After experiencing what Etsy CEO Josh Silverman referred to as a “tidal wave of growth” over the past two years, the leading marketplace for handmade clothing, jewelry and other items is now facing an earthquake of sorts that has pushed its stock down 60% in six months to a two-year low.
While the Brooklyn-based business is still profitable and growing, its transition to a more normalized pace of growth in a post-pandemic world has been fraught with challenges, as its first-quarter earnings results reflected a 2% decline in gross sales at its core Etsy property, which accounts for 85% of its business.
“Etsy experienced a tidal wave of growth over the past two years as so much of the world shut down,” Silverman said on the company’s earnings call Wednesday afternoon (May 4).
“We are emerging from an unprecedented time — and within that, Etsy has had unprecedented growth,” he added, noting that the marketplace’s active sellers and buyers had more than doubled to 5.5 million and nearly 90 million, respectively, while pushing gross merchandise sales to $2.8 billion from $1.2 billion a year ago.
Even so, Silverman said the eTailer has retained more than 90% of the gains it made over the past two years, telling investors that “despite the near-term uncertainty, we have ample reason to remain very optimistic for the long term.”
The Great Unraveling
But it is the short term, however, that continues to plague Etsy and is dominated by nervous investors who have seen the stock unravel like a poorly made sweater over the past year. The jitters were just rekindled by a Q2 outlook that predicts a further 5% to 10% drop in the marketplace’s gross sales.
The company is also in the process of digesting acquisitions that have seen its headcount grow 70% alongside industrywide macroeconomic “headwinds related to consumer discretionary spending, continued reopenings and geopolitical events,” according to a press release announcing Q1 earnings results.
And yet, Etsy is unwavering in its mission and unique niche within the vast strata of online retail sites.
“We have provided a pathway to economic opportunity for millions and a meaningful alternative for buyers looking to not be just another cog in the complex and increasingly commoditized global supply chain,” Silverman said.
Fighting the ‘Sea of Sameness’
As much as investors are struggling to revalue a much larger Etsy in a post-pandemic era, the company’s management is steadfast in its belief that the number of places to shop online will consolidate as a result of this increasingly commoditized world.
“The pandemic perhaps gave us the chance to preview what the world could look like for Etsy,” Silverman told analysts, “where in a more consolidated, more commoditized future world, Etsy could flourish as one of the few meaningful alternatives amidst a sea of sameness.”
To navigate the current choppy seas that Etsy finds itself in, the company said it plans to retool its outreach and offerings to men, where 75% percent of its U.S. and U.K. customers currently identify as women.
“For example, we saw positive return on investment from some of our recent tactics using gender-neutral TV creative, with media placements on NFL and Hulu,” Silverman said, adding that this year, Etsy would begin “piloting male influencer content to increase trial and trust in Etsy” by men.
While the online site now boasts 90 million active buyers, the company said it was focused on improving engagement and conversion to reactivate some of the 100 million “lapsed buyers” in its ranks, former customers who have not bought anything on Etsy in at least 12 months.
To that point, Silverman said the company is applying increased personalization to in-session browsing behavior in the U.S. by capturing and surfacing users’ short-term search interests — 75% of whom have never shopped with Etsy before when they arrive or are logged out.
“We can now increasingly refine our search results while a potential buyer browses in real time, leveraging signals we gained during the course of the visit to narrow in on today’s shopping mission,” Silverman said, versus in the past, when it needed a buyer to have previously engaged with Etsy to be able to personalize these results.
“[Etsy is] capturing a buyer’s short-term interests with a particular emphasis on improving conversion for signed-out or new buyers,” he said.
Seller Relations
Etsy is also looking to smooth over strife that saw some sellers close their shops for a week last quarter in protest over a proposed fee increase. Silverman said the action was limited in scale but still a reminder to the company that its fortunes are directly tied to the success of its sellers.
Read more: Etsy Sellers Strike as Craft eCommerce Site Raises Fees
“While there were a small number of sellers who managed to get quite a lot of media attention, in fact, less than 1% chose to put their shop on ‘vacation mode’ during that week,” Silverman said, noting no material impact to sales or churn for the week or the quarter.
“We think the reason is that the value proposition that Etsy offers is really compelling, and whether the transaction fee is 5% or 6.5% right now, what sellers really need is us bringing them more buyers so they can drive more sales and the pie gets bigger for everyone,” Silverman said.
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