Etsy Inc., once known as a quirky marketplace for handmade, artisanal and vintage goods, appears to be moving further away from its origins amid a tougher e-commerce landscape and the influence of artificial intelligence.
It's so easy
It will be marketing to a whole new audience on Sunday, when the first Super Bowl commercial will air. The 30-second ad is quirky. It depicts a 19th-century American public leader at a loss as to how to reciprocate France's gift of the Statue of Liberty. With the help of an outdated smartphone, he and his team search on Etsy using the new gift mode option, and find the “Cheese Lovers” category after determining that the French love cheese. Voilà – They decided to send some cheese to the French.
The commercial is part of Etsy's push for a new user interface featuring Gift Mode, which lets shoppers search for gifts for a specific type of person or occasion — combining generative AI with human curation to give gift buyers some unusual options.
But are these desperate and expensive moves to try to reach potential new buyers, and come on the heels of Etsy's plans to lay off 11% of its staff? Or would running a TV ad at the most expensive time of year actually lead to more buyers? Sales in a market that was once rapidly growing?
Etsy believes these moves will help the company grow again, and its research shows that the average American spends $1,600 a year on gifts. “There is no single market leader, and Etsy sees there is a real opportunity to become one the “The gift destination,” Etsy CEO Josh Silverman said in a recent blog post.
Etsy is clearly under pressure after seeing its total merchandise sales more than double in 2020 during the pandemic, when it became a go-to place to buy handmade masks and all kinds of items for the home, from vintage pieces to antiques to castings. From my personal experience as an Etsy seller, I saw sales at my small vintage clothing store more than double in 2020 and then decline in 2021, while remaining higher than they were in 2019. In the past two years, sales have slowed, and some other sellers have seen Similar patterns, based on their feedback in seller forums.
The number of sellers and buyers on the platform has increased at the same level as the total sales of goods. But competition in e-commerce is also becoming fiercer.
“Our main concern with Etsy is increasing competition in the space from new players like Timo,” Nikhil Devnani, a Bernstein research analyst, said in an email. Temu and fellow Chinese online retailer Shein have raised a lot of investor concerns, as total merchandise sales on Etsy have declined over the past year and are expected to decline again in the upcoming fourth-quarter earnings report later this month.
Devnani said a Super Bowl ad can help the market gain visibility, something it has always lacked.
“One dynamic they talked about a lot is that brand awareness/recall is still low, and that keeps frequency low,” he said, noting that Etsy buyers shop on the site about three times a year, on average. “They want to be top of mind… Super Bowl ads are expensive, of course, but they can be impactful/attention-grabbing.”
However, the company's heavy focus on gift placement may be a risky strategy. How many times a year do consumers search for gifts? In a note Devnani wrote in October, before the company's gift mode launched, he said one concern among investors was that Etsy was too niche. “‘How often does someone need something special?’ is the rhetoric we hear most often.” So, Etsy relies on buyers coming back to buy other items for themselves.
Etsy CEO Silverman believes buyers will come back again and again to buy gifts. B. Riley Securities analyst Naveed Khan said in a recent note to clients that he believes Gift Mode plays to Etsy's core strengths, offering “unique goods at affordable prices” versus mass-produced products sold on Shein, Temu and Amazon. com Inc AMZN,
And other sites.
But consumer spending has changed. At an investor conference in December, Silverman said consumers are spending on dining out and traveling, rather than buying things.
But while investors still view Etsy as a niche e-commerce site, some buyers and sellers see it as cluttered with repetitive and irrelevant ads. Complaints about reduced search capabilities, reliance on email and chat for support, and constant technology changes are common in vendor forums and Facebook groups. Artificial intelligence-generated art, offered by new vendors as a side hustle, has also become a thought-provoking and debate-provoking issue. There are complaints about mass-produced items making their way to the site.
Etsy said that in addition to its human and automated efforts, it also relies on community signals to help remove infringing products that are not permitted on the marketplace, and community members should contact the company when they see mass-produced items for sale on the site.
She also continues to work on research. On a recent earnings call, Silverman said the company is moving beyond relevance to the next frontier of search, one that is “focused on better determining the quality of every listing on Etsy using humans and [machine-learning] Technology, so that with a range of highly relevant results, we can bring the best of Etsy to the top – personalized to what we understand your tastes and preferences.
Pressure can build on a company if its recent moves don't lead to growth. Etsy recently gave a seat on its board to a partner at activist investor Elliott Management, who bought a “significant” stake in the company in the past few months. Marc Steinberg, who is responsible for public and private investments at Elliott, was also a member of Pinterest PINS' board of directors.
Since December 2022.
Elliott's administration did not respond to questions. But in a statement last week, Steinberg said he joined the board because he “believes.”[s] There's an opportunity to create significant value.” Some sellers fear that pressure from investors and Wall Street will lead Etsy to allow mass-produced products on the site. In a fall update, Etsy said the number of listings it removed for violating its handmade policy jumped 112% and that it is working To speed up such procedures.
Before news of Elliott's stake, Etsy's stock had fallen about 18% this year. Its shares are now down about 3.65% this year, after recently seeing its best day in seven years following news of Steinberg joining the board.
Etsy is a unique marketplace that has for many years enjoyed a much better reputation than some of its competitors, such as eBay EBAY,
But since going public and responding to Wall Street, the need to provide growth and profits to investors has become much more important. A Super Bowl ad and gift placement may bring broader awareness to Etsy, but will it be the right kind of awareness? Sellers like me hope these new efforts will avoid constant combat with the likes of Temu and other sellers of mass-produced products, and help Etsy retain the remaining unique aspects of its marketplace.
