Etsy, Inc. (ETSY) Earnings Call Transcript & Summary

[Presentation] Hi. I'm Raina Moskowitz, SVP of People, Strategy and Services at Etsy. Today I'll be talking about how Etsy keeps commerce human. Thanks for tuning in. And quick note, this presentation is prerecorded, so I'll be able to answer live Q&A during the session. So we're going to cover a couple of things today. First, we'll talk about what is Etsy. We'll talk about how Etsy compares with traditional e-commerce. We'll also spend a minute talking about Etsy's right to win or our strategic competitive advantage. And then we'll talk about the role of CX at Etsy. And finally, we'll look ahead at future trends. So first, what is Etsy? I know that many of you watching this may have shopped on Etsy, but many of you may have not. So I want to make sure everyone knows what Etsy is. So first, Etsy is a 2-sided marketplace. We're a global marketplace founded in 2005. We went public 5 years ago. Today, we have over 45 million active buyers and 2.5 million active sellers around the world. Our sellers, or our creative entrepreneurs, they list over 66 million items on Etsy. So let's talk about some of those items and what you can find. So many of you may think of Etsy as a place to find quirky things like hats for cats and cat baths and apple cozies. And while you can find all of those items on Etsy, there's also a whole lot more we have to offer. So I mentioned 66 million items. So what else is there? Well, you can find more than 400 types of home accessories on Etsy. We sell over 1,000 items each day across our furniture categories. You can find everything from everyday clothing to vintage couture from around the world on Etsy. And finally, we're a great destination for celebrations and major milestones like birthdays and the holidays, Christmas, but also a place to go for things for your everyday routine like bath and beauty. So there's a wide range of things that you can find on Etsy. So let's talk about how our business model compares to that of traditional e-commerce. So traditional e-commerce relies on heavy infrastructure, and it requires companies to plan inventory, make guesses on trends and design seasons ahead of time. On Etsy, it doesn't work that way. In Etsy, our sellers are able to be agile and to respond to what's trending in the market at a given time. Also, traditional e-commerce needs to think about sourcing and manufacturing products. And they have to think about all of the warehousing, the picking and the packing and the logistics of items. On Etsy, none of the items that our sellers produce are sitting on warehouse shelves. They are one of a kind, handmade. And so we, as a company, are not focused on the logistics. Buyers and sellers instead connect directly. And so what this means is that we can offer a wide range of customization on Etsy. So on most e-commerce sites, what you see is what we get. It is what it is. There is maybe a small set of predefined options that you can think about like selecting a color or material, but that's really where it ends. On Etsy, we can offer infinite options of customization through -- whether it's personalization or even collaborative creation with the makers themselves. What we strive is to make sure it's easy for an item to be made just for you, just to your liking, whatever the specifications are, whether that means simple personalization or full-on co-creation with the maker. And that brings us to our company's mission, which is to keep commerce human. And Etsy has changed in response to shifts in the industry, technology and culture. But the need to keep humans at the center of commerce has really never been more important in today's world of mass-produced and commoditized goods. And so this mission statement to keep commerce human is really the foundation and the center of all that we do at Etsy. So let's talk about Etsy's right to win or our sustainable competitive advantage. We believe it's comprised of 4 areas, and it's the combination of each of these areas that creates our sustainable advantage. Each one on its own is not enough. And when we think about our sustainable advantage, it's how do we earn the right to continue to compete with the likes of other big e-commerce players. And we believe the foundation of this is the collection of our seller's unique items, which we just talked a lot about. It's the 66 million items on Etsy with endless opportunities to be personalized and customized. And you really can't find these items in any other retail shop. And so the fact that we have this unique inventory from our sellers is the foundation. But what good is having 66 million items on your website if it's impossible to find what you're looking for? So we've invested and we're focused in best-in-class search and discovery. We want our shoppers to be able to find whatever it is for whatever occasions they came to Etsy for. So that's definitely an area of focus. The other 2 areas we're going to dive deep on today, which are human connections and a trusted brand. So let's dive into those a little bit because that's really the intersection between Etsy and the CX experience. So first, let's talk about human connections on Etsy and what that means. What it means to us is there's a person behind every item. So there are 2.5 million creative entrepreneurs around the world creating goods just for you. And so we want to make sure that we tell the story of these makers so that when you shop on Etsy, you know that you're not just buying another commoditized item. You can see the story of how it was made. And we also try to create meaningful interactions directly between buyers and sellers. So if you have a question on an item, we want to make sure that you're messaging the seller directly. And finally, there's a personal touch on Etsy. And so often, if you've ever shopped on Etsy, you'll see that it comes with a handwritten note. And our sellers do this on their own. They're incredibly accretive. But it really, really sets the experience apart from any other commerce experience that I've seen. And this is where the role of CX comes into play as well. So we definitely try to create meaningful interactions between buyers and sellers. But sometimes, we know that people -- that shoppers have questions that the seller can't answer and that they need to come to Etsy for. And so we've worked over the past several years to transform our support experience to be more human and to build human connections there as well. So just 2 years ago, our support operation was about 25% in live channel, meaning in phone or chat. Today, almost 2/3 of our support interactions are in live channels. And our customers, our buyers and sellers have told us that they really value that human interaction. So here, we measure customer success through a customer effort score, meaning how easy was it for you to resolve the issue you were having. And we see that consistently, our inbound phone operations scores the highest. People really love being able to connect to someone on the phone. Chat is also incredibly successful, followed by e-mail. So it's been a real transformation over the past few years to expand the channels that we operate in, and it's really paid off. Our customers really like to be able to connect with us. And so the last piece of our right to win is around being a trusted brand. And here, our customer support, our CX team, plays a huge role in this as well. So what this means on Etsy is that, again, we have 2.5 million sellers around the world. Many of them are sole entrepreneurs. They work out of their home often, and they don't have a brand of their own. And so they come to Etsy, as do shoppers, because they rely on Etsy's brand. And so we offer a consistent experience to shoppers. So with all of the sellers, each shop often has their own policies. And so we try to bring consistency and trust to the marketplace so that when buyers have a question about when something will arrive, if they could return it, what happens if something goes wrong, we want our buyers to know that Etsy is going to stand by them and that we have their back. And so again, that's the role that our CX team plays. So let's talk about that. So what is the role of CX at Etsy? Well, we talked about our company's mission is to keep commerce human, and that drives our CX mission as well, which is to guide with effortless human support. So again, we want interactions with Etsy to be easy. We want to make it as easy as possible and as human as possible. So our vision for customer experience extends to a few key areas. So first, we've worked really hard over the past several years to meet our members when and where they need us. So examples of this are just a few short years ago, we were incredibly e-mail-centric as a support organization. And as I mentioned earlier, we've really shifted to becoming a live channel-centric organization with over 2/3 -- about 2/3 of interactions in live channels, meaning phone and chat. We've also shifted to become a 24/7 support operation. We know that everyone works on different schedules. And so we want to be there when our customers need us. And so again, we've transformed our model to be more dynamic and to match the trends of what our buyers are shopping and what our sellers are making. Next, as part of our CX vision, we've been working to scale our resources efficiently to serve a growing community of both buyers and sellers on Etsy. And so in the past, we've often thought of outsourced partners as a way to serve surges in demand, whether it's a holiday season or any time throughout the year. But today, we operate as a global organization with a partner-first mentality and TaskUs has been an incredible partner through all of this transformation. We truly operate as one team. And by having this kind of relationship, it's allowed us to be more agile and to scale our operations. Today, we serve over 3x more customers than when we did in the past, and we do it incredibly efficiently. So that's been a real guiding principle of our CX vision. Next, we talk a lot as an organization about cultivating a loyal buyer and seller community. And so what this means is, again, years ago, we focused on problems to be solved. We focus on issue types. But today, we really focus on the customers that we serve. So who are we serving? And how can we create differentiated support experiences versus just thinking about the world in terms of the issues that they're trying to solve? And so again, it's that human lens that we try to apply to all that we do to make sure we're serving our customers in the best way possible. And we know that support can be a make or break experience for both buyers and sellers. When a buyer shops on Etsy, if something goes wrong, if they weren't able to resolve it with the seller, they come to us. And if we can't make it right, we're probably going to lose that customer forever. And we know that if we do make it right and it's a positive support experience, we know that they're going to come back to Etsy again and again, and we've even seen correlation to higher future spend. So we know that, that support -- that human support experience can be incredibly important to determine the lifetime value of a customer. The last piece of our CX vision is to create value through insights and new service offerings. And this is something that's been an incredible partnership with our product and marketing teams at Etsy. We've built a proactive feedback loop with them so that in advance of product launches and after product launches and everything between, we have a close dialogue with product and marketing to help inform the road map and create better experiences that are driven with insights from our customers. And so again, we've come a long way as an organization, and it's been these guiding principles that have allowed us to really scale efficiently to better serve our customers. So let's look forward for a minute and talk about some future trends and how we believe they apply to Etsy and to CX. So first, we spoke already about Etsy's marketplace model and how it's allowed our sellers to quickly pivot to meet shifting buyer demand. What this has meant in the past is whatever the hot item of the season is, whether it's slime or Baby Yoda, our sellers are incredibly creative and talented and agile, which means that they have the creativity and the skill to really create whatever it is that matches the demand of our buyers. So over the past month or so, that has been around face masks. So at the end of March, the CDC came out and said that they do recommend that everyone wears face masks in light of COVID-19. And this is just a prime example of the agility and creativity of our marketplace. And what happened is basically overnight, there was a huge surge in demand for this one particular item. And our sellers that were incredibly talented, many of them were making clothing or other items before, but if they had the fabric, if they had the elastic, they basically pivoted overnight to meet this need to not only meet the demand for consumers looking for this, but it would allow us also to relieve pressure so that true PPE could be reserved for frontline workers. And so again, our sellers, over 20,000 shops on Etsy, are now selling face masks following this announcement just a few weeks ago. So that's been a real testament to the creativity and the skill and the will of our 2.5 million sellers around the world. And it's been an incredible quick pivot and transformation. The next thing we've seen is that consumer preferences and shopping trends are changing rapidly. And so again, in light of COVID, we're certainly in a unique time right now. We don't know how long this will last. But what we've seen is that normally this time of year is a time where we'll be focused on weddings and celebrations and gatherings. And instead, we've seen changes in this trend towards things like DIY crafts and things for your kids who are now home and out of school as well as things like loungewear. Obviously, clothing trends are changing as well. And so again, given our marketplace model and the creativity of our sellers, they've been able to adapt and pivot to meet the shift in demand. Also, when we look ahead, we expect that e-commerce is going to play an even bigger role for consumers going forward. Certainly now when we're all stuck at home, we are relying a tremendous amount on e-commerce. Even people who didn't previously shop online are now shopping online in many cases. And so we believe that and outside sources show that e-commerce as a percent of retail is going to continue to grow, and it's going to continue to grow at a more rapid pace than traditional retail. Finally, the trend that we're seeing as well is the need to support small businesses. And this has always been true on Etsy. I talked a lot about our 2.5 million creative entrepreneurs around the world. And every day when you shop on Etsy, you are supporting a small business. And so we're really excited about a campaign we launched a few weeks ago, which is StandwithSmall. And we know especially in light of everything going on right now, it's more important now than ever before to support small businesses. And so that's what we're continuing to do each and every day on Etsy. So with that, again, our company has continued to change and evolve over the years. But the thing that stays true is our mission and our purpose, which is to keep commerce human. And so with that, I want to thank you for tuning in and for joining. And now we actually have a few pre-submitted questions from the audience that were submitted in advance. So I want to take a minute to talk through what those are.

So first, the question is, in what ways has Etsy made their CX more effortless? Were there any technologies that were more useful than others? So yes, that is a great question. And I've talked a lot about the transformation of our CX strategy over the past 2 years. And Zendesk has actually played a big role in all of that. So we migrated to Zendesk definitely over a year ago now, and it's really allowed us to unlock new channels to be more precise in where we route our customers so that we can provide differentiated support. So that has been really transformative and game changing for us as an organization. So that's definitely enabled a lot of what we've done. The next question is around how have we -- sorry, lost my place here. So how have you been able to serve more customers without impacting the customer experience? So partnering with TaskUs has actually been the key to what allow us to scale our global operations more efficiently. And I mentioned before that the way that we've been able to do this is by operating as one team. So we've operated as a partner-first mentality and one team mentality. And we spend a lot of time -- the team spend a lot of time together focused on training, making sure that all of our agents understand our customers, understand our marketplace, investment training. We have a team that's dedicated to quality as well, making sure that we have a feedback loop with a frontline so that we continue to inform and improve our customer experience. And as I mentioned, scaling our operations globally has allowed us to serve many more customers than we could have ever done on our own. And so it's been incredibly important partnership. All right. All right. We've got one more question, which is how has your customer support strategy changed since COVID-19? And I talked a little bit about how our sellers have rapidly pivoted during this period and have changed really what their focus is, what they offer in their shops. And what I'll say in terms of our customer support strategy during this time is that it's more important than ever to have the backs of our buyers and sellers. When people are trying Etsy for the first time, when they're coming to Etsy, when they're buying a mask on Etsy, whatever it is, we need to make sure that it's a great experience. And same for our sellers. What we're actually seeing is that Etsy is a place where many people are able to come to earn extra income. And so if you're a new -- whether you're a new seller on Etsy or someone who's been with us for many, many years, we have to have your back during this time. We know it's a stressful time for everyone. And so we are open for business and we are here to support people during this time. And so it's actually been an incredibly pivotal time for customer support. And I also want to stress that we were just all in offices just not that long ago. And again, TaskUs was an incredible partner as we transform to work from home. We were able to pivot our entire operation in a matter of days to work from home, and we were up and running quickly. And so it's just -- it's been a fast pace time, but again, the work feels incredible. It always feels meaningful, but now more so, just given how much people are relying on Etsy and on e-commerce overall. And we're here to support our small businesses and sellers. And so the team has done a tremendous job transforming and adapting. And again, TaskUs has been an incredible partner. So with that, I want to thank everyone for taking time to tune in and to hear about Etsy's journey and what keeps commerce human. So thank you for joining me today at the CX Summit Digital. [Presentation]