When did Etsy become a dropshipping marketplace?
Sean Whalen, a Salt Lake City-based lifestyle influencer whose social media posts regularly feature machine guns and cigars, wants you to know he will offend you soon enough.
The owner of an apparel company called Lions Not Sheep, Whalen has built an online persona around the idea of financial success, rife with motivation for his half a million followers like, “Newsflash little boys… Your woman wants you to OWN her.”
The messages flood his podcast, videos, Facebook, and Instagram, most of which he refers to as the “Lions Den,” which he uses as a business coaching term. He even made a documentary about his own work, which claims to have a “billion viral views.”
Whalen’s company made national news earlier this year when it was busted by the Federal Trade Commission for planting “Made in USA” labels on clothes that had “Made in China” tags removed. The pro-Trump company regularly prints T-shirts with phrases like “Let’s Go Brandon” and “Give Violence a Chance.”
Embellishment appears to be a key aspect of Whalen’s business model. His LinkedIn page claims that a former project, the Meetrz app, is the “#1 business networking app on the planet,” despite the fact that it has only 1,000 downloads and a 2.6 rating out of 5 on the Google Play store. His personal website says he is one of the “best-selling authors in the country,” but Amazon.com ranks his book, “How to Make Shit Happen,” at #11,056.
It was Whalen’s social media that got him into trouble with the FTC to begin with. According to the complaint filed by the agency, Whalen stated directly in a video online that he has employees rip out the “Made in China” tags. He was ordered to pay $211,335 in fines.
Whalen had been selling this apparel through his website and digital platforms like Amazon and Etsy. The government agency sought to make an example out of Whalen’s company, using it as a chance to point out that false advertising around the origin of a retail item “isn’t just flag-waving puffery.”
But the case also highlighted a larger issue within Etsy, the online retail platform that originated as a way for creators and small sellers to reach consumers across the globe. The Etsy problem plagues every tech company that serves as a platform for users who might exploit it, but in this case, longtime users are suddenly losing money—thanks to changes in company policy and sellers that trick buyers like Lions Not Sheep did.
“Anytime you’re doing anything online, there’s this level of anonymity,” says Zach Whitney, the communications director for the Utah Department of Commerce. “It’s a little bit harder to know who you’re doing business with, and it’s a little bit harder to seek restitution if you feel like you’ve been wronged.”
Thanks in part to the pandemic, Etsy’s revenue has been at an all-time high. With this success has come a set of complications for the company and its users, leading sellers to go on strike earlier this year. Despite high earnings, the tech company announced they would increase their transaction fees by 30 percent from 5 to 6.5 percent.
That money would come out of sellers’ pockets unless they increased their prices. According to a Slate podcast about the strike from April, this was simply the last straw for many who had been using Etsy for years.
" Etsy represents an ever-evolving marketplace that requires buyers to be hyper-aware. "
The problems started in 2012. Originally, Etsy was geared toward small creators, like an online flea market of people selling their handmade crafts. The site specifically forbid mass-produced items—at least until a furniture seller violated those rules, and the company simply changed them to allow it.
After the company’s initial public offering in 2015, this rule change meant an explosion of dropshipping companies began using the platform. These companies essentially sell stock they don’t physically have and buy it from a third party when a user purchases it from their Etsy shop. Those third parties then send the product directly to the buyer.
Dropshipping companies have become a staple of the e-commerce ecosystem, and it can be impossible for buyers to tell whether they are purchasing something authentic. On top of that, dropshippers can undercut sellers listing handmade items because their products are mass-produced. Despite the fact that they can be found across the web, dropship companies are particularly egregious on Etsy, which was built as a culture of side-hustle creatives rather than a mass-production retailer.
Slate podcaster Rachel Hampton put it this way: “Because they don’t have anything in stock, they have everything in stock.”
Users and sellers felt like Etsy was allowing companies to abuse their good intentions. In April of this year, sellers organized a strike. While they weren’t successful at their goals—getting the company to cancel their transaction fee increase, among other things—the strike turned into a union called the Indie Sellers Guild.
The debacle around Whalen’s Lions Not Sheep deception was a perfect storm of these two problems: how small business owners could manipulate the platform, and how Etsy’s culture was creating a cutthroat ecosystem where buyers might have no idea what they’re investing in.
Whitney says businesses will often run into problems selling in Utah when they are smaller. They might not understand the statutes for the state in which they’re selling.
“The biggest thing that we tell people is to do a little bit of research,” Whitney says. “You don’t know who you’re buying from… Whether that be a simple google search or going as far as [searching] on our website, consumers can search actions. They can see whether it has had an action taken against it.”
The Department of Commerce and its subsidiary, the Utah Division of Consumer Protection, occasionally take action against businesses for major violations—but these usually start with a public notice alerting buyers to a potential problem. Whitney says his office’s primary goal is to educate the public about potential issues rather than take action against businesses.
For example, between July 2021 and June 2022, the office received 1,921 complaints about businesses in the state. Only two of those led to administrative actions, which can include ordering the businesses involved to shut down.
The department wasn’t involved in the Lions Not Sheep case because it was a federal action, but Whitney did have advice for people buying apparel online.
“The other thing we tell consumers is to check for reviews,” he says. “Reviews can be very telling. They should also be sometimes taken with a grain of salt because anybody can make a review. But it’s important to read those… Always make sure that you’re reading any sort of contract and you’re reading the fine print.”
Etsy represents an ever-evolving marketplace that requires buyers to be hyper-aware. And while government agencies like the Utah Division of Consumer Protection or the FTC step in at times, the vast majority of transactions are processed without a second thought.
“We do have a culture where more and more things are going online,” Whitney says. “It can be dangerous to put all of your trust into an online system that may or may not be there to protect you.”