October 6, 2015 / 3:27 PM / 3 years ago

Etsy doubles down on manufacturing as it faces off with Amazon

SAN FRANCISCO, Oct 6 (Reuters) - Etsy Inc, the online store that made its name selling handmade crafts, is trying to stop merchants from defecting as giant rival Amazon Inc prepares to attack it on its own ground with a new site for artisanal items called Handmade.

But Etsy’s policy of allowing sellers to use outside manufacturers continues to anger the smaller vendors of handmade items who helped make it successful. Even changes to that policy have done little to address the criticism or hold off defections, analysts and sellers say.

“Until now, Etsy sellers had nowhere else to go,” said Gil Luria, an analyst at Wedbush Securities based in Los Angeles. “But what Handmade at Amazon represents is a trip back in time to Etsy’s original vision.”

Etsy, launched 10 years ago, became popular as an alternative to Amazon and eBay Inc, tapping into shoppers’ appetite for handmade items.

But since its April initial public offering, which valued the company at $4 billion, its shares have fallen by more than 50 percent. And the company’s losses doubled in the most recent quarter due in part to rising expenses and the stronger dollar, which dampened demand for U.S. products.

CEO Chad Dickerson rejected the notion that Amazon’s new product posed a threat, telling Reuters that “the most important thing about Etsy is not about having the lowest price or the fastest shipping.”

In 2013, Etsy let sellers use outside manufacturers. That decision backfired. Many sellers felt the decision was a betrayal of the site’s roots. Sellers shut down their stores on the site in protest.

To counter the discontent and prevent sellers’ defecting, in September Etsy announced Etsy Manufacturing, which will connect merchants with pre-approved manufacturers in the U.S. and Canada, emphasizing smaller companies that treat workers fairly.

Some sellers say the policy does not address their primary concern, which is that they have to compete against larger vendors on price rather than the quality and distinctiveness of their products.

“I went from being a big fish in a handmade ecosystem to being a little fish in a saturated market,” said Stacy Mecklenburg, a vendor of handmade swimsuits whose sales plateaued, she said, when she had to compete with cheaper manufactured goods.

Amazon has been courting Etsy sellers since May, when it invited artists to apply to join Handmade. The retailer said recently it was putting the “final touches” on the site before it launches. It has not given a date for the launch. (Editing by Stephen R. Trousdale and Frances Kerry)

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