What Happened to Etsy?
Etsy, the global e-commerce platform known for unique and handmade goods, reported its highest-ever annual revenue of $2.7 billion in 2023. However, the full picture reveals some troubling trends. Despite this revenue milestone, its gross merchandise sales (GMS), or the total value of goods sold on Etsy, declined for the second year in a row. Additionally, Etsy’s stock price is more than 70% lower than its 2021 high, and the first quarter 2024 earnings results did not meet expectations.
Decline in Sales and Stock Value
Etsy’s consolidated results, while within guidance range, fell short of the company’s desired targets. After a significant increase in both buyers and spending per buyer during the Covid-19 pandemic, Etsy has struggled to sustain growth, resulting in stagnant sales over the past two years. Some longtime sellers attribute this stagnation to CEO Josh Silverman’s focus on profits, which they believe has led to an influx of counterfeits and mass-produced items, undermining the platform’s original vision and demoralizing artists and buyers alike.
Leadership and Vision Shifts
Etsy was founded in 2005 by Rob Kalin, who envisioned a platform to empower artisans and influence society towards more conscious consumerism. The virtual storefront allowed small businesses and local artists to connect with buyers worldwide, fostering community and providing a significant opportunity for growth. However, changes in leadership and strategy have shifted Etsy’s focus over the years.
In 2011, Kalin stepped down as CEO, and in 2013, Etsy allowed artists to use outside manufacturers, loosening the definition of “handmade.” This shift was a response to increasing competition and the need to appease financially-focused shareholders. Etsy’s stock lost significant value in its first full year as a public company, highlighting the challenges of balancing growth and maintaining its unique identity.
Changes Under Josh Silverman
Appointed in 2017, CEO Josh Silverman implemented several changes, including layoffs, fee hikes, and a new tier-based subscription model for sellers. While these changes helped balance the marketplace between sellers and buyers, they also led to dissatisfaction among long-time sellers. The pandemic provided a temporary boost, with sales and the stock price reaching new highs in 2020 and 2021. However, post-pandemic, Etsy struggled to maintain this momentum.
Current Challenges
By the first quarter of 2024, Etsy faced declining sales and missed earnings targets, leading to an 11% staff layoff in December 2023. The company’s strategy to prioritize quick sales and buyer retention over individual seller experiences has angered many of its core sellers. The introduction of controversial programs like the star seller program and frequent fee increases have further strained relationships with sellers.
Sellers like Chiarra Lohr, leading the Indie Sellers Guild, have voiced their frustrations, calling for more flexibility and fairness in Etsy’s policies. The rise of dropshipping and AI-generated designs has also contributed to the “junk-ification” of Etsy, diluting its original handcrafted charm.
Looking Ahead
As Etsy tries to navigate its identity crisis and compete with e-commerce giants like Amazon and eBay, its future remains uncertain. The company’s mission to support artisans and provide unique goods is at odds with its current business practices, which emphasize growth and profitability. In February 2024, activist investor Elliott Management acquired a 13% stake in Etsy, suggesting potential future changes.
To regain trust and revitalize its platform, Etsy may need to leverage technology like AI to support sellers and improve buyer satisfaction while staying true to its core values. However, balancing financial pressures and the unique needs of its community will be a challenging task. The company’s ability to innovate and adapt will determine whether it can continue to thrive in the competitive e-commerce landscape.
