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How Etsy Won the Stock Market in 2020

Sarah Halzack
·4 min read

(Bloomberg Opinion) -- Pin up the artful balloon garlands and toss the custom glitter confetti: Etsy Inc. is having a gangbusters year.

The online marketplace for handmade, vintage and other creative goods, which joined the S&P 500 Index last month, is the best-performing stock in that group year to date:

Like many of its e-commerce-focused peers, Etsy benefited earlier this year when brick-and-mortar retailers were forced to close, sending droves of shoppers online. Spending has remained strong on Etsy as consumers continue to avoid physical stores over safety concerns, helping fuel its 146% increase in gross merchandise sales in the second quarter. The company attributed its sales growth in part to the whopping 12 million new shoppers that came to its marketplace during that period. For context, mega-retailer Macy’s Inc. said it acquired 4 million new online customers in the second quarter.

Some of Etsy’s advantages in the crowded e-commerce business have been evident for years. With its macramé wall hangings and chunky-knit throw blankets, it has a unique merchandise assortment. People don’t come to it for commodity products like diapers or laundry detergent, so it doesn’t compete directly with the core businesses of giants such as Amazon.com Inc. and Walmart. Inc. Also, while those mega-stores are efficient places to knock out errands, Etsy stands out as an appealing digital destination for those who take pleasure in browsing and shopping for the sport of it.

The pandemic, though, has put a spotlight on another strength of Etsy’s model: The ability of its army of small sellers to speedily change their merchandise selections. This was evident in how the site became a go-to place for face masks.

In the early days of the Covid-19 crisis, CEO Josh Silverman put out a call to sellers urging them to crank up their sewing machines and make these in-demand items. They answered the call, in the most Etsy of ways. There are listings on the site for gingham masks, satin masks, and kid-sized muslin ones. There are some emblazoned with a picture of the “Golden Girls” cast, others with sports team logos or hand-embroidered birds.

More than 110,000 sellers sold a total of $346 million in masks through Etsy in its June quarter. By comparison, clothing industry behemoth Gap Inc. sold $130 million of masks in its quarter ended Aug. 1. The difference suggests that Etsy sellers — 95% of whom operate their small businesses out of their homes — were able to reap rewards from being fast and flexible in a way that bigger players with global supply chains couldn’t quite match.

Of course, the boom in Etsy face mask sales won’t last forever; either the market for them will become saturated, or, more optimistically, the public health crisis will wane. Whenever that happens, it won’t be too big a blow. The company says just 7% of the buyers on its site in the second quarter purchased only face masks, suggesting that many who came for masks were lured into buying other things. Home goods and furnishings have long been one of its core businesses, and those categories have experienced a broad surge in pandemic-related demand as people outfit their spaces for remote work and put money toward redecorating projects that they might otherwise have spent on vacations and entertainment. Some other categories that are key for Etsy, such as paper goods for weddings and decorations for parties, should strengthen at the point when the need for masks recedes.

The speed and on-demand manufacturing that helped make Etsy a mask champion could be used to attract customers in other ways. Its sellers can quickly offer products that respond to a news event, such as “Notorious RBG” coffee mugs, or that riff on a viral sensation, such as “Tiger King” birthday cards and temporary tattoos. Meanwhile, the work the company has done in the last year to steer sellers toward offering free shipping should encourage impulse shoppers to click buy.

Being the anti-Amazon isn’t all upside: Jitendra Waral, an analyst with Bloomberg Intelligence, points out in a recent research note that consumer staples have been in especially high demand recently, creating significant opportunity for the e-commerce sites that sell them. Still, Etsy has been an outlet for stay-at-home treasure hunters to safely indulge in their shopping pursuits during the pandemic, and these habits are likely to stick. Investors are right to recognize that its business model is built to outlast the mask mania.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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