A merchant sells crystal ornaments via a live TikTok broadcast.
CFOTO | Future Publishing | Getty Images
TikTok Shop is a growing threat to major e-commerce players such as Shopee and Lazada in Southeast Asia.
It comes as its parent ByteDance is pushing the short video app in markets outside the US and India to create alternative revenue streams.
TikTok Shop is the e-commerce marketplace for the short video app TikTok, owned by Chinese tech giant ByteDance. The shopping app enables 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’s 2023 (gross merchandise value) will reach 20%~ of Shopee, which we suggest caused Shopee to defensively increase sales and marketing since April,” said Shawn Yang, analyst at Blue Lotus Research Institute, in a recent report on Sea Group, the owner of Shopee.
TikTok did not want to comment or disclose numbers.
TikTok Shops’ GMV, or total value of goods sold, soared more than fourfold to $4.4 billion in Southeast Asia by 2022, according to internal data obtained by tech media outlet The Information. TikTok Shop is reportedly targeting 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’s and Lazada’s.
Shopee earned $73.5 billion in GMV in 2022 while Lazada’s GMV was $21 billion for the year through September 2021, according to available public figures.
Rising threats
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.
In 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 United States, according to Statista.
Indonesia is Southeast Asia’s most populous country, where 52% are young people and that has around 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 betting on its e-commerce arm Shopee to lift the group’s balance sheet as its gaming arm Garena continues to see revenue declines, given the lack of a strong gaming pipeline and the continued ban of its flagship game Free Fire in India due to national security threats.
Shopee is expanding its footprint in Malaysia and continues to build up its operations in Brazil after exiting several European and Latin American markets.
TikTok is spending an incredible amount of money right now on incentivizing buyers and sellers on board, which may not be sustainable.
Jonathan Woo
Senior Analyst, Phillip Securities Research
This was shown by a survey conducted by Cube Asia’s online insight company consumers spending on TikTok Shop reducing 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 revealed that Shopee is currently the largest online marketplace in Southeast Asia, with 30% to 50% traffic share across the region in the past three months, while Lazada is second with 10% to 30% traffic share.
Review on TikTok
TikTok Shop’s push comes as the app comes under scrutiny in its biggest market, the US, amid rising geopolitical tensions and tech rivalry between China and the US
Last week, the The US state of Montana banned TikTok, which may spark other states to suit. TikTok disputed Montana’s allegations that the Chinese government “can access data about TikTok users, and that TikTok exposes minors to harmful online content” in a the lawsuit was filed Monday to try to overturn the ban.
TikTok CEO Shou Zi Chew’s testimony before Congress in March did not ease lawmakers’ concerns about the app’s ties to China or the suitability 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 said to be of Chinese origin. It is not available in China, although its Chinese version Douyin is widely used by over 750 million daily active users.
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 incentivizing buyers and sellers on board, which may not be sustainable,” said Jonathan Woo, senior analyst at Phillip Securities Research. Woo said he estimates the incentives at between $600 million and $800 million per year, or 6% to 8% of a $10 billion GMV in 2023.
To encourage sellers to join the platform, TikTok Shop 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 attracted an increasing number of downloads in Indonesia over the past year.
Meanwhile, Shopee charges more than 5% on commission, transaction and service fees.
A CNBC check revealed that Nomieo four-ply toilet paper was being sold on TikTok for S$5.80 for twenty-seven rolls. In comparison, the same items sell for around SG$16.80 on Shopee.
Woo noted that TikTok Shop is “still very young” and in the “burn-cash-to-grow phase, which may not bode well in today’s market given higher funding costs.”
TikTok Shop is also “just a platform without end-to-end 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, said he.
Overall, I think TikTok Shop has the potential to be as big as Shopee or Lazada, although this may take quite a few years.
Jonathan Woo
Senior Analyst, Phillip Securities Research
It also has a smaller user base at this time with a younger demographic, which means less spending, 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 to Shopee ever since Shopee overtook the company to become Southeast Asia’s largest e-commerce platform in 2020.
“Overall, I think TikTok Shop has the potential to be as big as Shopee or Lazada, although this may take quite a few years,” Woo said, noting the gap between TikTok Shop and Shopee’s GMV.