#106 - Etsy’s Dunkirk Moment

How Etsy Became a Go-To Destination for Cloth Face Masks

Jan 09, 2022

Hi 👋 - Life is all about playing the hand you’re dealt. Covid-19 dealt a lot of shitty hands. Yet Etsy came out of the worst of the pandemic holding a royal flush. CEO Josh Silverman referred to 2020 as “a time when opportunity met preparedness.” Today, a look at how Etsy became a go-to destination for cloth face masks. Thanks for reading.

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Pivotal Moments

Before it was a movie, Dunkirk was an existential moment for the Allies during World War II. Surrounded on three sides by the German army, harassed from above by the Luftwaffe, and backed against the English Channel, the prognosis was grim for the Allied troops trapped in the French port city of Dunkirk. Miraculously, over an eleven day period, the Royal Navy and a hodgepodge flotilla of civilian yachts, tugboats, trawlers, and pleasure craft evacuated over 330,000 Allied soldiers from the German vice grip. The evacuation of Dunkirk was one of the turning points of the war.

To Etsy CEO Josh Silverman, the Covid-19 pandemic was Etsy’s Dunkirk moment1, a pivotal time when the company and its sellers rose to the occasion amid challenging circumstances.

Masking Up

On April 3, 2020, the CDC updated its mask guidelines, recommending that Americans wear fabric face masks. The following weekend, buyers searched Etsy for face masks two million times, or nine times per second. Additionally, “face mask” was the most searched term during the two weeks ending April 7, 2020 (true to form, searches for bar carts and sourdough starter kits also spiked2). Etsy management likened this to Cyber Monday, except everyone was looking for the same product, and that product was in short supply3.

Source: Etsy, Q1 2020 Earnings Slides, May 6, 2021.

A surge in demand is only beneficial if you can fulfill it. Etsy had a problem: searches were returning Halloween masks and face creams. Customers couldn’t buy something they couldn’t find. Serving irrelevant search results is a good way to scare away prospective buyers.

Sensing a brand defining moment, Silverman temporarily redirected Etsy’s entire Search team to focus on masks4. The team was tasked with creating a taxonomy around masks that could distinguish a Halloween costume from something more appropriate for a global pandemic. Within hours, the team updated its search ranking algorithm so that customers could find what they came for (sorry, moisturizer)5. By mid-April, searches for face masks looked like this:

Search didn’t have all the fun. Other teams got involved as well. For example, Legal policed the site, making sure sellers weren’t making false medical claims about their products. To ensure a good buyer experience, Operations teams tagged swamped sellers and temporarily reduced their search visibility, giving them breathing room to fill their orders. Shipping teams built an option for local pickup and tools for managing buyer expectations around delivery times.

Now that buyers could find what they were looking for, Etsy issued a call to action for sellers to make masks though blog posts, seller emails, and a push notification reading6:

Calling all sellers: start making face masks. We’re experiencing unprecedented demand. You can make a difference.

As a carrot, it reduced sellers listing fees for face masks.

Unencumbered by complex supply chains or manufacturing contracts, Etsy sellers quickly adapted to the new demand. Ranging from individuals with a sewing machine and a dining room table to larger sellers with contacts in LA’s garment district, tens of thousands started making masks. By early May 2020, over 60,000 Etsy shops were selling cloth face masks. By the end of 2020, some would clear over a million dollars in revenue7. This reflects the dynamism of Etsy’s business model and online marketplaces more generally.

Improved search and discovery and increasing supply let Etsy meet the insatiable demand. Following the CDC announcement, cloth face mask sales exploded. In April, Etsy sold over 12 million masks worth more than $133 million. For all of Q2 2020, mask sales were $346 million from over 110,000 sellers. As a standalone category, face masks would have been Etsy’s third largest, behind stalwarts like home furnishings and jewelry, and ahead of craft supplies. Over 20% of face mask buyers were new to the marketplace. One-third of them came back to re-up within two weeks of their initial purchase, fanning the flames8.

In Q3 2020, Etsy sold 24 million masks worth $246 million and in Q4 2020, mask sales were $133M, bringing the 2020 total to over $740 million. The majority of sales happened in a six month window from April to September. Like the hodgepodge Allied flotilla at Dunkirk, Etsy and its sellers met the moment.

The Harder I Practice, the Luckier I Get

Etsy's face mask overnight celebrity was years in the making. The company put itself in a position to get lucky. When Silverman took the reins as CEO in May 2017, he funneled the company’s efforts into a handful of the projects (dubbed the “vital few” internally) focused on core marketplace growth. Building best-in-class search and discovery capabilities was one of four priorities9. At the time, Etsy iterated on its search algorithm once or twice a quarter. By 2020, the cadence had accelerated to once or twice a week10. When Covid-19 hit, the company had already been making foundational enhancements to search for three years. As Louis Pasteur said, chance favors the prepared mind.

External factors bolstered Etsy’s internal efforts. Early in the pandemic, many retail stores were closed, so consumers flooded online, creating a supportive macro environment for e-commerce. Similarly, shipping delays and supply chain issues hamstrung retailers and e-commerce players alike. Etsy’s small-scale sellers were less impacted, enabling them to react nimbly. At the same time, competitors like Amazon and eBay were restricting sales of N95 and surgical masks to prioritize healthcare workers; cloth masks got caught up in this net. For example, eBay banned mask sales in March 2020 and didn’t permit cloth masks to be sold until May 1st. During this period, Etsy sold 12 million masks and acquired millions of new customers. Through internal efforts and good luck, Etsy positioned itself to be selling umbrellas in a downpour.

Face Masks, the Gateway Drug?

While still meaningful, mask sales declined in late 2020 as buyers had already stocked up, outside supply increased, and brick-and-mortar shops reopened. By Q4 2020, masks accounted for 4% of Etsy’s GMS, down from 14% in Q2 2020 and 11% in Q3 2020. By Q3 2021, Fall and Halloween themed sales once again eclipsed face masks, which accounted for less than 2% of Etsy’s GMS.

Since global pandemics typically happen once a generation, Etsy can’t expect much GMS from face masks in the future. The company readily admits this. But face masks were a boon for customer acquisition. In Q2 2020 alone, four million new customers bought a face mask from Etsy, representing about 20% of its buyer growth. A swing variable for the company’s future financial performance is what these new buyers do once the pandemic ends. So far, signs have been encouraging that Etsy can retain these buyers and increase their lifetime value:

Q1 2020: 32% of buyers who purchased a face mask returned within 14 days to make another purchase. The majority of them came to Etsy directly, meaning Google and Facebook didn’t take a cut.
Q3 2020: 38% of the four million mask-buyers returned for a non-mask purchase during the quarter.
Q4 2020: Almost 50% of the three million mask-only buyers in Q3 2020 returned for a non-mask purchase during the quarter.

Mask customers were likely cheap to acquire given that Etsy was well stocked with a product that people desperately needed at a time when other competitors were shuttered. If a critical mass of these buyers becomes regular shoppers, Etsy could parlay its hand into another royal flush.

Unlike Dunkirk, Etsy’s 2020 won’t become a major motion picture, but it will probably be a Harvard Business School case study one day.