Since the launch of the Handmade at Amazon marketplace this month, a David-versus-Goliath narrative has emerged: The nation’s biggest online retailer is poised to pummel Etsy, the global platform for handcrafted, artisan goods, the storyline goes. But will it?
There’s no doubt that Amazon boasts a massive consumer base of 244 million active users, marketing muscle, and economies of scale that Etsy, with 22 million shoppers, can’t match.
But size isn’t everything.
Finding an 'expression of who they are'
Etsy is a destination for specialty merchandise, whereas Amazon, sometimes described as “the Walmart of the web,” is certainly not. Amazon has made its mark selling commodity products from toothpaste to televisions at bargain-basement prices; Etsy’s specialty concept is a completely different model.
The Brooklyn, New York-based retailer, which went public in April, has built a community of independent designers and artisans around the world, honing its buying and merchandising prowess in this niche space since 2006.
It’s not surprising that Amazon wants a piece of the action. Etsy has benefited from trends that reflect the rise of "the maker movement." Consumers are looking to satiate a growing appetite for customized, globally-curated goods that are made on-demand or in small batches, and "are an expression of who they are,” Yory Wurmser, a retail analyst with eMarketer, told Retail Dive. At the same time, they are also searching for shopping experiences that are less transactional and more personal, he said.
Etsy delivers just that by connecting buyers with individual producers whose faces and stories appear on the site.
The elephant in the (store) room
Still, Amazon’s aggressive low-price strategy and operating efficiency have redefined the business of retail. It has single handedly gobbled up market share of entire product categories like books and consumer electronics, giving Best Buy and Barnes & Noble major headaches, while helping to put Borders out of business. So attention must be paid whenever the e-tailer sets its sights on owning a business.
But it remains to be seen if handmade — sometime edgy — artisan fare is an entirely different animal than books and consumer electronics, and what that answer will be mean for both retailers.
For now, the fourth quarter gift-giving season will be a moment of reckoning for Etsy, Gil Luria, managing director with Wedbush Securities, told Retail Dive.
Handmade at Amazon kicked off with a bang, he said. “They had 5,000 sellers at launch. The site could take off as early as this fourth quarter.”
Amazon has been courting Etsy sellers directly, luring them to migrate to the site that boasts a consumer audience “10 times the size of Etsy’s,” Luria said. “It’s a more compelling platform.”
Chad Dickerson, CEO of Etsy, disagrees.
"We believe we are the best platform for creative entrepreneurs, empowering them to succeed on their own terms,” he said in a statement. “Etsy has a decade of experience understanding the needs of artists and sellers and supporting them in ways that no other marketplace can. Our platform attracts 21 million-plus thoughtful consumers seeking to discover unique goods, and build relationships with the people who make and sell them."
Upon launch, Amazon made clear that all handmade items on its new marketplace must be made “entirely by hand, hand-altered, or hand assembled,” firing a pointed salvo at Etsy.
In 2013, Etsy revised its policy, shifting from requiring that sellers’ products be exclusively handmade, to allowing manufacturers to help sellers produce their designs.
The move, intended to steamroll expansion, dulled its authentic, artisan image, Luria said.
Yet despite the policy change, Etsy sellers have grown 29.4% to 1.48 million in the second quarter of 2015, up from 1.07 million in the second quarter of 2013, according to its IPO filing.
Its consumer base has also expanded. The retailer counted 14 million active buyers in the second quarter of 2013, and as of the second quarter of 2015, boasted 21.7 million.
Beyond consumers, national retail chains like Nordstrom and West Elm have partnered with the site, showcasing items from Etsy sellers in its stores to infuse their product assortments with a curated, one-of-a-kind feel.
But there’s no question Etsy has been going through a rough patch.
Since going public, the company has posted two consecutive quarters of losses, blaming currency fluctuations and steeper marketing costs for its $6.35 million loss in the second quarter ended in August.
Etsy’s image also took a hit when counterfeit goods popped up on its site.
And now the retailer enters its first holiday season competing head on with the behemoth of the e-commerce sector.
“Etsy can differentiate itself from Amazon by playing up the fact that it is a community,” Wurmser said. “It started as a small exchange for artisans and still maintains that mission of creating a community of buyers and sellers brought together around some common interest, whether it's beaded jewelry or custom handbags. If it can stay competitive from a price perspective, it should be able to keep most of its artisans and customers.”
The price factor
Only time will tell if Etsy sellers defect to Handmade at Amazon in significant numbers, enticed by the site’s vast consumer base.
However the competition between Amazon and Etsy unfolds, the cost of doing business for these small suppliers will factor into their decision.
For handmade sellers, Amazon’s Prime loyalty program, for which boasts an estimated 47 million U.S. members, “is a huge advantage,” Luria said.
As for the cost of selling on each site, Etsy charges sellers a 20 cent listing fee and collects a 3.5% transaction fee when products are sold. By contrast, Amazon waives the listing fee, but charges sellers a 12% transaction fee for items sold. That fee will rise from between 15% and 20%, depending on the product, come August 2016. That’s also when sellers will be charged a $39.99 monthly fee to sell on the site.
Then there’s the question of the vulnerability of small, independent sellers in the hands of Amazon.
Amazon has been accused of signing up third-party sellers to market everything from jewelry to handbags, only to later throw those same vendors under the bus by hawking similar product for less.
One Etsy seller in a forum on its site said she’s taking a pass on Handmade at Amazon. “I lose too much control over my products and brand by selling on Amazon,” she said. “I did the research on Amazon a while back, before HA [Handmade at Amazon] was announced, and decided then that it wouldn't work for me.”
Despite the Amazon-versus-Etsy narrative, it doesn’t have to be an either-or scenario: Artisans can sell on both sites. According to Etsy, more than half of its sellers already sell on other platforms.
“I just want to take the time to say Thank You to Etsy! Amazon Handmade opened today and I am one of the sellers on the launch,” said one seller in the online forum on Etsy, entitled, “Thank You Etsy I will stay Loyal while joining [email protected]”
She added: “It's a nice opportunity to have a second sales channel for my products.”