A merchant sells crystal ornaments through a TikTok live stream.
CFOTO | Future Publishing | Getty Images
TikTok Shop is a growing threat to big e-commerce players like Shopee and Lazada in Southeast Asia.
It comes as its parent company ByteDance pushes the short-form video app in markets outside the US and India to create alternative revenue streams.
TikTok Shop is an e-commerce marketplace for the short video app TikTok, owned by Chinese tech giant ByteDance. The shopping app allows merchants, brands and creators to showcase and sell their goods to users.
In 2022, TikTok Shop expanded to six countries in Southeast Asia — Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand.
“TikTok continues to grow rapidly in Southeast Asian countries. We estimate that TikTok 2023 [gross merchandise value] will reach 20%~ of Shopee, which we believe has driven Shopee to defensively increase sales and marketing since April,” Shawn Yang, an analyst at Blue Lotus Research Institute, said in a recent report on Sea Group, the owner of Shopee.
TikTok declined to comment or disclose numbers.
TikTok Shop’s GMV, or total value of goods sold, has more than quadrupled to $4.4 billion in 2022 in Southeast Asia, according to internal data obtained by tech media outlet The Information. TikTok Shop is reportedly aiming for a GMV target of $12 billion by 2023.
Impulse buying from watching content is an advantage that TikTok has.
Sachin Mittal
Head of Telecom and Internet Sector Research, DBS Bank
To be clear, TikTok Shop’s current GMV is just a fraction of Shopee and Lazada.
Shopee earned $73.5 billion in GMV in 2022, while Lazada’s GMV was $21 billion for the year to September 2021, according to available public data.
A growing threat
A TikTok spokesperson told CNBC that TikTok Shop “continues to grow rapidly” as users big and small use the platform to reach new customers. TikTok is “focused on the continued development of the TikTok business in Southeast Asia,” the spokesperson said.
According to Insider Intelligence, a market research company, the number of TikTok users in Southeast Asia alone is 135 million as of May.
According to Statista, Indonesia has the second largest population of TikTok users after the US.
Indonesia is the most populous country in Southeast Asia, where 52% are young people and that has about 113 million TikTok users.
“Impulse buying from watching content is an advantage that TikTok has,” Sachin Mittal, head of telecom and internet sector research at DBS Bank, told CNBC.
Sea Group is relying on its e-commerce arm Shopee to boost the group’s balance sheet as its gaming arm Garena continues to see revenue decline, given the lack of a strong gaming pipeline and the ongoing ban on its flagship Free Fire in India due to national security threats.
Shopee is expanding its presence in Malaysia and continues to build its operations in Brazil after exiting several European and Latin American markets.
TikTok is spending an incredible amount of money on incentives for buyers and sellers right now, which may not be sustainable.
Jonathan Woo
Senior Analyst, Phillip Securities Research
This was revealed by a survey conducted by online retail statistics company Cube Asia consumers spending on the TikTok store are reducing their spending on Shopee (-51%), Lazada (-45%), Offline (-38%) in Indonesia, Thailand and the Philippines.
Shopee and Lazada declined to comment on competition from TikTok Shop.
Data from web analytics firm Similarweb revealed that Shopee is currently the largest online marketplace in Southeast Asia, with a traffic share of 30% to 50% across the region in the past three months, while Lazada holds second place with a traffic share of 10% to 30 %. .
Check on TikTok
The TikTok Shop push comes as the app is under scrutiny in its biggest market, the US, amid rising geopolitical tensions and tech rivalry between China and the US.
Last week, The US state of Montana has banned TikTok, which could spark other states to comply. TikTok disputed Montana’s claims that the Chinese government “could gain access to data about TikTok users and that TikTok exposes minors to harmful online content” in A lawsuit was filed Monday to try to overturn the ban.
CEO of TikTok Shou Zi Chew’s testimony before Congress March did not ease lawmakers’ concerns about the app’s ties to China or the adequacy of Project Texas, its emergency plan for storing American data on American soil.
TikTok has also been banned in India since 2020, along with other apps allegedly of Chinese origin. It is not accessible in China, although its Chinese version Douyin is widely used by more than 750 million daily active users.
It is not sustainable
But TikTok is burning money to grow, a tried and tested strategy to gain market share.
“TikTok is spending an incredible amount of money right now on incentives for buyers and sellers, which may not be sustainable,” said Jonathan Woo, principal analyst at Phillip Securities Research. Woo said he estimates the incentives at between $600 million and $800 million annually, or 6% to 8% of the $10 billion GMV in 2023.
To motivate sellers to join the platform, the TikTok store waived commission fees when it launched in Singapore in August. Merchants were only required to pay a 1% payment fee.
Data from Apptopia, an app analytics company, showed that the TikTok Shop Seller Center app has been attracting an increasing number of downloads over the past year.
Meanwhile, Shopee charges more than 5% for commissions, transactions and services.
A CNBC check revealed that Nomieo’s four-ply toilet paper was being sold on TikTok for S$5.80 for twenty-seven rolls. In comparison, the same item sells for around SGD 16.80 on Shopee.
Woo noted that TikTok Shop is “still very young” and in a “cash-to-growth phase, which may not bode well in today’s market given higher funding costs.”
TikTok Shop is also “only a platform without comprehensive features” unlike Shopee and Lazada, which have invested heavily in improving logistics for faster deliveries and returns, increasing the overall user experience and trust for sellers and buyers, he said.
Overall, I think TikTok Shop has the potential to be as big as Shopee or Lazada, although it may take a few years.
Jonathan Woo
Senior Analyst, Phillip Securities Research
At this point, it also has a smaller user base with a younger demographic, which means less spending power, Woo said.
“I don’t think there is much risk to Shopee from TikTok,” Mittal said. “Shopee can afford to lose some market share, but Lazada cannot.
Lazada has been trying to catch up with Shopee since Shopee overtook the company to become the largest e-commerce platform in Southeast Asia in 2020.
“Overall, I think TikTok Shop has the potential to be as big as Shopee or Lazada, although it may take a few years,” Woo said, noting the difference between TikTok Shop and Shopee’s GMV.
