Etsy seeks balance of growth, keeping 'handmade ethos'

Depending on whom you ask, Alicia Shaffer, owner of the hit Etsy store Three Bird Nest, is a runaway success story -- or an emblem of everything that has gone wrong with the fast-growing online marketplace for handmade goods.

With the help of up to 25 local seamstresses and alluring photography, Shaffer takes in upward of $70,000 a month in revenue selling headbands and leg warmers via Etsy. But as her business has grown, she has been harshly criticized online and accused of mass-producing goods and obtaining wares from China. Detractors consider her a blight on Etsy's hipster credibility.

The dispute over how goods are produced and sold on a site that prides itself on feel-good, handmade authenticity underscores the growing pains transforming Etsy as it moves toward a potentially lucrative initial public offering of stock.

As for Shaffer, she denies the claims that have dogged her business recently but says she understands why questions have arisen about the volume of goods she produces. She says her store strictly adheres to Etsy's guidelines, including that all items listed are either handmade or "vintage" secondhand, with some new exceptions that allow for approved outside manufacturing.

"We're a team of dedicated Etsy artisans who have been able to grow a tiny shop into a little machine," she said.

For many of its fans, Etsy is much more than a marketplace. They view it as an antidote to global mass production and consumption, and a stand against corporate branding. And it has helped spur a wider industry of items that claim to be artisanal, authentic or bespoke, whether bedsheets or beef jerky.

Etsy, in turn, has ballooned and benefited from a growing demand for that kind of shopping, offering more than 29 million listings of handmade jewelry, pottery, sweaters and objets d'art. It had 54 million members at the end of last year, of whom 1.4 million listed an item for sale and almost 20 million made at least one purchase in 2014, according to its IPO prospectus.

Though the site still loses money because of high development costs, it is booming, with gross merchandise sales reaching $1.93 billion last year. The fees Etsy collected on items listed and sold, as well as on services like the promoted placement of goods, reached $196 million.

But criticism of the production methods of Three Bird Nest and other increasingly high-volume sellers, together with a string of defections by prominent vendors, reflect the company's struggle to balance growth with maintaining the indie credibility that fueled its popularity.

"Handmade businesses aren't infinitely scalable, just by the definition of the term," said Grace Dobush, a writer and longtime Etsy seller who made waves last month when she declared she was finally done with the site. "As Etsy has gotten bigger, it's gotten more like eBay."

For example, a red necklace carried by various sellers on Etsy, with price tags ranging from $7 to $15, can also be purchased through the Chinese wholesale manufacturing site Alibaba.

According to Alibaba, the necklace is made by the Yiwu Shegeng Fashion Accessories Firm, based south of Shanghai, which claims that it can churn out almost 80 million necklaces a month. Jacky Wang, listed as the company's chief executive, did not return requests for comment.

"It's like having a gourmet restaurant on a street with upscale galleries, bookshops and coffee shops, and a McDonald's or a Wal-Mart gets built in a vacant lot on the street," said Diane Marie, an artist who sells handmade jewelry from her home in La Pointe, Wis., and who has called out "resellers" on Etsy's discussion forums.

Etsy does police such cases. Users can flag a suspected reseller to the site's Marketplace Integrity, Trust & Safety Team, and Etsy has said it uses algorithms to detect suspicious sellers. But Etsy acknowledges in its prospectus that it cannot fully vouch for the standards of its sellers and the manufacturers they work with.

Other sellers, increasingly from outside the United States, also say that the distinction between handmade and mass-manufactured is not as sharp as it may seem. Kyoko Bowskill, who runs the Link Collective store on Etsy, works with independent artists to design patterns for Japanese furoshiki wrapping cloths and consigns the manufacturing to a small family business outside Tokyo that specializes in traditional dyeing methods.

"I'm all for ramping up production," said Bowskill, who now sells 40 to 50 cloths a month at $50 each. "Etsy shouldn't be about one person crafting goods all by herself with no sleep," she said, adding, "We're building a viable business, but that doesn't mean we're mass-manufacturing."

Etsy declined to make officials available for interviews, citing the quiet period leading up to its stock offering. In its IPO filing, however, Dickerson acknowledged concerns that Etsy is "diluting our handmade ethos" by allowing sellers to work with manufacturers.

"After all, Etsy has always served as an antidote to mass manufacturing," he said. "We still do."

SundayMonday Business on 03/30/2015

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