Can Etsy put together a recession proof plan?


Iif you think Etsyit is (NASDAQ: ETSY) business model as an e-commerce platform offering luxury handcrafted goods will struggle during a bear market, think again. Etsy has unique benefits that other digital selling platforms like Amazon, Shopifyand eBay lack. It has also proven to be a resilient and adaptive company. Etsy found success during the height of the pandemic, when it became a go-to source for masks, while e-commerce giants like Amazon struggled to keep up with demand. This shows that in times of crisis, Etsy can leverage the talent and ingenuity of its vendors to meet market needs. Etsy’s fundamentals include several clear advantages that position it well for a possible recession. These include its agility, customer loyalty, intellectual property (IP) strategies to deliver a user-friendly experience, and Etsy’s supplier value proposition. All of these elements will be essential during a possible recession.

Etsy’s platform-centric infrastructure could improve margins, even in a bear market.

One of Etsy’s biggest advantages is that it’s a lean digital platform instead of a vertically integrated company. Etsy is missing a logistics infrastructure to store and deliver the goods of its sellers, which differentiates it from Amazon. Nor has Etsy developed the agreements and relationships that eBay has with UPS and fedex. In a bull market, the absence of these agreements or infrastructure could limit growth, but in a bear market, these factors could keep Etsy lean and resilient enough to survive and thrive, as its costs do not include inventory, manufacturing , jets, fleets of vehicles or negotiated relationships with carriers, which partly explains why its Gross margin remained so high.

Etsy is constantly onboarding new loyal customers

Yet Etsy’s advantages don’t end with its infrastructure. Etsy has a surprising degree of customer loyalty, as evidenced by repeat purchase behavior, which has increased in frequency. The platform offers a compelling degree of “stickiness” that could make a major difference in the hyper-competitive e-commerce industry. This is partly because Etsy has an ongoing customer onboarding process. Many new customers initially choose Etsy to find special products for milestone events (eg, weddings) and then become more regular buyers. Even in downturns, many consumers are willing to spend money on life milestones, and Etsy has a wide variety of choices at all price points.

Etsy has two major advantages when it comes to intellectual property

Customers can find these choices through a compelling third benefit: Etsy’s intellectual property and other digital assets. Company digital assets are designed for ease of use; many of his patents are aimed at improving visual and natural language search capabilities. Even though most e-commerce businesses invest heavily in search algorithms, Etsy has turned a potential downside into something positive: its more than 100 million products are not standardized, nor are they coded with codes. Universal Product Codes (UPC). Yet Etsy has developed search algorithms that uniquely match user queries to its non-standardized core market.

This technology strategy could help it capture market share among sellers and buyers choosing on Amazon, eBay or Etsy. Etsy recently invested in developing a suite of powerful tools for sellers, including a seller app and augmented reality technology. These tools enhance the seller and buyer experience without requiring technical expertise from sellers. This could be another growth driver during a bear market: during tough times, many people try to monetize their hobbies to make extra money. Unfortunately, the friction of less user-friendly platforms can discourage these potential micro-enterprises. Imagine a potential entrepreneur trying to start a small store. They might not meet the inventory requirements to use Amazon’s FBA, and the process of setting up a new Shopify store might frustrate them further due to the fees and many tech-heavy steps involved. In contrast, Etsy has developed technology with its end users in mind, which reduces the perceived risk of launching a shop. If sellers can turn a hobby into a side hustle with just a few clicks and a little spending money for an ad, and if buyers can find anything they can imagine (and things they hadn’t imagined, but find they want to anyway!), Etsy can then improve its market share even during down market times. If he can do this without incurring the costs associated with a logistics infrastructure, his margins will be even better.

If you previously dismissed Etsy as a superfluous consumer discretionary business that would struggle in a bear market, now is the time to reevaluate. Etsy may be in a better position than you think.

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Miranda Tedholm has no position in the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. The Motley Fool holds positions and recommends Amazon, Etsy, FedEx and Shopify. The Motley Fool recommends eBay and recommends the following options: $1140 Long Calls January 2023 on Shopify, $1160 Short Calls January 2023 on Shopify, and $57.50 Short Calls July 2022 on eBay. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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