Can Etsy Knit Together a Recession-Proof Plan?
If you think Etsy's (NASDAQ: ETSY) business model as an e-commerce platform offering craft luxuries will struggle during a bear market, think again. Etsy has some unique advantages that other digital sales platforms like Amazon, Shopify, and eBay lack. It has also proven to be a resilient and adaptive company. Etsy was successful during the peak 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 during a crisis, Etsy can leverage its vendors' talent and resourcefulness to meet market needs. Etsy's fundamentals include several clear advantages that position it well for a potential recession. These include its nimbleness, customer loyalty, intellectual property (IP) strategies to provide a user-friendly experience, and Etsy's value proposition for suppliers. All of these will be critical during a potential recession.
One of Etsy's biggest advantages is that it is a lean digital platform instead of a vertically integrated firm. Etsy lacks a logistics infrastructure to store and deliver its sellers' goods, which differentiates it from Amazon. Etsy also hasn't developed the agreements and relationships that eBay has with UPS and FedEx. In a bull market, lacking those 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, vehicle fleets, or negotiated carrier relationships, which is part of why its gross margin has remained so high.
Yet Etsy's advantages are not limited to its infrastructure. Etsy has a surprising degree of customer loyalty, 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 sector. This is partly because Etsy has an evergreen customer onboarding process. Many first-time customers initially choose Etsy to find special goods for milestone events (e.g., weddings), then become more regular buyers. Even during downturns, many consumers are willing to spend money on life milestones, and Etsy presents a vast variety of choices at every price point.
Source Fool.com
