A merchant sells crystal ornaments via a live stream on TikTok.
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TikTok Shop is a growing threat to major e-commerce players like Shopee and Lazada in Southeast Asia.
It comes as its parent ByteDance pushes the short video app into markets outside the US and India to create alternative revenue streams.
TikTok Shop is the e-commerce marketplace for short video app TikTok, which is owned by Chinese tech giant ByteDance. The shopping app allows merchants, brands and creators to display and sell their goods to consumers.
In 2022, TikTok Shop expanded to six Southeast Asian countries — Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand.
“TikTok continues to grow rapidly in Southeast Asian countries. We estimate that TikTok in 2023 [gross merchandise value] will reach 20%~ of Shopee, which we believe has caused Shopee to defensively increase sales and marketing since April,” Sean 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 gross merchandise value, has more than quadrupled to $4.4 billion in Southeast Asia in 2022, according to internal data obtained by tech outlet The Information. TikTok Shop is reportedly aiming for a GMV target of $12 billion by 2023.
To be clear, TikTok Shop’s current GMV is only a fraction of that 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.
The growing threat
A TikTok spokesperson told CNBC that TikTok Shop “continues to grow rapidly” as both large and small users use the platform to reach new customers. TikTok is “focused on the continued development of the TikTok Shop in Southeast Asia,” the spokesperson said.
As of May, the number of TikTok users in Southeast Asia alone was 135 million, according to market research firm Insider Intelligence.
Indonesia has the second largest population of TikTok users after the US, according to Statista.
Indonesia is the most populous country in Southeast Asia, where 52% are young people and there are 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 shore up the group’s balance sheet as its gaming arm Garena continues to report a decline in revenue given the lack of a strong gaming pipeline and the ongoing ban on its flagship game Free Fire in India due to national security threats.
Shopee is expanding its presence in Malaysia and continues to build operations in Brazil after exiting several European and Latin American markets.
A study conducted by online retail company Cube Asia revealed that users who spend on TikTok Shop reduce their spending on Shopee (-51%), Lazada (-45%), Offline (-38%) in Indonesia , Thailand and the Philippines.
Shopee and Lazada declined to comment on the competition from TikTok Shop.
Data from web analytics firm Similarweb reveals that Shopee is currently the largest online marketplace in Southeast Asia, holding a 30% to 50% share of the region’s traffic over the past three months, while Lazada holds second place with 10% to 30 % share of traffic.
TikTok Shop’s push comes as the app comes under scrutiny in its biggest market, the US, amid growing geopolitical tensions and tech rivalry between China and the US
Last week, the US state of Montana banned TikTok, which may prompt other states. TikTok disputed Montana’s claims that the Chinese government “may have access to data about TikTok users and that TikTok exposes minors to harmful online content” in a lawsuit filed Monday to try to overturn the ban.
TikTok CEO Shou Zi Chew’s testimony to Congress in March did not ease lawmakers’ concerns about the app’s ties to China or the adequacy of Project Texas, its contingency 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 available in China, although its Chinese version Douyin is widely used by over 750 million daily active users.
It is not sustainable
But TikTok is burning cash to grow, a tried and tested strategy to gain market share.
“TikTok is spending an incredible amount of money right now on onboarding buyers and sellers, which may not be sustainable,” said Jonathan Wu, senior analyst at Phillip Securities Research. Wu said he estimates the incentives to be between $600 million and $800 million annually, or 6 percent to 8 percent of the $10 billion GMV in 2023.
To incentivize sellers to join the platform, TikTok Shop waived commissions when it launched in Singapore in August. Merchants were only required a 1% payment fee.
Data from Apptopia, an app analytics company, shows that the TikTok Shop Seller Center app has attracted an increasing number of downloads in Indonesia over the past one year.
Shopee, meanwhile, charges more than 5% on commissions, transaction and service fees.
A CNBC check revealed that four-ply toilet paper from Nomieo is being sold on TikTok at S$5.80 for twenty-seven rolls. In comparison, the same goods sell for around SG$16.80 on Shopee.
Woo noted that TikTok Shop is “still very young” and in the “cash-burning phase of growth, which may not bode well in today’s market given higher funding costs.”
TikTok Shop is also “just a platform without end-to-end capabilities” unlike Shopee and Lazada, which are investing heavily in improving logistics for faster deliveries and returns, enhancing the overall user experience and trust of sellers and buyers, he said.
It also has a smaller user base at the moment with a younger demographic, which means fewer opportunities to spend, Wu 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 quite a few years,” Woo said, noting the difference between TikTok Shop and Shopee’s GMV.