Etsy is laying off 225 employees in a bid to cut costs as it grapples with “very challenging” economic headwinds.

The online retail company will reduce its headcount by about 11% after deciding that a “leaner, more agile” workforce would help shore up growth.

Staff were notified in a livestream on Wednesday by Josh Silverman, its chief executive, who blamed the fact that gross merchandise sales on Etsy had remained “essentially flat” for two years.

“At the same time, employee expenses have grown, even as we have introduced significant cost-cutting measures and adjusted or paused hiring plans,” Silverman wrote in an internal email. “This is ultimately not a sustainable trajectory and we must change it.”

Silverman acknowledged the “unfortunate” timing of the decision, during the holiday season. All laid-off employees will remain on Etsy’s payroll until “at least” 2 January, he said.

It comes after Hasbro, the toymaker, announced two weeks before Christmas that it would cut 1,100 employees as it grapples with lackluster sales.

Shares in Etsy dropped 2.2% after it outlined its plans. Several executives will depart, including Ryan Scott, the chief marketing officer. Etsy’s headcount will drop to 1,770 people.

The company will incur costs of between $25m and $30m for severance payments, employee benefits and related costs, it disclosed in regulatory filings.

Describing Wednesday as “one of the hardest [days] we’ve experienced at Etsy”, Silverman sought to rally the staff who were not cut.

“The waters may be rough right now,” he wrote, “but there’s no other ship I’d rather be on, and no other crew I’d rather be with, as we weather this cycle and emerge even stronger on the other side.”

Reuters contributed reporting