of net revenue. Ecommerce made up 41% of revenue in the fourth quarter of 2022.
• Net income increased 9.1% from the year-ago period to $37.3 million.

For the fiscal year ended Feb. 26, 2023, Aritzia reported:

• Net revenue increased 46.9% to $2.2 billion in 2023 from $1.5 billion in 2022.
• U.S. net revenue increased 65.8% to $1.1 billion from $676.1 million.
• Ecommerce net revenue grew 36.4% to $769.9 million from $564.3 million.
• Net income grew 19.5% to $187.6 million.
• Aritzia opened eight locations and relocated five others.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports.

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The Shopify cuts will eliminate about 1,000 jobs out of 10,000 or so total employees at Shopify. Most of the affected roles are in recruiting, support and sales, Lutke said in a memo posted on the company’s website. The layoffs are immediate. The Wall Street Journal reported the job cuts earlier Tuesday.

“We bet that the channel mix — the share of dollars that travel through ecommerce rather than physical retail — would permanently leap ahead by five or even 10 years” because of the pandemic, Lutke wrote.

“It’s now clear that bet didn’t pay off,” he wrote. “What we see now is the mix reverting to roughly where pre-COVID data would have suggested it should be at this point.”

Shopify was among the hottest pandemic stocks in 2020 and 2021 as online shopping boomed. It came crashing down this year, hampered by an economic cool-down and an easing of COVID-19 restrictions. Shopify shares have fallen 73% this year as of Monday’s close.

The Ottawa-based company reported a huge profit miss in the first quarter, and analysts have cut their expectations for second-quarter results, which are scheduled for Wednesday.

The move boosts the likelihood that Shopify will lower its full-year outlook, according to RBC Capital Markets analyst Paul Treiber. During first-quarter results in May, the company said it had expected merchants to join its platform at the same rate as in 2021.

“Since Shopify reinvests all the gross profit that it generates back into the business, the reduction of headcount increases the likelihood that the company reduces its FY22 outlook,” Treiber said in a note to clients.

Analysts expect $1.33 billion in revenue for the period ended June 30, up just 11% from the first quarter.

For those losing jobs this week, Shopify will pay at least 16 weeks of severance and extend additional benefits. Those include an allowance to buy laptops and temporary coverage of home internet costs, a spokeswoman for the company said.

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As of today, Shopify’s U.S. merchants will be able to open a virtual storefront on Twitter’s online shopping platform. The news follows other Shopify Inc. collaborations with Alphabet Inc.’s Google and Meta Platforms Inc.’s Facebook.

“Retail does not happen across one channel, it happens across every channel,” Shopify President Harley Finkelstein said in an interview with Bloomberg News. Now that the pandemic is easing, merchants “want to sell across every single surface area.”

The Ottawa-based company’s shares have fallen 76% this year. The ecommerce company faces headwinds from the post-pandemic return to in-person shopping.

Shopify retailers will be able to sell their goods on Twitter two ways:

• Displaying as many as five products on their Twitter profile.
• Using Twitter Shops, a pilot feature that lets vendors advertise as many as 50 products in a tab linked to their profile.

Shopify and Twitter details

Shopify declined to provide an estimate of how much the Twitter deal will increase sales for its customers. But it said orders placed with Shopify merchants through other online partnerships quadrupled in the first quarter of 2022, compared to the same period a year earlier. It also said shopping-related tweets hit roughly 40 billion views last year.

The Twitter launch is slightly different from some other partnerships in that it doesn’t include Shop Pay, Shopify’s online payment tool.

Elon Musk, who is leading a proposed $44 billion takeover of Twitter, has said he plans to turn Twitter into a “super app.” He said he wants to combine social media, online shopping, and payments. Twitter shares have fallen 10% this year.

Shopify is a cloud-based, multichannel commerce platform designed for small and medium-sized businesses. Merchants use the application to design, set up and manage their stores across multiple sales channels. Those channels include web, mobile, social media, marketplaces, bricks-and-mortar locations, and pop-up shops. The platform also provides merchants with a comprehensive back-office and single view of their business.

The deal with Twitter comes just two months after Amazon.com Inc. said it would let merchants sell products they list with the ecommerce giant directly from their own websites. The move is seen as part of an effort to blunt the momentum of Shopify. Amazon ranks No. 1 in the 2022 Digital Commerce 360 Top 1000.

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Shopify is contending with consumers returning to physical stores and rising inflation, as well as labor shortages, Chief Financial Officer Amy Shapero said in a call with analysts.

“We saw lower merchant adds than last year and we largely attribute that to a very tight and transitional labor market,” Shapero told analysts. “We expect that the labor market will start to ease.”

At least seven analysts ratcheted down their share price targets on Shopify yesterday, adding to a series of cuts in the weeks before the earnings release. Shares in the company have fallen roughly 70% in the past year. They’re now 2% below where it closed the day the World Health Organization called COVID-19 a global pandemic in March 2020.

Ecommerce stocks have been pummeled this earnings season on concerns that online shopping is slowing as the COVID-19 pandemic fades. Amazon.com Inc. suffered its biggest one-day drop since July 2006 after it reported a weaker-than-expected revenue forecast.

Shopify sales

Shopify’s sales in Q1 rose 22% to $1.2 billion from a year earlier. But they couldn’t match analyst expectations of $1.25 billion, according to data Bloomberg compiled.

Gross merchandise volume (GMV) grew 16% in the first quarter from a year earlier to $43.2 billion. GMV is the value of merchant sales flowing through the platform. Analysts, on average, expected $46.5 billion in GMV.

Ottawa-based Shopify earned $25.1 million on an adjusted basis in the first quarter, or 20 cents a share. That’s far short of the 64 cents a share analyst expected. It’s also well below the $254.1 million in earnings in Q1 last year. The company gave a weaker outlook for adding new business customers in 2022. It said growth in merchants on its platform would be “comparable” to 2021.

Deliverr deal confirmed

Shopify also announced the largest acquisition in its history, a $2.1 billion deal for delivery startup Deliverr Inc., confirming an April 20 report. But it gave few financial specifics about the year ahead.

It purchased Deliverr — which provides two-day delivery services — more than doubling the size of Shopify’s fulfillment team. The transaction will be financed using 80% cash and 20% Shopify Class A shares.

The deal marks the beginning of one of Shopify’s most important long-term initiatives, according to KeyBanc Capital Markets analyst Josh Beck. To build its own fulfillment network, Shopify needs an experienced team with established technology, which it gains with Deliverr. But the process is expensive and takes up time and resources, he added.

In January, Shopify canceled several fulfillment and warehouse contracts intended to create its own distribution network.

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The investor group that controls the owner of Saks Fifth Avenue is “evaluating next steps, including terminating the transaction,” according to a memo sent to advisers. The group plans to make a final decision in a week or so, according to the note. Until then, it’s “pens down” until further notice, meaning no work is to be done on the deal.

The Baker group cited third-quarter results and a delay in the shareholder vote ordered by the Ontario Securities Commission late Friday. The Canadian regulator endorsed a complaint by minority shareholder Catalyst Capital Group Inc., which had sought a delay and increased disclosure on the Baker bid. The vote had been scheduled for Dec. 17 on the C$10.30-a-share offer that valued the Toronto-based company at C$1.9 billion ($1.45 billion). Hudson’s Bay said Monday it will schedule a new date “as soon as practicable.”

The decision to consider scrapping the offer comes after preliminary tallies showed the Baker group had fallen short of the necessary support from investors to proceed with the transaction, according to people familiar with the matter. The bid required the backing of a majority of the minority shareholders. The Baker group declined to comment.

Retail focus

The pulled deal would return the focus back on the retailer’s attempts to turn its business around and find a profitable mix between online and brick-and-mortar shopping. While it has reduced debt after selling assets in Europe, Hudson’s Bay is still struggling to boost sales at its eponymous chain in Canada, the oldest company in North America, while Saks recently showed signs of weakening. The luxury retailer this month posted its first same-store sales decline in at least eight quarters.

Hudson’s Bay shares, which have traded well below the Baker offer in recent weeks, jumped Friday to C$8.81 and gained as much as 1.3% to C$8.92 on Monday. Investors may be betting that a shareholder rejection of the offer would prompt a sweetened bid from the Baker group, which controls 57% of the company.

Catalyst, the Toronto-based private equity firm run by Newton Glassman, had made its own proposal at C$11 a share that was rejected by a special committee of the board because Baker’s group was adamant it wouldn’t tender its shares. The Baker group dismissed the Catalyst bid as “illusory,” saying its “reckless” financing plan would add to the company’s debt.

Gabriel de Alba, managing director of Catalyst, on Monday accused Baker’s group of “disregard of minority shareholders” and called on the chairman and his backers to start “a good-faith value maximization process,” according to a statement.

If board members don’t engage with Catalyst, the group “is prepared to take additional steps to address the improper conduct of HBC and certain of its insiders,” de Alba said.

Uphill battle

The vote on Baker’s proposal was bound to be an uphill battle for Hudson’s Bay, as Catalyst alone held almost a third of the 100 million shares to be counted in the vote. An added hurdle was herding shareholders, as seldom do all of them participate in such votes.

Complicating the matter, advisory firms had come out on different sides, as Institutional Shareholder Services Inc. urged investors to vote against the offer while Glass Lewis & Co. backed it.

Hudson’s Bays is No. 41 in the 2019 Digital Commerce 360 Top 1000.

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The volume of goods sold in stores and online slipped 0.2%, the Office for National Statistics said Thursday. That compares with economists’ expectations for no change, and comes after increases in June and July. Sales excluding auto fuel fell 0.3%.

Consumers have been a strong point for the U.K. economy as Brexit uncertainty eats away at investment and business confidence. Record employment and rising real incomes are underpinning household spending, the largest part of the economy.

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August’s retail sales drop was led by a 3.2% drop in non-store retailing, the most in four years, as online sellers stopped promotions from earlier in the summer. Sales at department stores fell 1.3%, continuing their long-term slump after a rally in July.

Still, overall sales gained 0.6% in the three months through August from the previous period. The sector will add to third-quarter growth as long as it avoids a drop of at least 1.7% in September, the ONS said.

Nevertheless, it won’t be easy for retailers this year as shoppers make fewer visits to brick-and-mortar stores and the crisis surrounding Britain’s departure from the European Union reaches a climax. Next Plc, one of the most successful U.K. clothes sellers this year, reported a slow start to the autumn season on Thursday.

“Although we can see a way through the woods, we are not out the other side yet,” Next Chief Executive Officer Simon Wolfson said in a statement. “Consumer markets remain extremely volatile.”

Canadian ecommerce sales rise

Ecommerce sales in Canada accounted for 3.2% of total retail trade in July, up 32.8% on the year. Retail sales increased 0.4% in July, the first advance in three months, as consumers spent more on new cars, Statistics Canada said Friday from Ottawa. The gain trailed economist expectations for a 0.6% increase. Excluding motor vehicles and gasoline, retail sales fell 0.1% on the month.

The report falls short of economist expectations for a larger rebound and may suggest higher debt servicing costs are hindering consumer consumption. Debt service costs reached a record in the second quarter, leaving consumers with less money in their wallets to spend on other goods.

In volume terms, which strip out the effects of price changes, July sales were flat on the month and the year, which echoed the second-quarter gross domestic product report that showed consumption has been weak. Year to date, volumes have increased 0.8%, slightly less than the 0.84% last year and the slowest pace of growth since 2009, the agency said.

The lackluster showing for retailers “leaves the Canadian economy more dependent on trade and capital spending, with both seen as vulnerable to a global slowdown,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a note to clients.

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