Remember when we wrote that Spotify’s latest layoffs make sense? Well, we feel the same about Etsy’s announcement that it would lay off 11% of its workforce.
This is not us being callous with employees affected by these layoffs, or making excuses for what led the NASDAQ-listed marketplace to that point and what could perhaps have been prevented. We are just saying that this isn’t much of a surprise.
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The company’s fourth-quarter guidance was already a tell; it has now updated it further, telling investors to expect its “gross merchandise sales to decline between 1% and 2% during the period from the year-ago quarter and revenue to increase between 2% and 3%,” CNBC reported.
But more than quantitative, Etsy’s challenge is qualitative.
A viral tweet summed it up in one word: junkification; the founder and CEO of social commerce app Teleport Danielle Vermeer said that “Etsy [wasn’t] Etsy-ing anymore,” a feeling that seems widely shared by creators and buyers alike. But she also shared some thoughts on the phenomenon at play.
Junkification, she wrote, “is when platforms get flooded with low-quality, cheaply made products.” Etsy isn’t the first platform on which this is happening, nor will it be the last. Amazon, for instance, also seems to be flooded with unknown brands. But for Etsy, which made its name selling handmade goods, its very identity is at stake.
Etsy’s challenges
In the company’s Q3 earnings call, CEO Josh Silverman said Etsy was “the opposite of Temu.” The problem is, this hasn’t felt true to many in a long time. Considering how fiercely and onerously Temu and Shein seem to be willing to conquer the market, that’s highly concerning.
AI is likely to make things worse, too. Earlier this year, The Atlantic reported that AI-generated junk was “flooding Etsy,” with “coloring books, stickers, mugs, and T-shirts . . . being pumped out by AI-assisted hustlers.” In the age of AGI, that might be OK, but for now, most of these are just, well, crap.
If Etsy didn’t have liberally spending competitors, or if its investors weren’t keeping track of ROI, losing its differentiation edge wouldn’t be a problem. But that’s not the reality it operates in, which is what Silverman called “a very challenging macro and competitive environment.”
Which takes us back to the numbers. In his livestream about the layoffs, Silverman told employees that gross merchandise sales on Etsy had remained “essentially flat” for two years while employee expenses had grown.
Laying people off might help address half of the problem, but it doesn’t show how it will help the company grow again, at least in the near future.
Etsy’s stock, which had fallen after the news, seems to have returned to earlier December levels. This suggests that investors aren’t more optimistic now than they were after the company’s Q3 earnings, and neither are we.