Opinion: Etsy moves further away from its roots with its first Super Bowl ad

Etsy Inc., once known as a quirky marketplace for handmade, artisanal and vintage goods, appears to be drifting further from its origins in a much more challenging e-commerce landscape and the impact of artificial intelligence.

will be marketed to a whole new audience on Sunday, when its first Super Bowl commercial airs. The 30-second ad is bizarre; depicts a generic 19th century American leader who is puzzled over how to repay France’s gift of the Statue of Liberty. With the help of an anachronistic smartphone, he and his team search Etsy using the new Gift Mode option and find the “Cheese Lover” category after determining that the French love cheese. Voilà: they decide to send some cheese to the French.

The commercial is part of Etsy’s push for a new UI with Gift Mode, which lets shoppers search for gifts for a specific type of person or occasion, combining generative AI and human curation to give gift shoppers some unusual options .

But are these moves desperate and expensive efforts to reach potential new buyers, following Etsy’s plan to lay off 11% of its staff? Or could running a TV commercial at the most expensive time of year actually lead to more sales in the once-fast-growing market?

Etsy believes these moves will help the company grow further, and its research shows that the average American spends $1,600 a year on gifts. “There is no single market leader and Etsy sees a real opportunity to become one THE great destination for gifting,” Etsy CEO Josh Silverman said in a recent blog post.

Etsy is clearly under pressure after seeing its gross merchandise sales more than double in 2020 during the pandemic, when it became a one-stop shop for handmade masks and all sorts of home goods, from vintage pieces to antiques to scrap. From personal experience as an Etsy seller, I have seen sales at my small vintage clothing shop more than double in 2020 and then decline in 2021, while still higher than in 2019. Over the past two years, sales have slowed and some other sellers have witnessed similar patterns, according to their comments in seller forums.

The number of sellers and buyers on the platform increased at the same level as the gross sales of goods. But competition in e-commerce has also become fiercer.

“Our main concern with Etsy is the growing competition in the space from new players like Temu,” said Bernstein Research analyst Nikhil Devnani, in an email. Temu and fellow Chinese online retailer Shein have sparked a lot of concern among investors, as Etsy’s gross merchandise sales have declined over the past year and are expected to decline again in its next fourth-quarter earnings report later this month.

Devnani said a Super Bowl ad could potentially help the market gain visibility, something he has always lacked.

“One dynamic they’ve talked about a lot is that brand awareness/recognition is still low, and that keeps frequency low,” he said, noting that Etsy shoppers shop on the site about three times a year, on average. “They want to be more featured… Super Bowl ads are notoriously expensive, of course, but they can have a big impact and get noticed.”

The company’s heavy focus on gifting, however, could be a risky strategy. How many times a year do consumers look for gifts? And in a note Devnani wrote in October, before the company’s gift mode launch, he said one of investors’ concerns is that Etsy is too niche. “‘How often does someone need something special?’ is the rhetoric we hear most often,” he said. Etsy, therefore, is counting on shoppers returning to purchase more items for themselves.

Etsy CEO Silverman believes shoppers will return again and again to purchase gifts. Naved Khan, an analyst at B. Riley Securities, said in a recent note to clients that he believes gifting capitalizes on Etsy’s core strengths, offering “one-of-a-kind goods at reasonable prices” compared to mass-produced products sold on Shein , Temu, Amazon. com Inc. AMZN,
and other sites.

Consumer spending, however, has changed. At an investor conference in December, Silverman said consumers are spending on eating out and traveling, instead of buying things.

But while investors still see Etsy as a niche e-commerce site, some buyers and sellers see it overrun with repetitive, irrelevant ads. Complaints about declining search capabilities, reliance on email and chat for support, and constant technological changes are common in seller forums and Facebook groups. AI-generated art offered by new sellers as a sideline has also become a hotly debated and challenging issue. And there are complaints about mass-produced items making their way onto the site.

Etsy said that in addition to its human and automated efforts, it also relies on community reports to help weed out counterfeit products that are not allowed on its marketplace, and that community members should contact the company when they see items produced in series on sale on site.

He also continues to work on research. During the latest earnings call, Silverman said the company is moving beyond relevance to the next frontier of search, one “focused on better identifying the quality of each Etsy listing using humans and [machine-learning] technology, so that from a highly relevant set of results we bring the best of Etsy to the top, personalized based on what we understand about your tastes and preferences.”

Pressure could mount on the company if its latest moves fail to generate growth. Etsy recently gave up a seat on its board of directors to a partner at activist investor Elliott Management, which bought a “sizable” stake in the company in recent months. Marc Steinberg, head of public and private investments at Elliott, also served on the board of directors of Pinterest PINS,
from December 2022.

Elliott management did not respond to questions. But in a statement last week, Steinberg said he will join the board because “he believes[s] there is an opportunity for significant value creation.” Some sellers fear that pressure from investors and Wall Street will lead Etsy to allow mass products on the site. In its fall update, Etsy said that the number of listings removed for violating its crafts policy increased by 112% and that it is further accelerating those actions.

Etsy shares before the news of Elliott’s stake had fallen about 18% this year. His shares are now down about 3.65% this year, having recently experienced their best day in seven years on news of Steinberg joining the board of directors.

Etsy is a unique marketplace that for many years has had a much better reputation than some of its rivals, such as eBay EBAY,
But as it went public and responded to Wall Street, the need to deliver growth and profits to investors has increasingly become a driving factor. The Super Bowl ad and giveaway could bring broader awareness to Etsy, but will it be the right kind of awareness? Sellers like me hope these new efforts avoid the ongoing struggle with the likes of Temu and other mass-market sellers and help Etsy maintain the remaining unique aspects of its marketplace.

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