In a different context, someone made a great point that your first million users don't necessarily need to be included in your next 20 million. Maybe Etsy has or will cycle through all their early buyers & sellers. But that doesn't matter if the group cycling in is more valuable.
That's essentially what old-school furniture & home stores do. There's nothing wrong with that but I think that market is already at capacity, competition is fierce and margins are low.
I also suspect that a lot of the industrial-scale producers & copycats use the artisans as their R&D department and only copy their successful designs. In this case, the innovation still comes from the small-scale independent sellers, which if they are driven off the platform would eventually kill off the industrial-scale sellers and copycats as they'd no longer have anything to copy (and designing in-house might make them unprofitable).
Eh, I can't think of a directly comparable site. The closest would be something like Pier 1, but there's no customization there and it's all sold by Pier 1.
What means is that these craftspeople don't produce enough value for the markets they are targeting.
They can raise short-term profits this way. The problem is that there's only so much rent you can seek before it becomes unprofitable for sellers. It turns out that "industrial-scale" sellers, copycats and outright scammers have lower operating costs which means they can stick around and replace the independent creators that have essentially been priced out of the market. Of course, in the long-term it will be the death of the company, but by that time, bonuses would've been paid, raises would've been awarded, stock would've vested and lots of "shareholder value" would've been created.
They've also recently bought Depop for a significant amount of money and I'm not sure if it's profitable, so they might be intentionally cannibalizing their earlier product to make money to prop up the next one.