Is Etsy At Risk of Going Bankrupt? The Cracks Are Starting To Show

Update – July 19, 2023 

The original post below was written in December 2022. Since then the Etsy organization has been adversely affected by the Silicone Bank failure, which has ties to the various Etsy stores as far as payments are concerned. This places the sellers at increased risk, and has fuelled speculation. 

However, many seem to be flexible, and are putting stores in vacation mode, or switching to independent online stores. I can only imagine how stressful it must be for those who have invested a significant amount of time, and money into their small businesses. I wish them all the best, and hope the financial pressure, and uncertainty gets resolved soon. It does sound like some of the information has been hyperbole, since various articles claim the Silicon Bank failure affected less than 1% of the stores. 

The December 2022 post starts here:

First and foremost I want to say that I am not a financial forecaster. Nor am I an accountant, therefore my observations are purely speculative.

I did not give much thought to it before, but given that I do a fair bit of research on product pricing, from high end to low end, I am familiar with their advertising, prices, listings, and claims. I have also seen many news articles, forum comments, and other complaints against the organization in recent months.

From the sellers perspective, they have tried to unionize and have actually gone on strike. In the spring of 2022, 47,000 sellers signed a petition citing unfair treatment and seller’s fees. They also filed a change.org petition that garnered over 25,000 signatures. Another information snippet places the boycott at over 82,000, 29,000 who claim to be Etsy sellers. These things most certainly do not look good for the organization.

From the consumer perspective, Etsy has many cases of fraud and counterfeit goods being sold. There are numerous online consumer reports claiming they ordered items, and did not receive them. In addition, they could net get any results or response when they attempted to get their money back.

Hundreds, if not thousands of other companies who built their businesses on the Etsy platform have suddenly been shut down. In those cases, the companies are claiming they did not receive notice, and could not get an answer when they tried to find out what the reasons are.

It looks like troubling times are happening, not only due to covid and inflation, but also for many other reasons. Etsy is an American company that was founded in 2005. They did an IPO in 2015. The corporate advertising claims they sell vintage, individual artisan handmade items, and craft supplies.

I researched some of their top sellers, one of which is a jewelry design company, a mom and pop organization that claims to sell over 100K per month. This to me raises an immediate red flag. If you examine the jewelry, you know darn well it is not made by hand, by a small cottage industry, or home based business. When you read their success story, there is very little information, other than scanty very superficial romanticized designer information.

I do not make jewelry or even repair jewelry, but I do collect it, do macro photography, and have looked at thousands, and thousands of different jewelry designs over the years. I can usually tell when something is hand made, and can tell if something is vintage. If something is mass produced in Asia, there are also many telltale signs. One sign is the low price. If a company sells individually made pieces at a price range between $30 – $50, it is quite amazing, assuming they are hand cutting diamonds, as well as creating their own settings. The old adage stands firm, if it sounds too good to be true – it probably is not true.

The reasons I personally do not believe a micro-enterprise that sells jewelry, can cut and set small diamonds, make many chains, and various metal lettering that requires die casting, expertise, and machination, is because these items look just like what you see on Amazon or Alibaba. In addition, when the company describes their success, it is all about how busy they are packaging and sending their jewelry, not about making it. Plus how can a small company make that much jewelry in a month? You have to sell a lot of jewelry at that price point, to make 100K in one month.

Just like the sellers who got shut down suddenly, and without being given a reason, deserve answers – so do the shareholders, consumers, and other sellers deserve some answers. The remaining sellers who are honestly struggling to survive, as well as consumers who think they are getting handmade one-of-a-kind products, deserve answers. This is especially so when what appears to be happening, goes against the grain of their original marketing plan. It certainly does look like they are allowing the high volume sellers to continue, with mass produced product, and numbers that do not ring true.

So why does Etsy allow what appears to be a mass produced product to thrive, when they claim they are ONLY promoting vintage, and handmade artisan items from small grassroots organizations? Yet they are shutting down other Etsy sellers left and right. Clearly, they are allowing the high volume, mass produced sales to go through, without shutting that company down for not meeting the criteria they themselves have set. Why? Because they are making money for the shareholders, so it is much easier to let that slip through the criteria cracks than it is for those who are not making high volume sales.

If a company is selling 100K a month worth of product, at an average price of $30, that means they are selling on average 110 items per day. They would also have to be making 110 items per day, or they would soon run out of product.

How is it possible for a small micro-enterprise to make, and sell 110 unique, hand crafted products per day? They are busy shipping, with absolutely no mention of the manufacturing process involved, to keep up with such demands. Plus it takes many years of training, practice, and experience to cut diamonds, and fit them perfectly into settings. The same with all the silver and metal chains. Are they making those by hand too? A retired jewelry maker in Vancouver sold me a 1920’s chain a few years ago, and told me it took a full day to make one inch.

The creation of this type of jewelry, is not like putting a bead on a string. And in my opinion, that is what you would have to do, in order to sell that many jewelry items a day, and keep up with production, shipping, and other demands of running the business. I know of experienced jewelry makers on Haida Gwaii, who spent days making a single item. You know if something is made by a true artisan. At least you soon figure it out, if you pay attention.

Another Etsy organization I read about that did get shut down, claimed they had made hundreds of thousands of sales over a ten year period. Hundreds of thousands, is a lot of sales for a small company sewing fabric flowers on cushions. If you assume hundreds of thousands to be say, 500,000 divided by ten, that would mean they were selling 50,000 items per year, which is over 4000 per month. That is not a typical sales volume for a hand crafted product.

After the store got shut down on Etsy, they set up a standalone web shop. Although I cannot tell if the items are hand sewn or not, they only have around a hundred products to sell, all of which use the same flower design. Once again, it does not ring true, or seem possible that they sold hundreds of thousands of cushions, each with a fabric flower on it. They do not have any notable branding. They have a very small product line, with some wall hangings that have the exact same flower as is on the cushions. That’s it.

So, from both a consumer, and a seller’s perspective, there seems to be some glaring discrepancies that just don’t add up. I recall when Etsy was brand new back in 2005, and do believe the concept was solid to begin with. It brought many small craft people into the marketplace with some very nice handmade products. It was also a great place to find good deals on unique, one-of-a-kind items.

Like so many things, it started out fine, but something has happened over the years to pull it down. It is no longer the trustworthy organization it once was. To have such a scale of disgruntled sellers, and consumers, is not a good sign, regardless of what the stock market is predicting to try and keep it afloat.

Etsy does a phenomenal amount of advertising. Every item, every designer, and every bit of research I do, pulls up hundreds of Etsy ads. This might help explain why they are increasing seller’s fees to the point of revolt. I have never been inclined to sell on Etsy because I knew the organization would have control, not me. I also did not like the looks of many of the stores, in particular, the photography.

But clearly, many of the sellers are legitimate, hardworking people who deserve to build a successful business, and it does appear the organization started out that way. Another unverified bit of insight I read while researching this, is that almost half of Etsy sellers make less than $100 per year. That too, is not a good sign, especially when you consider the amount of advertising they do. No control and no sales, does not make for an attractive business model.

The decline appears to have started after they did the IPO in 2015. The shares grew rapidly, and all was well. For awhile. But a quick review of how much their debt increased shows an increase in debt of 147% in 2019. In 2020 there was a 32% increase, and in 2021, there was an increase of 115%

As I said, I am not a stock market guru by any stretch. But in my opinion, it is the increase in debt that is causing the increase in seller’s fees. This in turn, has caused financial hardship for those who are putting time, money, and energy into creating their own products, in addition to doing the photography, descriptions, etc.

Even though the investors information is not yet predicting a high probability of bankruptcy, one can draw their own conclusions. With the high rate of inflation, and the downturn in all retail sales, can they wait it out? Can they turn things around when they have a growing trend of disgruntled sellers, unhappy consumers, and increasing debt? And what are they going to do about mass produced high volume sales, when they claim to be niche market, which is just the opposite? It does not look good.

One of the reasons I find this to be very interesting, is because of the whole long tail niche marketing concept central to my own long haul in developing the Quiet West website, and vintage product line.

High volume, mass produced items are at the head of the tail. Those are the products you buy at Amazon, and various other large scale department stores. To explain the head of the tail, it means they sell mass produced items, and sell them cheap, in high volumes.

Whereas in the niche market businesses, we sell one-of-a-kind items that cannot be purchased in large volumes. When I embarked on this project, selling individual and unique items, my theory was that in order to develop a strong footprint and online presence, as a long tail marketing concept – you have to have a high volume of niche market items, or no one will ever notice you. Basically, it is the polarized opposite, or the flip side of the coin between the head of the tail, and the long tail, on the other side.

My theory is that by putting in the upfront efforts, in creating a long tail, it will attract those who want to find unique one-of-a-kind quality items, that you cannot find at Amazon or Walmart. It also appeals to the sustainable development, and environmentally positive contribution to business development.

This old world has developed and created billions of products over the years. With the new millennium, and rise in fast fashion, it became all about turning a fast buck, as opposed to creating high quality, well-crafted items that cost much more to produce.

Although Etsy might be able to hang in there, and make the required changes to stay afloat, in my opinion it is not looking good. For those who have put in a significant amount of time and effort building a small online business with Etsy, they are in a very precarious position. Etsy owns them. They own their customer lists. They can shut them down, without even giving an explanation. That is a huge blow for any entrepreneur. It also must create a significant amount of fear and trepidation for those who are still functioning.

Times are changing. E-Commerce is not going to go away, unless there is a complete collapse of civilization. But the next couple of years will be an unstable time for many retail organizations, both online and offline.

I cannot boast about any big success stories yet, as I just tentatively opened right before the covid fiasco. In addition, I still have plenty of work to do, to get all the information documented on the products. I have made many International sales, but honestly cannot make any wild exaggerations.

One thing I will say, is that if anyone contacts me with a question about a product, I will reply promptly. I would never ignore a customer. In addition, once an item is sold, I consider the customer to be the owner of the item, and aim to get it out to them ASAP. If there are delays involved with dry cleaning or shipping, I will communicate that to the customer up front.

I certainly do not have all the answers, other than to put energy into building a solid foundation, keep the debt to a minimum, and wait it out. I also believe as time goes on, more and more people will appreciate a micro-enterprise that is responsive, prompt, and honest. It is very important to me, to keep customers happy. A long tail niche market store requires a great deal in upfront time and investment. Normally, these are things that create long lasting value, and a solid foundation.

One good thing to note, is tangible products do not go up in vapour, like many stock market investments do. In a sense, a collection of vintage design, is like a long term penny stock investment, only the products are tangible, so if they go up in value over the years, the return should be reasonably good.

My interest to a large extent revolves around creativity, improving the photography, learning about web development, and motifs, design and patterns. I appreciate the workmanship done by other people over the decades, and believe many of these things should be documented for design schools, and for the historical, and cultural representations they bring from the different eras and locations.

Of course I love to find and promote mid-century Canadian designers, because of a sense of awe in what came out of Montreal during those peak creative years, and the fact I am Canadian. In recent years, we have had such a huge influx of fast fashion made in China, it made me even more determined to collect and document the remnants of design, and quality fashion, that came from locations other than China.

Who knows what the future will bring? One thing I can say without making exaggerations – is that I have visitors from all over the world, with the exception of Greenland. Most of the Quiet West visitors are from North America, followed by the UK, Australia, France, Germany, Sweden, France, Italy, and Japan – as the top visitors on the site.

Overall, the number of locations that have visited Quiet West since I set up Google analytics, is between 167-169 countries. Understandably, there are a few countries in Africa without visitors, probably because they do not have an Internet connection. But to my surprise, I have had visitors from more than half the countries in Africa. I have not bought a single ad so far. I used to have the social media buttons, but took them off. I really don’t know how people find my website. I no longer have a Facebook account, and do not use Twitter or Instagram either. Once I am ready, I will officially launch the store, and use those marketing avenues.

One added bonus, is that I am getting a global geography lesson!

So – many thanks to all the visitors from faraway places. It does provide a connection to locations I would not otherwise even know about, and vice versa. I have the security of knowing I will not get shut down on someone’s whim. When you use open source to build an online store, you own the architecture of your store. I once read, it is like the difference between owning and leasing. I do not like the concept of having the rug pulled out from under me, after so much time and money has been invested.

The communication and sharing, knowing people are visiting, and followers are taking an interest, help to keep us going when times get tough. All things we do, create a form of cultural representation and outreach. I think art, culture, and design gives us common ground. Every culture, and every era, has created artistically beautiful things. It gives us a chance to peruse, and appreciate these things, albeit from a distance.

I would not discourage any person from setting up an online store. In fact, I think it is a good idea, in spite of the hurdles. But I would caution people to use open source software, and to learn how to do basic online publishing and photography, so the efforts are not in vain. And then hope and pray – the law of attraction will come your way!

Copyright Valerie J. Hayes and Quiet West (2022). Unauthorised use and/or duplication of this material without express and written permission from this blog’s author/owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Valerie J. Hayes and Quiet West with appropriate and specific direction to the original content.