What Does Etsy’s Workforce Reduction Mean for Sellers on the Platform

On Wednesday, Etsy announced that the company was slashing 11% of its global workforce, reducing its staff by about 225 employees.

In the announcement, Etsy CEO Josh Silverman explained, “While the Etsy marketplace is still more than double the size it was in 2019, we need to acknowledge and adjust for today’s realities. We are operating in a very challenging macro and competitive environment, and GMS [General Merchandise Sales] has remained essentially flat since 2021.”

Ironically, Etsy had been the one bright spot among the major marketplaces that was able to hold on to much of the gains during the height of the COVID-19 pandemic.

When the world reopened again in 2021, Amazon, eBay, and many others in ecommerce saw shrinking growth, with Amazon even reporting quarterly losses.

A big rethink was happening in ecommerce in the year following the lockdowns and restrictions of the COVID-19 pandemic. Many in the industry had to backtrack on their predictions and expansion strategies.

In some ways, this is similar to the working-from-home trend that skyrocketed during 2020. Many believed that would not change after the pandemic, but today, more and more companies are demanding that employees return to their offices.

While it appears ecommerce companies didn’t necessarily staff up during COVID-19, they have been rightsizing their businesses for over a year now.

Earlier this year, eBay announced a 4% reduction of its global workforce, and Amazon laid off workers while closing divisions and distribution facilities and reorganizing parts of their company for greater efficiency.

Poshmark also looked hard at its business recently and decided to close its UK, Australian, and Indian operations to concentrate on its bread and butter, North America.

And on the very extreme, the 12-year-old ecommerce marketplace Jane.com shut its doors entirely in November, reportedly owing sellers over $10 million in proceeds, including 13 more than $100,000 each.

Should Etsy Sellers Worry?

First and foremost, Etsy has been a profitable business! The company has repeatedly beat many of its quarterly expectations. But as Josh Silverman also acknowledges, the company has not grown its GMS, the total sales of products on the marketplace, by any significant margin in two years, following explosive growth in 2020 due to COVID-19.

Most of its profit gains have come from adjustments in its pricing structures, including the largest fee increase in its history.

The company has also leaned on increasing its take rate by encouraging sellers to participate in its optional Etsy Ads marketing program.

This is in addition to an off-site ads program many sellers are forced to participate in when sales are made from advertising the company placed on Google or other online platforms.

Etsy also profits from its payments and shipping programs, earning more money from each sale.

But there has been pushback from sellers. Some even formed a collective online marketplace to divest themselves from Etsy; others sought opportunities on other new marketplaces.

A new marketplace – handmade.com – appears to have sufficient resources to make a splash in the artesian community and is close to opening its doors in the U.S., potentially threatening some of Etsy’s business.

Of course, Amazon has its handmade section. However, many small artisans prefer to support something besides the online retail giant.

For Etsy, there is a reality check they need to face moving forward. Like Amazon and Poshmark, they already rightsized their business by selling off an unprofitable business in the Brazilian-based marketplace Elo7.

Yesterday’s announcement by the company that it was reducing its workforce is another sign they do not expect GMS to increase; instead, it will continue to be relatively flat over the foreseeable future.

For this quarter, Etsy announced an adjustment anticipating a decline in GMS of 1% to 2% over last year.

Many macroeconomic issues are at play here, from rising workforce costs fueled by a pesky but declining inflation to changes in ecommerce and the company’s industry niche.

But while this significant workforce reduction may make some sellers worry about their business on Etsy, the company is financially in a good space.

It will be interesting to follow how this may impact their branding advertising, which has been superb and enhanced the company’s brand awareness with the public.

In addition, the company launched several initiatives to address seller and buyer confidence in using Etsy, especially its historically lackluster seller support, with a $50 million investment in 2022.

Will some of these initiatives be rolled back or put on ice? Or could sellers face higher fees in 2024 as well? Much of this will depend on how their year ends up.

Ultimately, Etsy sellers should focus on their business first because that is what you can control.

As a business, Etsy is forecasting a max decline in GMS of 2%. If your sales have dropped more than that on the platform, you need to re-strategize your business. Some areas to look at are:

• Category competition – Has competition increased and reduced prices? If so, consider pivoting to a less competitive category.
• Change in consumer interests – Are buyers still interested in your products? Consider expanding your offerings to other products or categories.
• Cost of shipping – Unless all your products are the same size, do you have products that cost you exponentially more to ship than others? Consider dumping them from your offering because if they are not big sellers, shifting toward more profitable products makes more sense in the long term.
• Platform advertising – Ecommerce marketplaces are just platforms. While sellers often believe they can hope on sales from organic searches, many successful sellers use advertising to drive traffic to their listings. If you still need to do this, give it a try.

Just like Etsy is re-strategizing its business, it’s also essential for sellers to do the same. Being on a marketplace can show how the platform or industry is doing and allows you to compare your business to the overall business.

A 1% to 2% drop in GMS is not a tragedy, but your business has fundamental issues if your sales have dropped more than that. Reducing costs is one area that may help, but there generally is a limit on how much you can reduce.

It’s important to seek out new opportunities or try different strategies. Etsy is doing precisely that. They are reducing costs slightly but also looking at their business’s long-term future.

Etsy boss Josh Silverman said the company has identified vital projects and initiatives to help sellers succeed. He believes Etsy will be able to “reignite growth for our sellers and drive buyer consideration and loyalty through a focus on quality, value, and reliability.”

This may help their business overall, but if your business is lagging well behind the 2% drop, you need to consider a change of direction to turn around your sales on Etsy.

With about 95 million active buyers on the platform, Etsy offers an opportunity to succeed in selling only. It may just require a change in your strategy as well.

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