In a major organizational reorganization to reduce expenses in the face of stagnant sales growth, e-commerce firm Etsy shocked investors on Wednesday by revealing intentions to lay off approximately 225 workers, or roughly 11% of its workforce.
Even though Etsy’s sales are more than double what they were in 2019, the drastic change nonetheless occurs. But progress has been flat over the last two years. Etsy CEO Josh Silverman wrote in a message that GMS have remained “essentially flat” since 2021, which means the business isn’t bringing in more money for its vendors.
Given that personnel expenses have continued to rise while growth has not, he assessed the current position as unsustainable. The goal of the layoffs is to put Etsy on a more sustainable financial footing for the future.
Etsy Stock Plunges Over 7% on News of Layoffs and Growth Concerns
The revelation of the reorganization and worries about future growth caused the stock markets to respond badly. Among the S&P 500’s worst performers on Wednesday, Etsy’s stock fell more than 7%.
So far in 2023, the stock has underperformed the market as a whole, falling around a third.
Etsy is still significantly bigger than it was before the pandemic, but some are starting to worry that it won’t be able to keep growing and making money as long as the economy stays this bad.
Restructuring Aims to Make Etsy More Nimble and Refocused
The reorganization, according to Silverman’s memo, will help Etsy become more “agile” and return its attention to “key growth priorities” for the future.
The layoffs are the meat and potatoes of the plan, cutting labor expenses drastically—a factor that Silverman deemed a big drag.
On the other hand, there are organizational shifts happening. The company’s chief marketing officer, Ryan Scott, is leaving as a result of the shakeup. Raina Moskowitz, who is currently serving as chief operating officer, will also assume the position of chief marketing officer.
Operations will likely be streamlined, decision-making will be expedited, and alignment around growth objectives will be improved as a result of the consolidation of tasks.
Etsy Anticipates $25 Million to $30 Million in Restructuring Charges
Massive layoffs and restructuring won’t be cheap. According to Etsy, the restructuring plan is expected to cost between $25 million and $30 million.
The corporation is hedging its bets that it can save enough money in the long run to offset the short-term loss. Etsy is currently putting a premium on becoming a “leaner” operation.
When merchandise sales remain flat, the question becomes whether the cost savings from restructuring and layoffs will be enough. After the most recent update, investors’ concerns about growth are understandable.
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Weak Holiday Sales Data Sparks Fears of Recession Impacting Etsy’s Customer Base
Concerning macroeconomic issues, such as high inflation and the prospect of a recession, are probably to blame for Etsy’s growth problems. It seems like these things have slowed sales growth in the last year.
Even normally robust industries, like as e-commerce, are showing signs of significant slowdown in recent Christmas sales figures. The fourth quarter figures provided by Amazon and Shopify were both underwhelming.
The unique and handmade goods sold on Etsy, as opposed to everyday necessities, are more likely to appeal to customers’ discretionary purchasing, making them more vulnerable to the effects of a recession. Stocks fell after restructuring news, which is understandable given these concerns about growth.
Etsy currently confronts an unclear demand forecast for 2023, even though cost reduction can increase profitability in the short run. Small creative enterprises may cut back during a recession, which could lead to a decrease in seller participation and a decrease in consumer desire to spend on extras.
CEO Remains Confident Despite Acknowledging “Very Challenging Macro and Competitive Environment”
Etsy CEO Silverman remained hopeful in his memo announcing the adjustments, even though the company seems to be having growth problems, which is speeding up the move to slash costs. He was certain that the upcoming reorganization would alter Etsy’s course following its current unsustainable patterns.
Summing up the current state of affairs, Silverman said, “we are operating in a very challenging macro and competitive environment.” The mention of rivalry suggests that Etsy is facing some pressure from rapidly expanding competitors.
Etsy, according to Silverman, can come out stronger and more focused despite the fact that the market is tough for e-commerce businesses in general and those that rely on consumers’ discretionary spending in particular.
Is consumer demand going to be cooperative and get the company back to sustainable expansion? That is the essential question. If such is not the case, it may be required to make more adjustments even after a series of severe cutbacks.