Coronavirus has created a wave of new and dedicated e-commerce shoppers. One company that's benefiting from this a surge in traffic is Etsy (ETSY -0.61%).
As the pandemic progressed, its website became the go-to place for handmade facial masks made by its artisan sellers. An incredible 12 million masks were sold on the platform during April, and this traffic brought a 79% increase in sales of non-mask related items. The stock has more than doubled since the beginning of the year, which has caught the attention of investors.
Year to date stock return versus the S&P 500 through June 24, 2020. Data by YCharts.
Let's take a closer look at this niche online platform, what management is doing to drive continued growth, and where the business will be five years from now.
The business of a creative marketplace
Since 2005, the company has grown into a platform with 47.7 million active buyers and 2.8 active sellers offeirng 66 million handcrafted items for sale on its website. This focused approach stands out in contrast to the ocean of online websites selling mass-produced consumer goods at the lowest prices and has enabled Etsy to thrive.
Image source: Getty images.
In June 2017, outsider Josh Silverman took over the CEO role, and he quickly put together a plan for reinvigorating growth, one that has paid off. Since the first quarter of 2017, active sellers have increased 60%, active buyers increased 55%, and revenue has more than doubled.
As you'll see below, Silverman's plan centered around building on the strengths of the company to improve its platform.
Building a more human platform
Silverman saw that Etsy's niche was connecting artisan sellers with buyers that wanted a specialty item, and he looked to build on those strengths. One of his first priorities was to create a best-in-class search and discovery engine. Over half the time, searches would yield over 800 results, and a third of the time over 10,000 items. This left new buyers overwhelmed, while habitual buyers resorted to their own hacks to find items they wanted. Today, the company uses a smarter search engine that delivers results based on each individual buyers' preferences.
Additional platform improvements centered around the ability to create human connections and a trusted brand. There were numerous tools implemented to allow sellers to more easily interact with buyers to customize products or answer questions. The company created access to reliable and fast shipping services that would enable sellers to more accurately inform buyers when items would be arriving.
In addition to platform upgrades, the company has focused on ensuring that sellers can be successful. Today, sellers now have access to an online "sellers handbook," which has a large library of resources for setting up a store, dealing with administrative tasks like taxes or shipping, and having their crafts wind up in buyers' search results. Management is helping sellers through these challenging times and has committed over $11 million in financial relief and advertising. Its leadership knows its long-term success is dependent on the sellers' success and building a loyal base of customers.
Encouraging customers to come back
Having a marketplace with a broad array of quality sellers with a huge collection of unique items attracts more buyers. But the majority of its shoppers only use Etsy once per year. Marketing efforts are being ramped up to nudge customers to shop with Etsy throughout the year for special occasions such as Mother's Day, Halloween, or the spring wedding season.
In the month of April, 6.5 million new and inactive buyers made a purchase on the website. Management isn't letting this surge in traffic become a missed opportunity. It's actively working to develop these occasional and first-time customers into loyal buyers.
What will Etsy 2025 look like?
This growth company has built a solid brand and a comprehensive set of tools to connect sellers and buyers. But it's not resting on past successes and knows that improving its platform is a never-ending effort. Just this past week, it released a beta version of an augmented-reality feature that will provide buyers a way to see how items could look in their homes.
Today, Etsy has only captured around 5% of its addressable market and has a number of tailwinds including a resilient seller base, continued e-commerce adoption, and its focus on an ever-improving platform.
The Etsy of 2025 will be bigger and better but still focused on its mission to "keep commerce human." Shareholders will benefit too as this business continues to grow its niche for selling special and unique items online.
