Etsy Escapes ‘Race to the Bottom’ and Returns to Artisan Roots

The company is rolling out a major overhaul of its site rules Tuesday to make it “clear” to shoppers what products belong on Etsy, Silverman told CNBC. The changes include new labels on the website and app that show how each seller created a specific item.

“We’re trying to meet the demand for authentic goods and real people, offering what makes Etsy Etsy,” Silverman said.

Etsy is rolling out a new marketing campaign around the policy changes, including a TV spot that shows potters, clothing makers and other artists followed by a smashed robot arm. The platform’s new rules require all items to have a “human touch,” according to its creativity standards. Each item must fall into one of four categories: made by the seller (either by hand or using automated tools), designed by the seller, hand-picked by the seller or sourced by the seller.

With these changes, Etsy hopes to entice buyers and sellers back to its site at a time when e-commerce is increasingly dominated by Amazon and newcomers like China-linked Temu and Shein, which deliver cheap goods to shoppers’ doors in a matter of days. The stakes are high, with eMarketer estimating that the global e-commerce market will surpass $6 trillion this year.

“I feel like there’s a race to the bottom in commodities right now, and almost everyone in e-commerce is in it,” Silverman said. “They’re selling the exact same product and trying to sell it 2 cents cheaper or ship it two hours faster.”

Etsy has struggled to navigate the changing dynamics of the market. In the latest quarter, gross merchandise sales, the dollar value of items sold on its marketplace, fell 3.7% from a year earlier to $3 billion. The stock has lost more than 80% of its value since peaking in late 2021. It has fallen 32% in 2024, while the Nasdaq has gained 23% during that period and closed at a record high on Monday.

In December, Etsy laid off 11% of its employees. Silverman cited “very challenging macroeconomic and competitive conditions” as the reason for the layoffs.

The company is also facing pressure from activist investor Elliott Management, which has amassed a stake of about 13% in the company, becoming Etsy’s largest investor. In February, Elliott partner Marc Steinberg joined Etsy’s board.

The rollercoaster ride started earlier: Etsy went public in 2015, forcing the company to begin responding to shareholder demands for growth, a contrast to its culture of wellness and social conscience.

Etsy’s business exploded during the pandemic, spurred by a flood of mask buyers. Its stock price quadrupled in 2020, and the number of businesses selling goods on the site more than doubled to 9 million between 2020 and 2023.

Until now, Etsy had used its “house rules” to police the site. A key rule was that “anything listed for sale on Etsy had to be handmade, vintage, or a craft supply.” Sellers were banned.

The new rules are more detailed and updated to reflect today’s realities. For example, a 3D-printed sculpture is considered “merchant-made.” A merchant is not allowed to add a single sticker to a face mask that is available for sale and pass it off as handmade. For AI-generated content, the rules indicate that “AI art suggested by the merchant,” such as a dog wearing a regalia, qualifies as “merchant-designed,” but a digital download of “over 5,000 ChatGPT prompts” is not allowed.

Etsy has struggled for years to maintain a balance between preserving its image as a place for unique, handmade goods and trying to beef up its selection of items to compete with larger rivals. For early sellers like Ashley Smith, the changes haven’t always been welcome.

Smith started selling personalized wedding handkerchiefs on Etsy through her company The Polka Dotted Bee in 2011. Smith said Etsy was then a place where you could “search endlessly for amazing things that people were making,” but it evolved into a site increasingly dominated by generic goods.

One of the biggest changes to Etsy came in 2013 when the company allowed sellers to use manufacturing partners. Instead of making products themselves, sellers could turn to contract manufacturers for help with their products.

Abby Glassenberg praised the move. Glassenberg, who opened a handmade stuffed animal shop on Etsy in 2005, said it meant she only had to create a pattern once and could sell “an infinite number of copies,” which reduced her workload. Her Etsy shop went from a hobby business to a full-time career, she said.

Still, Glassenberg understands the tension, as many Etsy customers still want assurance that products are handmade.

“Craft doesn’t scale,” she said. “That’s why we like it, that’s why people like it.”

Glassenberg gave the example of a fork that was forged and cut by human hands.

“I’ll pay $120 for it, use it, and love it forever,” she said. “There’s no way anyone could make 100,000 of them a month, and that’s why we love it.”

The competition on the bigger stage is different, though, and Smith said the universal preference for cheap and fast goods creates a “tough fight for sellers and for Etsy.”

Temu and Shein have both expanded their U.S. presence in recent years, luring American shoppers with deep discounts on clothing, jewelry, housewares and other products. Silverman previously acknowledged that the sites “take a little bit of share from everyone.”

Now it makes clear to retailers and customers that the company will compete on its own terms.

“The solution for Etsy is not to try to play this game,” Silverman said.