(Adds more details on Etsy in paragraphs 4, 7, 8 and 13)
By Mari Saito
SAN FRANCISCO, Oct 6 (Reuters) - Etsy Inc ETSY.O , the
online store that made its name selling handmade crafts, is
trying to stop merchants from defecting as giant rival
Amazon.com Inc AMZN.O 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 some of 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 disputes that sellers had no other outlets, saying it
knows that while about half of its sellers sell only on its
site, the other half also use other venues - from craft fairs to
their own websites. But on average, even those who sell in many
venues make the majority of their income on Etsy, the company
said.
Etsy, launched 10 years ago, became popular as an
alternative to Amazon and eBay Inc EBAY.O , tapping into
shoppers' appetite for handmade items.
But since its April initial public offering, which valued
the company at $4 billion, Etsy's 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 Etsy's sellers want
to be in an environment where their creativity is respected. He
added, "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, according to some critics of the company.
Many sellers felt the decision was a betrayal of the site's
roots. Sellers shut down their stores on the site in protest.
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.
Recent Etsy chat forums show some sellers on the site saying
they were sticking with Etsy - citing reasons varying from the
extra work involved in managing another store presence, to
Amazon's fees.
(Editing by Stephen R. Trousdale and Frances Kerry)