Etsy’s Reset (And Its Discontents)

The story at Etsy in summer 2018 is a much more cheerful tale than the story of Etsy entering the summer of 2017. After a big switch at the top — in May 2017, the board fired the firm’s longtime CEO Chad Dickerson and put former eBay Inc. and American Express Co. executive Josh Silverman in the top job.

A year later, investors have pushed shares up 200 percent (breaking the slump that saw its stock price down 65 percent from its initial public offering levels), leaving Etsy with a stock price north of $40 as of the writing of this story. Activist investors had been hoping to see the stock price increase to $30 a share under Silverman.

But those changes — and advances — have come at a cost. By all accounts, Silverman’s reset has adopted a distinctly Amazon-esque obsession with customer experience as the primary motivator for all corporate action.

That’s quite distant from founder Rob Kalin’s initial vision of Etsy as an artist-friendly digital hub for the sales of handcrafted wares. The change in perspective has meant changes to the underlying firm as well. Under Silverman, Etsy has cut its employee base sharply (among other costs) and dropped its designation as a B Corp., which denotes high standards of corporate ethics and accountability.

“Any good retailer, traditional or eCommerce, puts the consumer first, and everything flows from that,” Edward Yruma, an analyst with KeyBanc Capital Markets Inc., told Bloomberg. “Etsy never really did that until Josh showed up.”

The changes have continued of late, specifically the recently announced increase of the fees it charges its sellers. Going forward, sellers will be charged 5 percent instead of 3.5 percent. Etsy will also now include the cost of shipping when calculating that commission. The $0.20 fee charged to list an item and a separate payment processing fee are unchanged.

The change is a first for the firm. Throughout its entire restructure, Etsy has kept seller fees lower than both Amazon and eBay. The higher fees, according to Etsy, will be key to offsetting the costs of increased spending on marketing, enhancing tools for sellers and building out better customer service operations.

“We don’t have firsthand experience to know how it’s going to play out in the very near term,” Silverman said. “I’m highly confident that this is the right thing to do in the medium- and long-term.”

In the short term, however, even Silverman admitted that the increased costs will possibly bring out “some turbulence” in the seller community.

And, it seems, some turblence is what they got: Sellers across the platform have vowed to take their business elsewhere because of the fee increases.

“The fact that they are then charging 5 percent of shipping? It just seems ridiculous for lack of a better word. (Shipping) is not money coming into our pocket,” Stephanie Rose, a California-based Etsy shop owner of “Inspired by Stephanie R,” told USA Today.

The fee increase alone, Rose noted, isn’t a deal-breaker; she can understand that Etsy needs to make money. But roping merchants in for shipping has increased the costs each merchant is paying per sale by as much as 65 percent, and that is not sustainable.

Some merchants are taking a different view: Tatiana Rapier of “Love J&T” said Etsy doesn’t owe artists a cheap platform and that she (and any other seller) is free to take their trade and ply it elsewhere if Etsy is not providing for them.

“Obviously, I’m not super thrilled about them charging me more money and the possibility of me having to raise my own prices to make up for the difference. But … I understand that as businesses grow, sometimes pricing and business models need to change,” Rapier said.

The price increase for selling items comes at a difficult time for Etsy merchants — and online merchants of all stripes — as the Supreme Court has recently ruled that businesses can be charged sales tax in any state they operate in, regardless of whether or not they have a physical presence in the state. How that decision will affect Etsy sellers remains something of a question mark. The South Dakota law the Supreme Court upheld is directed at larger-scale operations with $100,000 in sales, or at least 200 transactions — a threshold most Etsy sellers don’t cross.

However, experts agree that other states could pass future laws that would effect Etsy sellers more directly.

“The decision does not articulate much of a floor for what states may do, so it is possible that another state could pass a law with lower thresholds than the South Dakota law,” Hayes Holderness, a law professor at the University of Richmond told CNN.

In a blog post, Etsy’s CEO said the situation was particularly untenable for small merchants of the kind that the company supports.

“More than three-quarters of Etsy sellers are businesses of one,” Silverman wrote. “They have very different needs and challenges than larger online retailers, and we are encouraging them to sign a petition that tells policy makers to support microbusinesses like theirs.”