As the pandemic raises awareness of their effectiveness in slowing the spread of disease, the market for face masks could be worth more than $21.2 billion by 2026. In the COVID-19 era, this accessory has become de rigueur by law and by practice, and demand for it has helped elevate online retailer Etsy, Inc. (NASDAQ: ETSY) and its catalog of more than 60 million items. In a perfect storm of circumstance and supply, the online retailer is poised for continued pandemic profit and strong growth in a post-COVID world.
The best booths at the digital craft market
Etsy can best be described as an American online craft market, focused on handmade or vintage items and craft supplies. Vendors set up virtual storefronts for their wares and are charged $0.20 per listing and a 5% transaction fee.
Of the many thousands of trinkets, tchotchkes, and vegan dishwashing blocks (yep, it's a thing) Etsy sells, reusable, washable cloth face masks have become a hot -- and profitable -- item.
According to its Q2 2020 earnings report, Etsy had $346 million in global market sales (GMS) in the face mask category, and 112,000 Etsy sellers sold at least one face mask. Of its total GMS for Q2, face mask sales made up around 13%.
Etsy reported it saw 18.7 million new buyers come to the platform in Q2, including what it calls "reactivated buyers" -- those who hadn't bought anything in a year or more, initially shopping for masks and then making other purchases, too.
Face mask sales helped elevate Etsy's revenue in other areas, too. Excluding masks, sales rose 79% year over year in April, and 93% for all of Q2. Overall, in Etsy's top six categories (housewares and home furnishings, jewelry and accessories, craft supplies, apparel, paper and party supplies, and beauty and personal care products), revenue was up 92% year-over-year in Q2, to roughly $1.9 billion.
A near-term growth market unmasked
A few days after the Centers for Disease Control and Prevention's April 3 recommendation to wear cloth face coverings to slow the spread of COVID-19, Etsy mobilized some 20,000 face mask sellers and by the end of the month had three times that many -- 60,000 -- selling masks, Forbes reported July 6.
In April alone, Etsy said it sold 12 million face masks, generating $133 million of gross merchandise sales. The World Health Organization declared the COVID-19 outbreak a global pandemic March 11.
Dr. Anthony Fauci, director of the National Institute of Allergies and Infectious Diseases, during a panel of doctors from Harvard Medical School, warned Americans to "hunker down" this fall and winter as COVID cases mingle with the seasonal flu. Face mask sales have been directly correlated with circumstance, and with the probability of things getting worse in the next few months, simple economics suggest Etsy's face mask sales strength will continue.
A CNN Business report August 7 said KeyBanc Capital Markets estimated that face masks sales could range from $1 billion to as much as $9 billion in sales by 2021 -- assuming that 50% of the US population will be wearing a reusable mask by August 2021 and the items continue to evolve from personal protective equipment to fashion statements. Keybanc's projections were based on the equation of people buying an average of five masks at between $9 and $11 a pop.
As of the middle of July, Etsy ranked No. 4 in the top 10 American e-commerce platforms, based on monthly traffic. Etsy Chief Financial Officer Rachel Glaser painted a picture of continued growth in the months ahead. In the Q2 earnings call, she estimated GMS for Q3 to be between $2.2 billion and $2.5 billion -- up 80% to 110% compared to Q3 of last year.
"Our strong conviction [is that] Etsy has significant opportunities for further growth and that investments in technology, marketing, product, and people will yield both near- and long-term benefit," she said. The Etsy C-Suiters on the call admitted the face mask market is a volatile and unpredictable one, despite early success. Fluctuations in coronavirus cases and government mandates make the market "frankly quite hard to predict," according to CEO Josh Silverman.
But the good news is that Etsy has many more eggs in many more baskets. Only 14% of the Etsy marketplace's overall GMS was from mask sales in Q2. Its top channel -- homewares and home furnishings -- was up 128% year-over-year. Jewelry and accessories sales, (its second biggest "department") were up 50%, and craft supplies, number three -- was up 138%.
The tailwind that face masks have provided since early April should keep Etsy flying high for the foreseeable future -- and give investors a major reason to keep watch.
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