Etsy Isn’t the Go-to Destination It Wants to Be as Consumers Prioritize Essentials

In the realm of economics, few phenomena wield as much influence over consumer behavior as inflation. This relentless upward march of prices alters the very fabric of purchasing patterns, compelling consumers to reassess their spending priorities.

While niche and unique products typically find favor among discerning buyers, inflation’s impact often shifts the spotlight toward essentials. This has implications for platforms like Etsy, which originally established its identity based on providing unparalleled creations but is now working to reposition itself as a hub not only for niche products, but also for broader offerings.

“Buyers too often think of us only for very specific needs are at the end of their shopping journey when they can’t find the item somewhere else,” CEO Josh Silverman said in May, noting that the marketplace intended to position itself as a go-to marketplace instead of a once-in-a-while shopping experience.

However, even a basic Google search for “Etsy” describes the platform as an American eCommerce company “focused on handmade or vintage items and craft supplies.”

Read more: Etsy Wants Shoppers to Shop With Them Every Day, Not Once in a While

Amid these challenges, coupled with confronting the possible repercussions of the resumption of student loan payments, Etsy’s current performance doesn’t resonate with the previous quarter’s success. In the last quarter, the company boasted a gain of 7 million new buyers and a 21% increase in reengagement with buyers compared to the corresponding period the previous year, reaching a total of 89.9 million.

During a second-quarter earnings call with analysts on Wednesday (Aug. 2) Etsy Chief Financial Officer Rachel Glaser underscored the potential consequences of the upcoming reinstatement of student loan payments and the discontinuation of child tax credits during the fall season. Glaser pointed out that these elements might impose added financial pressure on consumers, potentially impacting sales in the third quarter.

The online marketplace, celebrated for its curated array of artisanal and creative items, achieved notable sales growth during the pandemic. Etsy saw a remarkable tripling of its revenue in 2020, predominantly driven by the high demand for face masks.

“Over the last few years, Etsy has gone from a period where we grew tremendously with so many tailwinds at our back, to a period of stiff headwinds and uncertain macroeconomic conditions,” said Silverman. “Consumers continue to make very tough choices on where and how to spend their money, and we’re fighting hard to help our sellers get their share.”

In late July, PYMNTS questioned whether consumer confidence would translate into spending. Most consumers surveyed in The Conference Board’s Consumer Confidence Index indicated their expenditures in areas such as dining out, recreational activities or travel are likely to maintain the levels seen in July over the upcoming six months.

In other developments, the retail sales report for June fell short of projections. Retail sales experienced a modest 0.2% increase compared to May, falling below the anticipated 0.5% growth consensus and also showing a decline from the revised 0.5% rise recorded in May.

Department store sales experienced a 2.4% decline in total, following a 0.2% rise observed in May. Expenditures at healthcare and personal stores also dipped by 0.1%, a contrast to the 0.2% growth seen in May. Similarly, the purchase of sporting goods and other leisure items, acquired from hobby stores and various outlets, witnessed a 1% decrease.

Read more: Consumers Confident but Student Loan Repayments May Pinch Holiday Spending

Etsy by the Numbers 

In the second quarter of 2023, Etsy’s gross merchandise sales (GMS) remained relatively steady at $3 billion, marking a marginal 0.6% decline compared to the previous year.

Within the Etsy marketplace, GMS totaled $2.6 billion, indicating a 0.7% year-over-year decrease.

The growth in active buyers gained momentum, with a 3% year-over-year upswing during the second quarter, reaching a milestone of 91 million active buyers. This was fueled by the addition of 6 million new buyers and a reactivation of 21% more buyers compared to the same period in the prior year.

Active buyer retention levels surpassed pre-pandemic rates on a trailing 12-month basis. The retention trends for active buyers improved compared to the previous year and the previous quarter.

While the GMS per active buyer on a trailing 12-month basis for the Etsy marketplace experienced a 6% year-over-year reduction to $128 in the second quarter, the trajectory of this metric began to stabilize. Notably, the number of habitual buyers remained relatively consistent on a sequential basis, totaling 7 million.

In terms of international performance, GMS from non-U.S. domestic sources contributed to 47% of the overall GMS. GMS from international sources exhibited a 5% year-over-year increase.

The company’s consolidated revenue amounted to $628.9 million, reflecting a 7.5% rise compared to the second quarter of the previous year.

In relation to net income, Etsy's consolidated net income for the quarter reached $61.9 million, marking a decrease of $11.2 million when compared to the same period in the previous year.

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