Etsy changed its search algorithm to prioritize free shipping above everything else, pushing some of the relevant results to functional invisibility. “Items [without free shipping] are not given first-page placement, even if our search algorithms might have previously ranked them higher,” said Rachel Glaser, CFO at Etsy.
In July, the company announced it would give priority placement in search results to items that ship free and to shops that guarantee free shipping to US buyers on orders of $35 or more. Then in September, it went further and made the first page of search results - 48 listings - reserved for items that offer free shipping.
Sellers were not happy - threads discussing the change on Etsy forums are thousands of messages long. “Etsy was not meant to be a big-box retailer. Its whole appeal is that it’s a marketplace where individual artists could offer their crafts. Something original, handmade, one of a kind. It’s sad that it’s making sellers follow what big corporate giants can afford,” wrote Kitty in a tweet with over two thousand retweets.
By the end of September, however, the number of items with free shipping has grown to over 60% - Etsy has more than 63 million items for sale - up from 24% when the initiative launched in July. Sellers, forced by the changes to the search algorithm, have quickly adapted and have started to include the shipping price in the item price. Etsy told sellers that, instead of listing a product for $25 and charging a $5 shipping fee, they should adjust the item’s price to $30 to offer “free shipping.” However, as Etsy explained in the third-quarter earnings call, many relevant items do not offer free shipping, and thus conversion rates declined as did GMV growth slow down.
“We have used search ranking as a key incentive for sellers to adopt a free shipping guarantee. As expected, this has had the effect of pushing a large number of relevant listings off the first page of US search results. We’re slightly over 60% of items listed as free shipping eligible. This means 40% of items are not given first-page placement, even if our search algorithms might have previously ranked them higher. This has a negative impact to conversion rate.”
– Rachel Glaser, CFO at Etsy
Two years ago, in 2017, the company introduced Etsy Payments and required all sellers to set it up, creating a similar uproar from the seller community. Nonetheless, since then, GMV growth has accelerated from 14% in 2017 to over 20% since the start of 2018. Etsy’s GMV this year will get close to $5 billion, up from $3.9 billion last year, from more than 2.4 million active sellers.
Amazon has trained shoppers to expect free shipping, and thus shoppers abandon carts surprised by the additional shipping cost. “Breaking out the shipping costs and rubbing it in a buyer’s face has meaningful friction in the purchase process. I don’t know that we ever win on shipping. We’ve just got to stop losing,” said Josh Silverman, CEO at Etsy. “What we hear is that high shipping prices is one of the top reasons people don’t buy on Etsy. Most importantly, it’s the No. 1 reason they say they’ll never come back.”
Etsy is making the right move. Long-term, a separate shipping fee is likely to disappear from all online shopping. However, the way Etsy is implementing this, by de-prioritizing more relevant search results just so shoppers get free shipping, is unseen aggressiveness. For a shopping destination focused on being anti-Amazon in its selection of one-off, rare, and handmade items, it is instead prioritizing the cold, free, and fast shipping the rest of retail is pushing.
“If it’s handcrafted, vintage, custom, or unique, it’s on Etsy” is the company’s welcome slogan for shoppers. However, Etsy of today wants to be a place to discover that special handmade or vintage item, but only as long as it comes with free shipping. If not, the less special will do.