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Shopify posts Q2 loss of US$1.2 billion, a day after laying off 10% of staff

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Shopify Inc.’s president is arguing the company is in an “enviable” position, even as it continues to express regret over misjudging the growth of the e-commerce market — a move that forced a dramatic number of job cuts Tuesday.

Harley Finkelstein detailed on Wednesday how his Ottawa software company has been facing a reckoning after it anticipated the amount of shopping people carry out online, instead of at brick-and-mortar retailers, would permanently leap ahead by five or 10 years from pre-pandemic predictions and hired to meet those expectations.

“We couldn’t know for sure at the time, but we did know that if the prediction came true, we would have to rapidly scale the company to meet that future,” he said, on a call with analysts.

“Fast forward to now, as things have turned out differently.”

Shopify has found the rate of spend its merchants see online is higher than in 2018, before COVID-19 struck the globe, but is lower than what the company planned for and resulted in a US$1.2 billion loss in its most recent quarter.

“In short, we overshot our prediction,” Finkelstein said.

“Recalibrating our investments and spending, we are making sure we do not sacrifice the components we feel are critical for Shopify.”

His remarks come a day after Shopify laid off 10 per cent of staff – roughly 1,000 employees based on the company’s 2021 head count of 10,000.

The layoff, which CEO and founder Tobi Lütke took responsibility for, was blamed on Shopify’s miscalculation and heavily weighed on its already depressed share price, which dropped 14 per cent by Tuesday’s market close.

Amid a broad market sell-off that has most affected the tech sector, the price of Shopify’s stock has fallen by more than 78 per cent since its late 2021 peak of $222.87.

But Shopify is confident it can turn things around, despite its chief financial officer warning on the same call as Finkelstein that inflation is at a near 40-year high and shifting shopping habits.

Consumers are now favouring discount retailers and reducing their spending on many categories, a trend expected to persist throughout 2022, Amy Shapero said.

“Our teams are mindful of the macro environment and have been rigorously evaluating and adjusting our spending priorities,” she said.

That process began with a workforce review that slowed hiring between Shopify’s first and second quarter, while also identifying areas where Shopify could “improve our operations and team” and thus carry out layoffs.

The company will continue slowing hiring in 2022 and end the year with a “modest” head count, Shapero said.

It’s hard to say what the natural size of the company’s workforce should be, but Shopify is not interested in linear head count growth, Lütke added.

He conceded the layoff had taught him about why many company leaders are careful around making big bets like Shopify has hinged its business on.

“Mathematically, they make a lot of sense,” he said. “Obviously, you ought to take a 20 per cent chance at a 10 x increase, but when they don’t work, they have to be a somewhat public thing.”

Lutke’s concessions came as Shopify revealed it lost US$1.2 billion or 95 cents per diluted share in its second quarter, compared with a profit of US$879.1 million and 69 cents per diluted share a year earlier.

The company said the loss for the period ended June 30 includes a US$1 billion net unrealized loss on equity and other investments and a roughly US$800 million net unrealized gain from equity and other investments.

Shopify, which reports in U.S. dollars, says its adjusted net loss for the second quarter was US$38.5 million, or three cents per diluted share, compared with a profit of $284.6 million, or 22 cents per diluted share in 2021.

Revenue increased 16 per cent to US$1.3 billion, up from US$1.12 billion in the prior year quarter.

This report by The Canadian Press was first published July 27, 2022.

Companies in this story: (TSX:SHOP)

Tara Deschamps, The Canadian Press

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The return of Zellers: Hudson’s Bay to resurrect Canadian discount retail chain

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Canadian department store Zellers hopes to make a comeback next year, a decade after the discount chain shuttered most of its locations.

Hudson’s Bay Co. said Zellers will debut a new e-commerce website and expand its brick-and-mortar footprint within select Hudson’s Bay department stores across the country in early 2023.

The company said the relaunched Zellers will offer “a digital-first shopping journey that taps into the nostalgia of the brand.”

The return of Zellers comes as soaring inflation drives consumers to discount retailers in search of lower prices and fierce competition from existing stores like Walmart and Dollarama.

It also comes amid an ongoing lawsuit over a Quebec family’s use of the Zellers brand.

The Moniz family is behind various recent trademark applications and corporate registries, including Zellers Inc., Zellers Convenience Store Inc. and Zellers Restaurant Inc.

In a statement of claim filed last fall, HBC accused the Moniz family of trademark infringement, depreciation of goodwill and so-called passing off — the deceptive marketing or misrepresentation of goods.

The Zellers department store was founded in 1931 and acquired by HBC in 1978.

It operated as the discount division of its flagship Hudson’s Bay department stores, with the slogan “Where the lowest price is the law.”

The store hit its peak of about 350 locations in the late 1990s before losing ground to big box competitors such as Walmart.

In 2011, HBC announced plans to sell the majority of its remaining Zellers leases to Target Corp., closing most stores by 2013.

The retailer kept a handful of Zellers locations open as liquidation outlets until 2020.

The company recently launched pop-up Zellers shops inside Hudson’s Bay department stores in Burlington, Ont., and in Anjou, Que.

This report by The Canadian Press was first published Aug. 17, 2022.

Brett Bundale, The Canadian Press

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Inflation “slows” to 7.6 per cent in July, Statistics Canada says

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Ottawa – Canada’s year-over-year inflation rate slowed to 7.6 per cent in July, with the deceleration largely driven by a decline in gas prices.

The inflation rate hit a nearly 40-year-high of 8.1 per cent in June, but economists were widely expecting inflation to have since slowed.

In its latest consumer price index report, Statistics Canada said the rise in prices in July was the smallest monthly gains since December 2021.

It also marks the first decline in year-over-year inflation since June 2020.

The federal agency said gas prices rose 35.6 per cent year-over-year in July, compared with 54.6 per cent in June.

“Ongoing concerns related to a slowing global economy, as well as increased COVID-19 pandemic public health restrictions in China and slowing demand for gasoline in the United States led to lower worldwide demand for crude oil, putting downward pressure on prices at the pump,” the report said.

But while gas prices declined, food prices at grocery stores rose at the fastest pace since August 1981, with prices up by 9.9 per cent on a year-over-year basis compared with 9.4 per cent the previous month.

Bakery goods are up 13.6 per cent since last year amid higher input costs as the Russian invasion of Ukraine continues to put upward pressure on wheat prices. The prices of other food products also rose faster, including eggs, which are up 15.8 per cent, and fresh fruit, up 11.7 per cent since last year.

As mortgage costs increase with higher interest rates, the report notes rent prices are accelerating, rising faster in July than the previous month.

With more Canadians travelling during the busy summer season, airfares rose by around 25 per cent in July compared with the previous month. Traveller accommodation prices rose by nearly 50 per cent since a year ago, with the largest price increases in Ontario.

As countries around the world struggle with skyrocketing prices, there are some signs inflation is beginning to ease, with the U.S. seeing its inflation rate decline in July as well.

Still, inflation is well above the Bank of Canada’s two per cent target.

The central bank is watching the latest reading of inflation as it gears up to make its next key interest rate on Sept. 7, when it’s expected to raise borrowing rates again.

This report by The Canadian Press was first published Aug. 16, 2022.

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