Back in March, when Etsy released its 2019 financial report and was looking ahead at the year to come, the executive team was already keeping an eye on COVID-19.
The company created a coronavirus task force in January and tried out a full-company work-from-home day in February before closing offices worldwide in early March.
Although gross merchandise sales (GMS) were up more than 40% year-over-year in January and February, Etsy saw a big dip in sales in March as uncertainty grew. Etsy withdrew its optimistic financial forecast for 2020 in the first week of April.
But then when bricks-and-mortar stores closed in many areas of the U.S. and people turned to e-commerce, Etsy’s GMS in April rose by 79% as compared to 2019, recording its two highest days of sales of all time.
“It was like waking up and discovering that it was Cyber Monday, except that everyone in the world wanted just one product, and that one product was an extremely limited supply,” CEO Josh Silverman said in a video conference last week.
Etsy had some work to do.
The mask initiative
Etsy emailed its sellers, asking them to help meet the demand for fabric face masks, and its data team retrained its search algorithm to show fabric face masks instead of Halloween masks or skincare.
More than 12 million fabric face masks worth $133 million were sold on Etsy in April, Silverman said. That’s 17% of the total GMS for the month of April, CFO Rachel Glaser noted.
If fabric face masks were its own category, it would’ve been the No. 2 category on the entire Etsy marketplace in April. (The top category remained Home & Living as always, which remained strong as consumers were nesting.)
Etsy acquired nearly 4 million new buyers in April, and 22% of mask-related GMS came from those new customers. Another 2.5 million buyers made purchases on Etsy that month after not being active for more than a year.
Glaser noted that 32% of all customers who bought a face mask made another purchase on Etsy within two weeks.
“The task ahead now is to do a great job engaging them so that we continue to earn their loyalty in the future,” Silverman said.
Silverman also noted the rise of “pocket hugs” as a novel product gaining traction as people look to send gifts to friends and family they can’t visit in person.
Pocket hug by Tasha McKelvey on Etsy.
What about Offsite Ads?
The new ads program launched in March and was meant to kick into full gear in April. In the program, sellers will be charged a fee of 12% or 15% on sales resulting within 30 days from paid ads Etsy places with search engines and social networks. Etsy was covering these costs for the first month so sellers could see the results without any risk.
Because of the economic uncertainty, Etsy continued covering these fees for sellers through May 3, which Etsy estimated as a $5 million investment. Etsy is also allowing deferral of seller bill payments and giving credits to mask makers and to sellers in hard-hit categories such as weddings. The total value of these initiatives is $11 million to $13 million, Glaser said.
Because TV advertising is currently very discounted and demand is high, Etsy leaned into marketing more than planned in the second quarter with a new ad focusing on makers.
Even before the huge sales hit in April, Etsy already saw 32.2% year-over-year growth in the first quarter of 2020, hitting $1.35 billion in gross merchandise sales (GMS). Marketplace revenue (which includes listing fees) was up 22.6% to $155.9 million, and services revenue (which includes ad fees) was up 71.1% to $72.1 million.
Net income was down 60.3% to $12.5 million, due to foreign exchange losses between Etsy’s international divisions, Glaser said.
The number of active sellers increased year-over-year by 26.4% to more than 2.8 million, and the number of active buyers increased by 16.4% to 47.7 million. And again — Q1 covers January through March of 2020, so the April boom isn’t included in these numbers.
Back in March, Etsy had forecast its 2020 GMS growth in the range of 25% to 28% and revenue growth of 27% to 30%, which would put GMS around $6.3 billion and revenue around $1 billion for the full year.
But on an update call in April, Etsy withdrew that guidance. “The world has changed,” Glaser said. “We assumed when we gave guidance that there was going to be a stable macroeconomic backdrop, and right now it is anything but stable.”
As May’s trends are following April’s, Etsy is forecasting sales for Q2 of 2020 to be up 80% to 100% over last year, likely topping $2 billion. For the sake of comparison: GMS for all of 2014 was just under $2 billion.
“I want to acknowledge again that these are really challenging times for people both personally and professionally,” Silverman said in April. “And I want to give my deep gratitude to our team and to the sellers for working so hard to rise to the challenge and really give it their all.”
It’s an unprecedented healthcare crisis, which is leading to an economic crisis, Silverman said in April. But Etsy believes it is ready to weather the storm.