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:
Just ahead of its second quarter earnings report, Warby Parker confirmed that it’s laying off 63 corporate employees, or 2% of its total workforce. The eyewear brand has one of the biggest brick-and-mortar footprints in the DTC space, with ambitious plans to expand. The downsizing won’t involve store or customer service employees, or the company’s optical labs, according to an internal memo from co-chief executives Neil Blumenthal and Dave Gilboa obtained by Retail Dive, but it does affect 15% of its overall corporate staff.
In that letter, the CEOs said the layoffs are part of a reorganization that will set the company up for long-term success, amid “significant volatility and uncertainty” in the global economy and shifting consumer behavior. Last year, Warby Parker’s revenue rose 37.4% to $540.8 million, while net loss widened by $88.4 million to $144.3 million due to rising SG&A expenses.
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.
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.
More recently, the brand laid off about two dozen employees last week following news that it entered a wholesale deal with Sephora — marking a huge departure from its traditional distribution strategy.
Peloton, a home-workout equipment DTC company, adds to the list of retailers who experienced a boon in sales during the pandemic when consumers couldn’t workout at gyms and needed to revamp their homes.
In February, the brand laid off a staggering 2,800 employees globally. Corporate positions were specifically reduced by 20%, and the brand reduced its warehouse and delivery teams as well. The restructuring program was enacted to “position the business for long-term growth while establishing a clear path to consistent profitability and sustainable free cash flow,” per a press release.
On that same day, Peloton also announced a new CEO who had experience at Netflix and Spotify, marking the end of co-founder John Foley’s tenure in the position.
The fitness company has since upended its long-standing strategies for manufacturing its equipment, which range from stationary bikes to treadmills. The company announced it would stop owned-manufacturing operations and expanded a partnership with a third-party Taiwanese company last month.
The apparel e-retailer laid off 15% of its salaried workforce — about 330 jobs — in June. The retailer’s CEO Elizabeth Spaulding noted that this was “an incredibly difficult decision” necessary to bring Stitch Fix back to profitability.
The brand had originally been built on the concept of its stylist and tech-curated subscription boxes, but introduced traditional e-commerce to their website last year. What followed were poor-performing quarters. The brand, moving into private labels, launched its own dedicated tween apparel brand this month, according to a press release shared with Retail Dive.
This followed a 2020 decision to lay off around 1,400 employees, including most of the California-based styling team.
While Klarna is a fintech company, its involvement with and impact on retail is strong. The buy now, pay-later company laid off 10% of its workforce in May, according to CNBC. Co-founder and CEO Sebastian Siemiatkowski later posted about the news on LinkedIn, even sharing a public list with all the impacted employees’ names. Comments on the LinkedIn post demonstrate backlash to the decision to release the list.
The layoffs were announced internally at Klarna via a pre-recorded video by Siemiatkowski, saying “When we set our business plans for 2022 in the autumn of last year, it was a very different world than the one we are in today,” adding that since then, consumer sentiment has shifted and the world is experiencing a variety of economic obstacles, according to CNBC reporting.
Sneaker resell platform StockX laid off 8% of its workforce in June citing “macroeconomic challenges currently impacting our global economy” which had an effect on consumer behavior.
The marketplace is focused on an industry — footwear — that has experienced post-pandemic declines in sales. About 87% of shoe company executives expect weaker sales in the third and fourth quarters of this year, according to a July report by Footwear Distributors and Retailers of America. That could potentially impact the secondhand market StockX operates in.
The marketplace is also dealing with counterfeit claims from Nike in federal court, related to both shoes and NFTs it has sold on the platform.
The bad news for footwear doesn’t end with StockX, though. Sustainability-focused DTC brand Allbirds laid of about 8% of its workforce at end of July.
A brand spokesperson told Retail Dive that the decision was made to “roles and processes in each department, and in each market, to ensure our operating structure is set-up for the next phase of growth.”
The retailer’s most recent quarterly earnings report showed that while net revenue rose 26% year over year to $62.8 million, the net loss widened by more than $8 million to $21.9 million. Allbirds has also entered into wholesale deals to expand revenue possibilities.
E-commerce curation company The Grommet shut down and laid off its 44 employees in June. The marketplace — which focused on small and quirky brands — was taken under majority ownership by Ace Hardware in 2017.
The Grommet, like Glossier and Allbirds, had looked towards the wholesale operations of Ace Hardware for growth.
In a statement on LinkedIn, founder Jules Pieri stated, “As CEO I decided to commit hard and invested for wholesale success at Ace and beyond,” but noted that growth slowed and customer acquisition costs on Google and Facebook became more expensive.
Editor's note: This story has been updated to include an entry on Warby Parker's layoffs. Daphne Howland contributed to this story.