Etsy CFO Rachel Glaser Discusses Business Health, Direction, and Fee Increase

Etsy CFO Rachel Glaser participated on Thursday in an investor conference Q&A session at the Canaccord Genuity’s eCommerce Sustainable Advantage Virtual Forum, discussing the marketplace’s health and direction.

The Q&A was hosted by Canaccord Genuity’s Managing Director, Senior Research Analyst, Maria Ripps. Here is a summary of what she discussed that we feel is interesting to Etsy sellers on the platform.

Rachel Glaser started out discussing that the pandemic didn’t really change the company’s focus of being a unique or special marketplace.

The combination of being a trusted brand, having really strong human connections, world-class search capabilities, and its enormous foundation of very unique merchandise helped the company to significantly increase sales during the pandemic she said.

Glaser also reaffirmed that changes to the leadership team the company made this week do not mean Etsy is moving away from the “marketplace model that we love.”

The company believes that it will be able to sustain this momentum because a large number of buyers keep returning to the marketplace which will continue to drive GMS (General Merchandise Sales).

“About [9%] of our total active buyers are buyers that come 6 or more times a year and spend $200 or more. And they represent 45% of our total GMS, and they’ve grown every single quarter over the past many years,” she said. “Our trailing 12-month GMS per active buyer was up again in the last quarter, up 16%.”

Etsy uses the term GMS, but it’s basically equivalent to GMV (General Merchandise Volume) used by other marketplaces and online retailers that many people may be more familiar with.

Glaser commented on how well Etsy and its seller performed during the pandemic. “One of the things that we learned pretty importantly during the pandemic is how agile, not only Etsy’s sellers are, but how agile Etsy is.”

She explained how sellers were able to quickly offer items on the marketplace to satisfy the immediate need that arose from the pandemic for facemasks.

Glaser said that Etsy continues to see this pattern over and over again.

“Bernie Sanders showing up at the inauguration in 2020 wearing mittens, all of a sudden, Bernie Sanders mittens became super popular across Etsy’s website,” was another example she cited of sellers taking advantage of an opportunity to satisfy consumer demand quickly.

Although Etsy sellers can pivot quickly to meet sudden demand, Glaser pointed out Etsy’s unique selling proposition is that “1/3 of Etsy’s merchandise is personalizable or customizable.”

The company includes personalized and customizable items as part of its search capabilities to show buyers items they are likely to be interested in. Glaser said, “knowing what is most likely to get you [the buyer] to convert rather than what you type into the search query” is a key component of its search experience.

“There’s not really another site that I can think of that has that kind of personalized and customized experience at that scale. And so I think that’s one of the advantages and one of the differentiators that Etsy has and will always have,” she added.

“Etsy competes on special,” and the company believes other large online retailers like Amazon focus more on price and convenience and that is “a brand differentiator that is permanent” for Etsy.

On untapped opportunities, Glaser highlighted the pet category where she admitted Etsy is “pretty underachieving.”

While the marketplace isn’t big on pet food, there are many other opportunities with pet items that should do better on the platform.

“Toys and Halloween pet costumes and leashes and collars, and dog bowls and all those things are on Etsy. So that’s just an example of a category I think we could dig deeper into. So lots and lots of opportunities.”

Glaser also said the wedding category was picking up which isn’t surprising as many people put off weddings during the pandemic.

As a side note, Etsy published a blog post about what is trending for weddings in 2022.

Habitual Buyers

The Etsy executive team has been talking about the importance of habitual buyers since 2019. This buyer is one that spends more than $200 a year on Etsy and returns four to six times a year to make a purchase.

Habitual buyers represent about 45% of the company’s GMS, which is about 8 million buyers in total Glaser said.

“It’s a huge opportunity if we could just find 1 million more of them or you can get that group to spend to increase from 6x a year to 12x a year.”

She further explained, “their [habitual buyers] repeat purchase across multiple categories is significantly higher like 10x that of a repeat buyer or a peak buyer is somebody that comes 2 or more times a year.”

“We also know that habitual buyers kind of know how to hack Etsy,” she Glaser said.

Habitual buyers tend to use more keywords to find exactly the items they are looking for. However, she said that Etsy is working to improve the discovery experience on the platform to make it easier for less experienced buyers to find the “good stuff” without having to know or use a “special trick.”

Marketing and Branding

When it comes to marketing the brand, the company has been spending more on TV campaigns to drive awareness. However, this type of advertising, internally called “above-the-line marketing or ATL” is only part of the marketing strategy she explained.

Etsy also receives significant brand awareness from influencer marketing and its PR efforts, which are less costly than ATL.

Glaser also said that when they do research they find that many shoppers love Etsy and advocate for the marketplace but sometimes these buyers are surprised to find out they hadn’t bought anything on the marketplace for a year or so.

This is a big reason for the wider branding efforts to help re-engage these shoppers that already love Etsy but just need to be reminded to actually buy on the platform.

She said since they ramped up brand marketing, “purchase intent has grown over 100% and visit intent has nearly doubled.”

Etsy is also seeing growth of brand awareness in international markets. For example, Glaser said that in the UK, unprompted awareness is up 10%, and in Germany, the same metric has more than doubled.

Search and Conversion

While search and discovery already had been touched on previously in the Q&A, the host circled back on this topic for a deeper look.

Glaser acknowledged, “I still think it’s very early innings in search, and we’ve said for a couple of years now that this is one of the biggest friction points in improving frequency for Etsy because when you come to Etsy, you have over 100 million items, it’s a blessing and a curse.”

The challenge for Etsy is that it’s trying to surface search results that convert. The company uses AI and machine learning to understand user likes and dislikes and today is working with over 8 billion data points to drive that experience.

Etsy’s goal is “to make discovery and browse much easier and much more satisfying when you come to Etsy and to make it really feel like it’s made for you so that the results you get when you’re searching for throw pillows might be entirely different than the result that I get when I’m searching for throw pillows.”

To show the best results, Etsy uses a mix of data points that includes information from the buyer such as what they looked at, what they bought, what they saved on the platform.

It then matches that with “what we know about the item, what we know about the seller, and we’re putting those together to put the best results for you so that you have on your first page of search results, lots of choices that you’re very likely to click on,” she explained.

Glaser said that Etsy is already seeing positive results from these improvements as “95% of our search purchases came from items on that first page of search, which is up 10 percentage points from the beginning of last year.”

She also explained that Etsy is improving what users see on its primary landing page as the home page previously was basically a “very generic homepage.”

Glaser said, “we’re trying to customize that landing experience as well to get you [the buyer] to really engage with the content.”

She did admit there is still lots of progress to be made on that front, “but we’re heading in the right direction.”

International Markets

Glaser said that Etsy is seeing big improvements on international markets on what it calls “vibrancy.”

“On the very first day, you decide you want to be a marketplace that a buyer shows up and if there are no sellers, that buyer goes away. Conversely, the very first day, a seller shows up, if there’s no buyer, that seller goes away. So building a two-sided marketplace is hard to do,” she explained.

“In both Germany and the UK, we’ve reached that two-sided vibrancy. We’re working on other markets like France, Canada, Australia, and we’ve only just begun to start to be buyer facing or getting ready to be buyer facing in India.”

India was started as an export market on Etsy as there are “unique gorgeous items and categories in India that you can’t get anywhere else in the world.”

With India, there are challenges that need to be addressed first to build a domestic two-sided marketplace such as payment and compliance. The company is working through these areas as Etsy sees “lots of opportunities in India.”

She also mentioned the reason Etsy acquired the Brazilian-based Elo7 marketplace was to avoid the time and investment it would take to start from scratch in another large market.

Elo7 “gives us [Etsy] a great acceleration to start in that very big market.”

Glaser said the marketplace will stay independent from Etsy’s primary platform similar to how the company operates its two other acquired marketplaces, Reverb (Musical Instruments) and Depop (Fashion).

She said there are no current plans for cross-marketing between the marketplaces as each has its own unique audience. However, Etsy has and will continue to streamline administrative and operational functions “to get some sort of synergy and economies of scale from providing those sorts of services.”

Glaser acknowledged, “I could see a point in the future where there are other parts of our business where there could be platforms that run across and support our entire house of brands. Payments is just an example I throw out there.”

Etsy Fee Increase

The final stretch of Glaser’s Q&A involved the announcement regarding its transaction fee increase from 5% to 6.5% which will go into effect on April 11, 2022. This is the first major fee increase by the company since 2018.

Glaser first circled back to the 2018 increase saying, “when we did the transaction fee increase in 2018, we reinvested in 80% of that incremental revenue back in marketing and member support to help our seller’s businesses.”

She explained Etsy plans to do the same again, investing much of the increase in improving the platform, some of it being allocated to marketing.

“I think we’re still a very good value, particularly when you break out what you’re actually getting for that transaction fee,” Glaser said. In addition, she said the company did not enter into this blindly.

“So back in 2018, and again now, we did a fair amount of surveying our sellers and we masked exactly what we were doing by asking a lot of questions, how would you tolerate this or how do you feel about that?”

The company expected a certain amount of feedback from sellers, ranging from “from neutral to outright rage.” However, it doesn’t look like they are too worried this time around.

Glaser said that in 2018, Etsy expected the fee hike to result in increased seller churn that could impact their GMS.

“But in fact, we saw a normal amount of churn and no impact to GMS,” she said. “So we were pretty well prepared for this time around where we expected a certain volume of inbound criticism or comment from our sellers. We’re getting about 1/5 [of] what we expected.”

She acknowledged there are some haters but they feel the tone of the feedback has been more toward the neutral end of the range.

“And we have a pretty high level of confidence that, that once they see the incremental marketing and see the incremental sales, that they will be pleased with the result,” Glaser added.

Conclusion

Presentations or Q&A sessions at investor conferences focus on topics important to shareholders. Rachel Glaser provided a lot more depth in the 45 minute webcast than what we covered here.

Overall, it seems Etsy is in a very strong place and the company is expanding in ways that will see it become more of a global force in eCommerce. This will be beneficial to both the marketplace and sellers.

Etsy’s perspective on the impact of its announced transaction fee increase was interesting. The company expected a lot of headwinds on that in 2018, but the fee increase really didn’t slow growth as they had feared.

With that experience behind them, and the research they did before announcing the increase last month, Etsy seems pretty confident that this year’s fee hike from 5% to 6.5% (30% increase) won’t have much of an impact on the marketplace.

That seems to be bad news for those sellers hoping the “Etsy Strike” on April 11 will make the company reconsider.

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