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It’s not a great time to be a disruptor in retail.

For new companies that hope to challenge big-name brands, a mix of high inflation and changing trends have upended many of the consumer patterns seen during the COVID-19 pandemic. E-commerce and tech retailers are in a particularly tight situation, as some consumers return to in-store shopping.

While many of these brands experienced skyrocketing sales and online demand over the past few years, most have quickly been brought back down to Earth. 

As these companies attempt to course correct their bottom lines, the retail industry is seeing a reduction in workforce for both big and small players alike. Walmart, one of the largest employers in the U.S., laid off 200 corporate employees last week. 

Out of all the digital retail disruptors that are now dealing with a dose of reality, Shopify demonstrates the predicament most poignantly.

In a letter to employees from CEO Tobi Lütke regarding recent layoffs, he stated “We bet that the channel mix — the share of dollars that travel through e-commerce rather than physical retail — would permanently leap ahead by 5 or even 10 years,” he wrote. “Ultimately, placing this bet was my call to make and I got this wrong. Now, we have to adjust.”

Internet-native brands are twice as likely than brick-and-mortar stores to report they’re unprofitable, according to a survey of global retail leaders conducted by Ipsos for Publicis Sapient and Salesforce. Around 70% of those surveyed said the massive push toward e-commerce during the pandemic was done in “less-than-optimal ways.”

For even fresher startups, funding is drying up across the board. Global funding for startups in the second quarter plummeted 23% year over year, according to data from CB Insights. Retail tech funding dropped 11% to $23.8 billion in the first quarter of the year, and only 11 companies went public, which is half as many as went public in Q4 of 2021, per another CB Insights report.

The layoffs come at an interesting time for the U.S. job market, which added 528,000 jobs in July and brought the employment numbers back to pre-pandemic levels, according to a Friday report by the U.S. Bureau of Labor Statistics. However, updated job opening numbers released last week show that the retail sector is slowing hiring. Job openings decreased to 10.7 million in June, with the largest decrease seen in retail.  

It’s a difficult time for startups to build capital, and existing retail disruptors are dealing with the fallout of their fast-growth strategies. Here’s a look at a few disruptors who have announced layoffs this year as a way to remedy their woes:

Shopify

Seen as an e-commerce company that might be able to compete with Amazon, Shopify has had a tough year. In late July, the retailer announced it laid off 10% of its workforce. It then reported second-quarter results, with a $1.2 billion net loss and an operating loss of $190.2 million compared to an income of $139.4 million last year.

The layoffs stem from its decision to expand rapidly based on COVID-19 pandemic predictions about the growth of e-commerce, which its CEO said was a failed bet. 

“Like other players, Shopify has been hit by a general slowdown in demand which, thanks to inflation, has resulted in consumers buying less,” GlobalData Managing Director Neil Saunders said in emailed comments. “This has impacted its merchants which, in turn, has affected its forecasts for revenues from subscription and merchant solutions.”

The company isn’t afraid to spend money though, as it recently placed a $100 million investment into autonomous e-commerce group Klaviyo.

Glossier

The DTC beauty brand has had two rounds of layoffs just this year. In January, the company laid off more than 80 employees. Emily Weiss, founder and CEO at the time, wrote a letter to employees that was eerily similar to Shopify’s.

“Over the past two years, we prioritized certain strategic projects that distracted us from the laser-focus we needed to have on our core business: scaling our beauty brand,” Weiss wrote. “We also got ahead of ourselves on hiring. These missteps are on me.”

Weiss later stepped away from the CEO role in May.



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