The Journal. - Etsy: Big Commerce or Crafters' Community?

Episode Date: August 26, 2024

For almost 20 years, Etsy has been a popular website for handmade and specialized goods on the internet. But as the company grew, many current and former sellers say the platform has changed and is now full of mass-produced goods. They’ve also complained about increased seller fees. The CEO, Josh Silverman, responds, saying Etsy is still true to its original mission to keep commerce ‘human.’  Further Listening: - What’s Behind Amazon’s Review Problem  - The Resurrection of Abercrombie & Fitch  Further Reading: - Temu’s U.S. Entry Is an Orange Flag for Etsy  - Etsy to Cut 11% of Marketplace Workforce in Restructuring  Learn more about your ad choices. Visit megaphone.fm/adchoices

Etsy. For almost 20 years, it's been the spot for handmade and specialized goods on the internet. Many crafters, creators, and collectors have flourished on Etsy, and they've found community and made money on the site. I talked to several current and former sellers about their work. I'm currently making a big batch of skirts with a day of the dead fabric. Mostly mid-century modern furniture from the 1560s and mostly Scandinavian stuff. Clothing, I focus on clothing. Book finding and printmaking, so really anything stationary related, all sorts of paper, hand

bound books and then hand-printed cards. These sellers turn to Etsy because they see its value for their business. The site currently hosts about nine million active sellers. But many of them also say that Etsy has changed. The company now gets a bigger cut of merchant sales, and some sellers say real handmade goods are getting lost in a flood of mass-produced items. Etsy is now also a

publicly traded company with a growth-focused leader. And some sellers say the company isn't necessarily living up to its motto of keeping commerce human. What winds up happening with these tech platforms is that they want to prioritize growth over the long-term success. There are wonderful handmade items, hand-designed items. And then there's the other stuff. As a seller, there are a lot of items in there that I compete with that I shouldn't be competing with. That sense of social reciprocity and balance fills out a whack.

And it feels like we're being extracted from a little bit. I felt increasingly like Etsy didn't really care about us. This year, Etsy, which has been dealing with declining sales, is changing even more. The company is launching a new loyalty program, and it's revamped how it categorizes products, getting rid of the classic handmade and vintage labels. These new changes lead to the question, what is Etsy today?

Is it big commerce or a community of crafters? Can it be both? Welcome to The Journal, our show about money, business and power. I'm Jessica Mendoza. It's Monday, August 26th. Monday, August 26th. Coming up on the show, longtime sellers and the company's CEO on the future of Etsy.

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The idea was to create a platform where artists could easily showcase and sell their handmade crafts. It was a for-profit business, but its founders had a crunchy, idealist ethos that early sellers loved. I opened my shop, which was called Gracie Sparkle's Books, after my internet handle over the time. I remember hearing about Etsy from the online craft communities that I was a part of. That's Grace Dobush, who opened her bookbinding and printing business on Etsy in 2007.

At the time, it was really difficult to start up your own e-commerce website. It was really before Shopify or similar platforms became affordable and available. And overall how would you describe the experience at the time? It was very much a community on Etsy in the early days. There were very active forums, people were forming street teams, like getting together in person. Etsy would sponsor like local craft shows and it really felt like they were

active in building the local communities. And Etsy did have a really specific vibe. I remember going to Etsy when I wanted something to hang on the walls of my first apartment or a unique handmade piece of jewelry as a gift. There was a lot of kooky stuff on there, sort of like if a group of art teachers started selling their stuff on one website. But you could always find something surprising, something incredible.

And this spirit, the sense that here's this site that's made for people who care about making beautiful things, it helped the platform grow. Within a few years, the company was making millions of dollars in revenue, largely from fees it charges its sellers. At the time it went public in 2015, Etsy was valued at more than $3.5 billion. But internally, Etsy was rocky.

The company swapped CEOs four times in four years, and profit margins were often razor thin. To punch up sales, leadership opened up the site to more than just artists and hand crafters, which didn't sit well with some sellers. Could you articulate sort of what your main concern was with the way the site was going back then? It just felt like Etsy was becoming another eBay. Like the point of Etsy at the start had been a place where you can find

really high quality handmade things made by real people. But the company was starting to make decisions based on revenue and based on growth, obviously. But the real change then happened when they decided to allow third-party manufacturing. Third-party manufacturing. That's a change that Etsy made in 2013. The new rule allowed sellers to outsource production of items.

For example, a seller could now design a t-shirt, but not make it themselves. Instead, they'd hire a manufacturer, maybe a rather industrial one, to actually produce the shirt. According to Etsy, the change was meant to make it easier for sellers to scale up their businesses on the platform. But it also meant that other kinds of products made their way onto the site,

stuff that had been mass designed and mass manufactured. Or bought for cheap from sites like AliExpress or Amazon, and then resold on Etsy. Etsy also saw an increase in something called dropshipping, which allows a middleman to sell products they never see or touch. There are a bunch of videos on YouTube telling people how to make money off of dropshipping on Etsy.

Welcome to Dropshipping on Etsy, your full step-by-step guide that will take you from no experience to a professional online seller. How to dropship on Etsy from AliExpress. I've generated over $3 million in revenue from Etsy dropshipping and almost $1 million in profit. For the most part, Etsy doesn'tipping and almost $1 million in profit. For the most part, Etsy doesn't allow this on the site. The company tries to moderate dropshipping, but some sellers say it's still a problem.

Can you just state your name, your age, and where you're based, please? I am Regina Santucci. I am 61 years old and I live in Syracuse, New York. I'm a vintage enthusiast. I absolutely love everything vintage. Gina sources and repairs vintage clothing and accessories and sells them on her store, Ventorious. She also shops a lot on Etsy. But she says the stuff that's recently cluttered the site makes both buying and selling harder.

A lot more people who import mass-produced items have flooded Etsy with items that are not true to the original vision of the owners or the creators. Our items are one of a kind or at least they should be. Unfortunately what happens also is that a lot of these resellers are buying mass-produced vintage inspired items. Right. And those are being put on Etsy. So I'm competing with those sometimes, which is, I mean, the true vintage enthusiast is going to know the difference, but it is discouraging to see a search result page that is just filled with things that people don't want. That's not what

they're looking for. I also spoke to Christy Cassidy, a seller in Connecticut who's been on Etsy since 2006. She makes Gothic Victorian steampunk costumes and also thinks the flood of mass produced goods has hurt her sales. It was making the whole entire shopping experience unpleasant for the type of customers that want to find very, very, very unique items. And I actually, my friends say that.

They don't shop on Etsy anymore because it's not what it used to be. It's not unique anymore. But for Christie, the bigger problem was the fees. Over the years, the company started taking a larger cut of each sale, going from 3.5% to 5% to now 6.5%. Etsy has also started charging additional fees. Like if your item is sold through an Etsy ad, the company gets an even bigger cut.

And if you offer free shipping on purchases over $35, Etsy would give you priority placement and search results. $35 is Etsy would give you priority placement and search results. $35 is so low. Like I do free shipping over a certain amount on my website. I do $100 because that's the amount at which it actually starts being something that can be figured into your prices and, you know, give people where people feel like they're getting a discount and you're not losing your shirt. That's about the amount because of it being handmade and at a prior price point. Yeah. And then there was the transaction fee as well.

Yeah. So the transaction fee increase was in 2022. And yes, it wasn't like it was a lot of money. It was just like, wait a minute, we need to speak up or this is never going to end. Christy did speak up. In 2022, she helped organize a seller strike. Thousands of Etsy sellers closed their shops for a week in order to protest the increased fees and what they saw as poor moderation of illegitimate sellers on the site. Etsy is in a situation where they have built this platform

on the promise of keeping commerce human, but they're not actually fulfilling that promise. They're letting resellers come in, they're managing everything with AI bots there, and most shoppers don't know how bad things have gotten for us. You know, we needed to raise awareness of the situation so that it would not continue to get worse. That was more the goal with Strike. Etsy says it cares a lot about its sellers and that it's always trying to

better serve them. The company also said that the sellers who went on strike represent a vocal but small minority. The 2022 strike happened at a time when Etsy was experiencing some of its biggest growth. The company's stock price reached an all-time high that year, at nearly $300 a share. [♪ music playing, But since then, sales have slowed dramatically, and sellers continue to show discontent about the way the site has run.

Now Etsy is trying to find a way forward, to increase growth again without losing its identity. And its CEO is confident that the changes he's making will help the company do both. CEO Josh Silverman is up next. powers your scale with no preset spending limit. More cash on hand to grow your business with up to 55 interest-free days. And the ability to reach further with access to over 1,400 airport lounges worldwide. Redefine possible with Business Platinum.

That's the powerful backing of American Express. Terms and conditions apply. Visit amex.ca slash business platinum. Terms and conditions apply. Visit amex.ca slash business platinum. Earlier this month, I went to the Etsy headquarters in Brooklyn. It's a modern building, eight stories, with exposed concrete pillars and lots of plants. In bright orange, Etsy orange planters. And we're here at your office, very cool, very hip. Yeah, everything here you see is made by an Etsy maker.

Oh, is that right? We have so much great stuff. I mean, there's a few things that you can't, that are mass produced, like a computer monitor. But if it can be sold on Etsy, it was bought on Etsy or at least from an Etsy maker here. Josh Silverman has been CEO of Etsy since 2017. When we met in his office, he showed off the Etsy decor. So for example, that macrame wall art, the chair there, that leather chair was an Etsy

design award winner just about two years ago. Isn't it gorgeous? It is lovely. Yeah. Yeah, exactly. All the decorations around here, the cabinet, and the desk that we're sitting at were designed by Etsy makers. Before Etsy, Josh was the CEO of Skype

and of Shopping.com, a price comparison company. He was also a board member of Etsy. When he took the top job, Etsy was at a turning point. The number the company cared most about, gross merchandise sales, wasn't where investors wanted it to be. We have always measured gross merchandise sales as the metric of success at Etsy. That's fancy talk for how much stuff did our sellers sell yesterday. It's not our revenue, it's not our profit, it's our sellers' sales. We were doing about $3 billion of gross merchandise sales and sales growth was approaching zero. We were about one quarter away from being completely flat.

And so I think many people inside the company and most people outside the company concluded that Etsy was about as big as it could be, that we had maximized the market for handmade and now we would need to go build new businesses. I felt like three billion dollars was nowhere near the full potential. We were not performing very well because I didn't think we were executing very well. I didn't think we had the right strategy and I didn't think we had enough focus. When Josh took over, he made some changes almost immediately. He streamlined the business and laid off 140 employees.

He also introduced some of the new fees we talked about. These changes worked. Under Josh's leadership, the company grew a lot faster. And by the end of 2020, Etsy was reporting over $10 billion in gross merchandise sales. That was more than triple what Etsy was seeing when Josh started. Part of the surge was due to the fact that in 2020, everyone started crafting. Let's remember, you know, malls were shut down, so you couldn't go to the shopping mall,

you couldn't travel, you couldn't dine out, and when you tried to buy things online at Amazon or other places, they were out of stock. And so this was cottage industry to the rescue. This was Etsy's version of Dunkirk. We mobilized cottage industry to come to the rescue and serve the needs of everyday people. And one example of that was masks.

All of a sudden, everyone needed masks. Etsy sold about $820 million of masks between April 1st of 2020 and April 1st of 2021. That's a product that didn't exist in March. That's a lot of masks. Extraordinary. Etsy's remarkable growth during the pandemic also highlighted the long-term issues

that sellers we spoke to mentioned. I asked Josh about the ones we heard about the most, the prevalence of drop shipping and mass-produced products on the site. Yeah, we care a lot about Etsy offering something truly different from the rest of the world. So we act with the highest level of vigilance to make sure that everything on Etsy complies

with our policies. And from the day Etsy was founded, about a week after Etsy was founded, sellers started complaining about mass produced items on the platform. And if you look back from Etsy's history, the number one thing sellers have complained with since the day it was born literally is the prevalence of items that don't comply. And that can mean a range of things. So for example, we have sellers who raise their own sheep to grow their own wool to make their own sweater.

And sellers who buy store-bought wool, they consider to be not handmade and don't belong. So there's a wide range of opinions about what belongs on the site. Josh says making sure sellers follow Etsy's rules is a big priority for the company. We said in 2022 that we had invested at least $50 million in policing items to make sure they stayed with our policies. And by the holiday season of 2023, low single digits of items you view on Etsy don't comply with our policy. So it's a constant battle to make sure that we have the best cutting edge technology and

team to be able to police the site really well. Sellers we spoke to say they still see mass produced stuff on Etsy, even with the investment in policing the site. Since Etsy's height during the pandemic, the company has seen its fortunes fall a bit. Over the last two years, growth has been sluggish and stocks are down, currently at a fifth of its 2021 high. And at the end of last year, Etsy cut about 225 jobs, or 11% of its marketplace workforce, as a cost-saving measure. To counter the slowdown, the company has made several changes this year.

First, it rolled out a revised way to categorize products on the site. The idea is to make it extra clear whether or not a product was made by a seller. Also this year, Etsy rolled out what it calls Gift Mode, which shows buyers popular gift options and suggests ideas based on the buyer's interests. And it'll be launching a loyalty program for buyers in September. What is your vision for Etsy today? I think the world is becoming more commoditized. I think we're buying more stuff cheap and it's ending up in a landfill even faster. I think the more the world centers on that, the more it craves an alternative.

We want to be the first place you think of when you don't want that. I think that is a huge opportunity. I think in doing so, we can lift up millions of makers and have them have a chance to produce something that they love using their art as they see it, as they see their form of self-expression, and connect with that group of buyers out there that also sees what they make as art, that also wants that.

And the ability to bring people all around the world together around these shared belief in what is creative, what is beautiful, what is self-expression, I just think that's more important today than ever. I just want to raise this point. Some of the sellers that we've spoken to, they understand that Etsy is a business, it needs to make a profit and it needs to grow. But some of them wonder, is there a different sustainable way, a more sustainable way of

doing this and still make the site, you know, kind of comply with the vision that you have? What would you say to that? I think that Etsy is as true today to its mission as it ever was. We have a lot more resource to police that mission and promote that mission. I think the fact that, you know, when I arrived at Etsy, we were doing a couple hundred million dollars of sales and breaking even, so we were able to invest maybe $200 million in policing our site, building a search engine, promoting ourselves to the world. Last year, we invested close to $2 billion in technology to enforce our policies, build

a better search engine to match buyers and sellers and market that mission to the world. I think we are serving our mission better now than we ever were. And I think all the new sellers and all the new buyers who've come on the platform appreciate that we're there for them. Today, Etsy has more sellers than it's ever had,

but some have also left, in part because there are more options online now, and it's easier to set up your own website. That's what Grace Dobush did for a while, until eventually she mostly stopped selling her crafts. I think the early days of Etsy were very special, and they were also a one-of-a-kind kind of experience. Like we're never going back to those days. It's like the longing for web 1.0 of just logging onto

a message board and having like text only navigation, right? Right. Right. I feel a bit sad just in the way that I feel sad about, you know, never being able to go back to my college years. Right. Almost like a nostalgia for a time that's probably never coming back. Totally. Yeah. But others are still on the platform. Gina Santucci, the vintage seller, she's still

optimistic about Etsy, even if it's not everything she thinks it could be. Generally, do you feel like the company delivers on its mission of keeping commerce human? I would 75% agree with that statement. That's the best I can do. I mean it is, it is hard for them to be everything to everyone and I get it. I would say they do a better job of it than most companies. I'm not gonna say they're perfect because they're not. And the ability to fully support sellers isn't quite there.

And quite honestly, this is the right fit for me. I don't see myself putting a lot of things on eBay or any other place. Starting my own website, I could do that, but it wouldn't get the same kind of traffic that I get on Etsy. And I'm just one person. So I like having the support of a company that I believe does actually support me. 75%. That's all for today, Monday, August 26th. The Journal is a co-production of Spotify and The Wall Street Journal.

Additional reporting in this episode by Pierce Singie. Thanks for listening. See you tomorrow.