Why is Etsy struggling?
Etsy, the affordable, artisanal merchandise company saw shares fall 8% this morning. That’s because it had a worse-than-estimated fourth quarter, even as consumer spending grew at the end of last year. Etsy expects this quarter to be in the doldrums too — though it’s not all Etsy’s fault.
Etsy made its reputation from offering stuff like handcrafted candles and custom wedding guest books. But it also started offering cheap, mass produced stuff. And that market is crowded with competition.
“The trick is that on Temu, the price is lower. Same thing with Amazon,” said supply chain consultant Brittain Ladd. He said he thinks Etsy has likely peaked, “and so it’s going to be very challenging for Etsy to do something that’s so special that it pulls all those other customers away.”
Etsy’s strategy so far is to double down on the artisanal stuff, said Sky Canaves, a retail analyst at EMARKETER.
“That focus is likely to appeal to a smaller audience, and so we would expect to see their sales continue to contract in line with that,” she said, because this trend of consumers seeking cheaper prices isn’t going anywhere.
Economics professor Brett House at Columbia Business School said years of high prices have put more strain on consumers.
“Credit card defaults are up, credit balances are up, and people are likely cutting back on some of their discretionary spending,” he said.
The weird part is the fourth quarter is typically a strong one for consumer spending because of all the holiday shoppers. But this season was different.
“They also saw the election results in November and the increased policy uncertainty that came along with that,” House said.
There is another way out, though. Consultant Brittain Ladd said the best next move for Etsy might be getting acquired by Michael’s or eBay.
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