Like other companies that boomed during the pandemic, Etsy has seen business edge down from stratospheric highs when Americans en masse bought $740 million worth of masks from the site, as well as home goods to get through lockdowns and slower social life.
But in 2022, the value of items sold on Etsy hit $13.3 billion, down 1.3% from the prior year. While Etsy has succeeded in holding on to most of the gains made during the pandemic boom, softening business is not the only challenge CEO Josh Silverman faces these days. Wall Street is taking a closer, critical look at the longtime darling. In February, Citron Research, an investment newsletter, accused the marketplace of selling counterfeit goods. Meanwhile, the investment bank Jefferies last month said Etsy suffers from too much shopper turnover and downgraded the stock.
Silverman, a tech industry veteran who's been Etsy's CEO since 2017, disputes both criticisms.
But he acknowledges there's room to extract more business from existing customers by better leveraging the site's strong brand recognition, and he's investing in a big marketing campaign targeting occasional Etsy shoppers to introduce them to a broader range of categories. That strategy is particularly crucial as shoppers pull back on purchasing from its bread-and-butter categories: home goods and apparel.
"We try to create a marketplace that's really flexible and adaptable," Silverman tells Fortune.
This interview has been edited and condensed for clarity.
Fortune: In this high inflation and high uncertainty environment, what shifts are you seeing in what Etsy users are buying and sellers are making?
Buying patterns are in flux, and we've seen a shift back to travel because of pent-up demand, a big shift back to dining, and people's pocketbooks getting tighter. As our CFO Rachel Glaser said on our last earnings call, 'We can't control the tides, but we are learning to surf.' There was a massive shift to e-commerce during the pandemic, and we're proud that we've maintained the vast majority of those gains. There's a wide variety of things for sale on Etsy.
Etsy is sometimes called a "pandemic stock" given how well it did during COVID, notably selling masks. Does that annoy you?
The pandemic, which did terrible things to the world, did cause tens of millions of people to try Etsy for the first time because there was nowhere else they could buy a mask in the beginning, and the team rose to the challenge. We worked with sellers to ensure customers coming to Etsy had a really good experience. It was our Dunkirk moment where we could show how a cottage industry could rescue America.
How did you help sellers meet the mask demand, given that they sold $740 million worth in 2020?
Every four hours, I get an email update with seller volume. On April 2, 2020, when the mask mandates started, we saw an extraordinary spike in sales, which we thought was probably a data error but turned out to be mostly due to masks. We dropped everything to focus on helping our sellers sell masks. We sent emails saying, 'Pull out your sewing machines and make masks.' Within two weeks, we had 100,000 sellers making masks. We sent them information on patterns and fabrics to use and set up filters to look out for misinformation about protection against COVID. We even did video calls with sellers asking to see their warehouses to prove they could fill orders.
What shifts in spending on Etsy are you seeing now that Americans are traveling more and updating wardrobes and home decor less?
We are seeing a lot of travel and fashion right now, so things like travel jewelry case searches are up 115% year-over-year in the past six months. We've also seen a 75% jump in searches for travel planners and a 16% rise in searches for concert ticket holders.
Etsy was accused in February of being a major platform for counterfeit goods. What say you?
We work very hard to keep the site clean. Etsy is about handmade or vintage products. There is no room for counterfeit items, and we invest a lot to ensure our brand is safe. We recently looked at hundreds of top brands in our search function, and they were in the low single digits percentage-wise. Many are compliant if they're vintage or if it's a modified product, say a pair of Levi's jeans I painted. When brands tell us they see violations, we take them off immediately. We're investing $50 million in tech to fight this, but counterfeit goods are neither a large nor growing part of our business, and to say so is false. We use automated filters to scrub those listings, and the A.I. is improving. Etsy is not a good channel for selling counterfeits anyway because it's not what people think of when they want branded products.
Jefferies recently gave you a double downgrade, pointing to buyer churn. Does Jefferies have a point?
Unlike many e-commerce sites that grew during the pandemic and have shrunk back to their previous size, we've kept most of our gains. Our active buyers [those who have bought something at least once in the last year] are close to their all-time high but not at the all-time high. If you talk to people on the street now, most have heard of Etsy. But if you ask, 'Why haven't you shopped on it lately?' they will say they didn't need anything. So the opportunity for us now is to get people to associate Etsy with more specific purchase occasions. It's about stringing those occasions together better in the mind of customers, and that's why we're investing today in a marketing campaign. (Etsy currently has 89.4 million active buyers. While that is down 1.3% from a year ago, it is almost double the 2019 number.)
You've made moves that have occasionally angered sellers, such as increasing your share of their sales from 5% to 6.5% a year ago. Is friction with sellers inevitable?
Our job is to create the most opportunity for the largest number of sellers. It's not a popularity contest, and with 5.4 million sellers, no matter what you do, you'll find 100,000 sellers that aren't happy. So we need to keep our eye on the prize. We're trying to create an ecosystem with the right incentives so most of our sellers can succeed. With that take rate increase, we reinvested that money in more marketing when they needed us to, when the world was reopening after COVID.
Etsy is one of the most successful e-commerce companies of the last decade in a sector that has seen spectacular flameouts. What's your advice for tech companies to get through this tough spell?
It's really important that you do something uniquely and differently from everyone else and that customers often need it. I think Etsy does that. It offers things that are unique and that consumers seek out often. There is no room for commoditized goods on Etsy. The world doesn't need another second-rate Amazon. A mentor once told me, 'The easiest money you'll ever get is from an investor, and the hardest money you'll ever get is from a customer.'
Get to know Silverman:
- Silverman's favorite Etsy-bought item is his desk at company headquarters in Brooklyn. It was made by a seller who uses a machine tool at an old General Electric factory in Indiana and cuts wood to turn it into furniture.
- While an executive at Skype, he spent two years living in Estonia, where the company was founded, and learned a bit of Estonian. But he didn't stay long. "You cannot run a global company from that time zone."
- Silverman sits on the board of the New York burger chain Shake Shack.
