TikTok Shop is an e-commerce marketplace of TikTok, a short video app owned by ByteDance (China). The app helps brands and content creators showcase and sell products to users.
In 2022, TikTok Shop will expand to six Southeast Asian markets, including Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand. According to Shawn Yang, an analyst at Blue Lotus Research, TikTok continues to grow rapidly in the region. TikTok’s estimated gross merchandise value (GMV) in 2023 will be about 20% of Shopee’s, forcing Shopee to be on the defensive since April.
TikTok Shop’s GMV more than quadrupled to $4.4 billion in Southeast Asia last year, according to internal data obtained by The Information . TikTok Shop is reportedly aiming to hit $12 billion in GMV this year.
Currently, TikTok GMV cannot be compared to Shopee and Lazada. Public data shows that Shopee reached 73.5 billion USD GMV in 2022, while Lazada reached 21 billion USD as of September 2021.
Rising Risk
TikTok Shop continues to grow as users large and small use the platform to reach new customers, a TikTok representative said. As of May, the number of users of the app in Southeast Asia alone was 135 million, according to research firm Insider Intelligence . Indonesia is the second largest country for TikTok users after the United States, according to Statista .
Sachin Mittal, head of telecom and internet research at DBS Bank, said the trend of “impulse” shopping when watching content is an advantage for TikTok. A survey by online retail research firm Cube Asia revealed that TikTok Shoppers are reducing their spending on Shopee, Lazada, directly in Indonesia, Thailand and the Philippines.
Data from web analytics firm Similarweb reveals that Shopee is now the region's largest e-marketplace, accounting for 30% to 50% of traffic in the past three months, while Lazada is second with 10% to 30% of traffic.
TikTok Shop's Prospects
TikTok Shop is growing at a time when TikTok is facing increased scrutiny in the U.S. market. Last week, the state of Montana banned TikTok, which could spread to other states. TikTok has sued Montana to try to overturn the ban.
TikTok has also been banned in India since 2020, along with other Chinese apps. In its home country, the Douyin version has about 750 million daily users.
Still, the app’s “burning money” strategy to gain market share and attract both buyers and sellers is unsustainable, according to Jonathan Woo, a senior analyst at research firm Phillip Securities. He estimates TikTok’s spending at $600 million to $800 million a year, or 6% to 8% of its 2023 GMV.
Shopee's parent company uses single-ply toilet paper to save costsTo attract sellers to join the platform, TikTok Shop will not charge commissions when it launches in Singapore in August 2022. Sellers will only need to pay a 1% payment fee. According to data from app analytics firm Apptopia, the TikTok Shop seller app has seen an increase in downloads in Indonesia over the past year.
Meanwhile, Shopee charges more than 5% in commission, transaction and service fees. CNBC checked and compared the selling price of 4-ply toilet paper rolls from Nomieo on both platforms. The result was that the selling price on TikTok was SGD 5.8 for 27 rolls, while Shopee was SGD 16.8.
Woo noted that TikTok Shope is “very young” and its “burn money to grow” strategy may not work well in the current market. In addition, TikTok Shope does not have the end-to-end capabilities of Shopee and Lazada. The two rivals have invested heavily to improve logistics, speed up delivery and returns, enhance user experience and trust for buyers and sellers.
Not only that, the user base is relatively small and young, which means lower spending power, Woo commented. Mittal said TikTok is not a big threat to Shopee, but Lazada is. Since being surpassed by Shopee to become the largest e-commerce platform in Southeast Asia in 2020, Lazada has struggled to keep up.
According to Woo, TikTok Shop has the potential to be as big as Shopee or Lazada, but it will take many years. The gap between TikTok Shop's GMV and Shopee's is still quite large.
(According to CNBC)
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