3 reasons Etsy is in big trouble

Etsy necklace Etsy blogA model wears a handmade necklace from Etsy’s website.

Etsy is facing challenges like never before.

The artisan marketplace’s shares have declined 43% since the company went public in April.

Despite being the fifth most-visited marketplace in the world, after Amazon, eBay, Best Buy, and Wal-Mart, many analysts fear Etsy is slipping.

Here are the biggest issues plaguing the brand.

1. Etsy is bleeding cash.

“When Etsy disclosed its first earnings report last week, it showed a quarterly loss of $US36.5 million — which it attributed to corporate restructuring and adverse currency exchange rates — compared to a loss of $US463,000 in 2014,” writes Jenni Avins at Quartz.

While Etsy argues that it is pouring cash into investments, many shareholders fear the brand doesn’t have enough cash on hand for emergencies.

2. Amazon is building a huge competitor.

Online retailing behemoth Amazon is targeting Etsy, The Wall Street Journal reports.

Amazon is contacting top Etsy sellers via Facebook and email and inviting them to try its “Handmade” site, which seems to offer similar categories to Etsy.

“The invite points to a questionnaire on Amazon’s site that asks sellers which primary product category they fall under, listing 11 general subjects such as apparel, baby, and pet supplies,” WSJ reports. “The poll lists subcategories for jewellery and home and kitchen in particular.”

3. Counterfeit goods are running rampant.

Analysts say that counterfeit goods are bringing down the business and causing quality sellers to flee the store.

One seller, Grace Dobush, started selling handmade cards and journals on the site in 2006, shortly after Etsy opened, she writes in an essay on Wired.

But now, she says that Etsy has “alienated” the crafting community by allowing people to sell cheap wholesale goods purchased from countries like India and China.

As a result, crafters are increasingly moving to other platforms, like Shopify.

While Etsy started as a way for artisans to reach a broader market, it’s become too big to scale, she writes.

“In practical terms, scaling the handmade economy is an impossibility,” Dobush writes. “So while Etsy maintains a hipster façade, they lost their indie cred years ago.”

Etsy CEO Chad Dickerson defended the company’s practices on a conference call with analysts.

“We strive for a balanced approach that takes into account the interest of our sellers and IP owners, and we believe it is working,” he said. “We at Etsy partner with major brands to address the problem of infringing articles. In fact, we are often accused of being too aggressive in taking down material posted by sellers.”

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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