Etsy, the renowned e-commerce platform known for its handmade items and connections with local artisans, is facing significant challenges as it navigates a “very challenging” macro and competitive environment. In response to these difficulties, the company has made the difficult decision to lay off approximately 11% of its workforce, amounting to around 225 employees, during the height of the holiday season. The restructuring aims to streamline costs and bring about necessary changes to ensure the sustainability of the business.
Etsy CEO Josh Silverman, in a letter addressed to employees, acknowledged the substantial growth the marketplace has experienced since 2019. However, he emphasized that the current realities demand sweeping changes. Despite the increase in size, the gross merchandise sales have remained essentially flat since 2021, which poses a significant challenge when it comes to supporting sellers and driving their sales. Additionally, employee expenses have continued to grow, even with the implementation of cost-cutting measures. This concerning trajectory calls for immediate action.
Alongside the announcement of workforce layoffs, Etsy also issued updated fourth-quarter guidance. The company now anticipates a decline of 1% to 2% in gross merchandise sales compared to the same period last year. However, there is a silver lining, as revenue is expected to increase by 2% to 3%. The adjusted EBITDA margin is also projected to be between 27% and 28%, an upgrade from the previous estimate of 26% to 27%.
Following the news, Etsy’s shares experienced a 2% decline, having even fallen by as much as 7% earlier in the day. The market’s reaction reflects the challenges that lie ahead for the company in reigniting growth and driving sales for its 7 million sellers worldwide. Etsy’s commitment to delivering value to all stakeholders is evident in their decision to reorganize the internal structure. Unfortunately, this means parting ways with approximately 225 colleagues.
The timing of these layoffs aligns with the recent announcement from toymaker Hasbro, who is cutting 1,100 employees due to soft sales during the critical holiday shopping season. This reflects a broader struggle faced by businesses operating within the current economic climate. Hasbro, with around 6,300 employees earlier this year, shares a similar sentiment of the need to make difficult choices for the sake of the company’s long-term stability.
The layoffs at Etsy are expected to incur costs between $25 million and $30 million, primarily allocated for severance payments, employee benefits, and other related expenses. However, the company anticipates meaningful operational efficiencies and cost savings in the long run. The restructuring aims to address salary costs, benefits, and streamline operations. These changes are anticipated to be completed by the end of the first quarter of 2024.
As part of the overall restructuring, Ryan Scott, Etsy’s chief marketing officer, will be leaving the company. His position will be consolidated under the chief operating officer role, currently held by Raina Moskowitz, a former executive at American Express. Additionally, Kimaria Seymour, the chief human resources officer, will be departing, and Toni Thompson, the current vice president of global people and talent strategy, will take on the role. These changes aim to optimize the company’s leadership structure and ensure effective decision-making moving forward.
Recognizing the added stress during the holiday season and the impact these layoffs have on employees and their loved ones, Etsy has committed to paying affected staff until at least January 2nd, 2023, even though their last working day will be Wednesday. Furthermore, those affected will receive a severance package equivalent to 16 weeks of base pay, with an additional week for each year of service. The company is also extending COBRA health insurance benefits and allowing employees to retain their company laptops.
Etsy’s decision to implement workforce layoffs amidst a challenging environment underscores the company’s commitment to long-term sustainability. Through this restructuring, the business aims to address cost inefficiencies, adapt to market demands, and ultimately drive growth for its sellers. By making these difficult choices, Etsy positions itself for a stronger future and enhances its ability to continue supporting the thriving community of artisans and creators around the globe.