TikTok Shop, a growing threat to Shopee and Lazada in Southeast Asia

A merchant sells crystal jewelry via live TikTok.

PHOTO | Publishing house of the future | 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 is pushing the short-form video program 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 products to users.

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 predict that by 2023, TikTok [gross merchandise value] will reach 20%~ of Shopee, which we believe has pushed Shopee to defensively increase sales and marketing since April,” said Sean Young, an analyst at Blue Lotus Research Institute, in a recent report on Sea Group, the owner of Shopee.

TikTok declined to comment or disclose numbers.

According to internal data obtained by tech media outlet The Information, TikTok Shop’s GMV, or total value of goods sold, has more than quadrupled to $4.4 billion in Southeast Asia in 2022. TikTok Shop is reportedly aiming for $12 billion by 2023.

The advantage of TikTok is impulse buying from viewing content.

Sachin Mittal

Head of Telecom and Internet Sector Research, DBS Bank

To be clear, TikTok Shop’s current GMV is only a share of Shopee and Lazada.

According to available public data, Shopee has generated $73.5 billion in GMV in 2022, while Lazada’s GMV was $21 billion in the year to September 2021.

A growing threat

A TikTok spokesperson told CNBC that TikTok Shop “continues to grow rapidly” as both large and small users use the platform to attract new customers. TikTok is “focused on further developing the TikTok Shop in Southeast Asia,” the spokesperson said.

As of May, TikTok has 135 million users in Southeast Asia alone, according to research firm Insider Intelligence.

According to Statista, Indonesia has the second largest number of TikTok users after the US.

Indonesia is the most populous country in Southeast Asia, where 52% of the youth are around 113 million TikTok users.

“Impulse buying by viewing content is TikTok’s strength,” Sachin Mittal, head of telecom and internet at DBS Bank, told CNBC.

Sea group is betting on its e-commerce arm Shopee to shore up the group’s balance sheet as its gaming arm Garena continues to shrink due to the lack of a strong games pipeline and the ongoing ban of its flagship game Free Fire in India due to national security threats.

Shopee is expanding its presence in Malaysia and continues to grow its presence in Brazil after exiting several European and Latin American markets.

Right now, TikTok is spending an incredible amount of money on incentives for buyers and sellers, which may not be appropriate.

Jonathan Wu

Phillip Securities Research Senior Analyst

A survey by analytics company Cube Asia found that consumers who spend on TikTok Shop reduce their spending on Shopee (-51%), Lazada (-45%), Offline (-38%) in Indonesia, Thailand and the Philippines .

Shopee and Lozada declined to comment on the competition from TikTok Shop.

Data from web analytics company Similarweb showed that Shopee is now the largest online marketplace in Southeast Asia, with a 30% to 50% traffic share in the region over the past three months, with Lazada in second place with a traffic share of 10 % to 30%. .

Verification on TikTok

TikTok Shop’s push comes as the app is under scrutiny in its biggest market, the US, amid rising geopolitical tensions and a tech rivalry between China and the US

Last week, the US state of Montana banned TikTok, which could prompt other states. TikTok disputed Montana’s claims that the Chinese government “may have access to TikTok users’ data and that TikTok exposes minors to harmful online content” in a lawsuit filed Monday to try to overturn the ban.

TikTok CEO Shaw’s testimony before Congress in March didn’t allay concerns among lawmakers about the app’s ties to China or the adequacy of Project Texas, its contingency plan for storing US 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 more than 750 million daily active users.

Not stable

But TikTok is burning money to grow, a proven strategy for gaining market share.

“TikTok is now spending an incredible amount of money to incentivize buyers and sellers, which may be unsustainable,” said Jonathan Wu, senior analyst at Phillip Securities Research. Wu said he estimates incentives at $600 million to $800 million annually, or 6% to 8% of the company’s $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 commission of 1%.

Data from Apptopia, an app analytics company, showed that the TikTok Shop Seller Center app has been attracting more downloads over the past year.

Meanwhile, Shopee charges more than 5% commission, transaction and service fee.

A CNBC check revealed that Nomieo’s four-ply toilet paper is being sold on TikTok for S$5.80 per twenty-seven rolls. In comparison, the same items sell for around SG$16.80 on Shopee.

Wu noted that TikTok Shop is “still very young” and is in “a phase of burning cash for growth, which may not bode well in today’s market, given the higher cost of funding.”

TikTok Shop is also “just a platform without end-to-end capabilities,” unlike Shopee and Lazada, which invest heavily in improving logistics for faster shipping and returns, improving the overall user experience and trust between sellers and buyers, he said.

Overall, I think TikTok Shop can become as big as Shopee or Lazada, although it may take many years.

Jonathan Wu

Phillip Securities Research Senior Analyst

At the moment, it also has a smaller user base with a younger demographic, which means less opportunity to spend money, Wu said.

“I don’t think TikTok is a big threat to Shopee,” Mittal said. “Shopee can afford to lose market share, but Lazada cannot.”

Lazada has been trying to catch up with Shopee since Shopee overtook the company to become Southeast Asia’s largest e-commerce platform in 2020.

“Overall, I think TikTok Shop can become as big as Shopee or Lazada, although it may take many years,” Wu said, noting the gap between TikTok Shop and Shopee’s GMV.

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