Economic Woes Hit US Retailers – Including Some Ecommerce Players

The biggest layoffs in ecommerce for the last 3 years have been announced by Shopify. It is laying off around 10% of its workforce, or about 1,000 employees, according to the Wall Street Journal. The Canada-based company told staff that the layoffs are necessary as users are pulling back on online orders and returning to old shopping habits. This comes shortly after Shopify announced that it was changing its payment structure. So far 2022 has seen a mixed response to the economic situation in the USA. Read on for more on this subject.

Overall, in 2022, retailers have opened over 4,200 stores in the US (outpacing 1,766 announced store closings). Heightened demand for in-person shopping — especially of the affordable kind — saw dollar stores (followed by other low-price leaders like Aldi and Five Below) top the openings list.  brick and mortar stores continue to be key to engaging consumers and play a significant role in retailers’ omnichannel strategies.

According to CB Insights, there have been 139 retailer bankruptcies since 2015. Mounting debt, the retailers’ own missteps, and lack of adaptability online are to blame, among other factors. COVID took down several companies – and department stores proved to be the most vulnerable, with the pandemic felling famous brands such as Revlon, Neiman Marcus, and JCPenney. US shopping malls had seen declining foot traffic pre-COVID, but stay-at-home orders further shifted shoppers to online shopping and spending cash on essential goods. While in 2020 there were 52 retail bankruptcies, 2021 saw just 21 — a 60% drop year-over-year, and this year there have been fewer bankruptcies again, however, the recent sharp increase in the consumer price index, including both fuel and food prices caused by Russia’s invasion of Ukraine, and a potential recession may lead to yet more companies disappearing.

Having said that, as all bricks and mortar retailers know, stock come at an excessive cost — deadstock costs retailers an estimated $50bn annually in the USA alone. The good news is that a growing number of tech solutions on demand forecasting & inventory optimization; trend identification and wholesale platforms are helping merchandisers drive productivity and overcome the traditional problems of deadstock.

Regarding downsizing, we felt it is worth quoting in full a piece from the editor of Startups Weekly:

“The Great Resignation, the economic trend of people quitting their jobs in pursuit of other opportunities, has been greeted by a harsh reality: the Great Reset.

This week, a spate of tech companies – those valued above $1 billion from their venture capital investors – announced reductions in their workforce. I wrote three layoff stories in fewer than 24 hours, a cadence I haven’t experienced since the beginning of the pandemic. These stories may have the same characteristics, but they feel dramatically different.  Unlike before, when startups had to lay off employees in response to the sudden shock of the pandemic, today’s tech companies are making cuts due to – more or less – their own lack of discipline. I have more empathy for a founder who was caught off guard by a pandemic than one who overspent despite knowing that the boom wouldn’t exist forever and is now cutting the same employees that helped them soar. Whiplash, I’m hearing from some now former employees, is an understatement. Growth is tricky, and a part of a founder’s job is to moonshot their way to scale, but we also need to remember that change was inevitable. Especially for startups that hit product market fit during a once-in-a-lifetime event.

The biggest difference between layoffs in 2020 versus layoffs in 2022 is cash, potentially a lifeline. Startups raised massive amounts of capital thanks to larger average deal sizes over the past two years; meaning that some of the capital that was once used to sweeten benefits or candidates’ offers may be pivoting to runway”.

That being said, while most other sectors saw 2022 Q1 declines in investment, venture funding to blockchain startups grew for the 7th straight quarter, with 7+ blockchain deals per business day. US-based startups raised nearly two-thirds of global funding in the quarter and a record 14 blockchain unicorns emerged in the first quarter, bringing the sector’s total to 62. NYC once again beat out Silicon Valley in funding for the #1 US metro spot, with more venture funding ($2.4B) going to NFT startups than any other blockchain category, while Defi saw 425% year-over-year funding growth.