Source | Bohu Finance (bohuFN)

Compared to TikTok's dominance in the global app market, TikTok Shop's journey overseas has been much more arduous. Initially, TikTok planned to launch its e-commerce venture in the US. However, due to prevailing circumstances, it had to pivot to the UK and Indonesia.

Three years later, the UK market contributes less than 10% to TikTok's overall e-commerce revenue, and the heavily invested US market has also underperformed. Conversely, Indonesia has borne fruit. According to the "Southeast Asia E-commerce Outlook 2024" report released by Asian digital e-commerce agency TMO, TikTok Shop generated approximately $1.7 billion in revenue in Southeast Asia in April 2024, with Thailand and Indonesia being the biggest contributors.

Zooming out to the entire Southeast Asian market, this vast region with a population of 660 million has become TikTok Shop's most crucial "showroom": According to LatePost, as of the end of August 2024, TikTok Shop's GMV in Southeast Asia (excluding Tokopedia) exceeded $15 billion, and it is expected to surpass the $19 billion mark by the end of the year.

This begs the question: Can TikTok Shop's success in Southeast Asia be replicated in other regions?

01 Southeast Asia as a Testbed

The golden decade of mobile internet saw Southeast Asia become a favored testbed for domestic investors.

With a dense population of 660 million, the region boasts a population density of 153 people per square kilometer, making it more crowded than China. Moreover, its demographic profile is youthful, with over 50% of the population under 30 years old. This youthful, receptive audience presents immense potential for the market and serves as an ideal target group for shaping consumer behavior. Some young people may not even know how to use a computer but are already adept at online shopping via their mobile phones.

Prior to TikTok Shop's arrival, two local e-commerce giants, Shopee and Lazada, had already established themselves in the region. Both are marketplace e-commerce platforms, although Lazada places greater emphasis on branding. In 2018, Lazada launched LazMall, which has since become Southeast Asia's largest online branded mall. According to 36Kr, branded merchants on Lazada tend to perform better, and exclusive brands like Estee Lauder are only available on Lazada.

For years, the two companies maintained a relatively stable market share until TikTok Shop entered the scene. Since entering the Indonesian market in 2021, TikTok Shop has accelerated its expansion, rapidly expanding into countries like Thailand, Singapore, Vietnam, the Philippines, and Malaysia within just a year. In 2022, TikTok Shop's GMV tripled year-on-year, and by 2024, this figure had quadrupled to $16.3 billion.

The results suggest that TikTok Shop has effectively replicated Douyin E-commerce's strategies in Southeast Asia.

Southeast Asia boasts a high internet penetration rate and above-average user engagement. According to Statista, as of July 2022, internet penetration rates in key Southeast Asian countries like Malaysia, Singapore, the Philippines, Thailand, Indonesia, Vietnam, and Malaysia reached 93.8%, 92%, 91%, 88.3%, 86%, 76.5%, respectively, exceeding the global average. Internet users in the Philippines spend an average of over 10 hours online daily, while those in Malaysia and Thailand exceed the global average of 7 hours with over 9 hours of daily internet usage.

Live streaming e-commerce is not a unique concept to TikTok Shop. In 2019, Lazada launched LazLive, one of the earliest live shopping platforms in Southeast Asia. Drawing inspiration from China's mature live shopping models and catering to local consumer preferences, Lazada incorporates creative games into its live streams to enhance engagement and user stickiness.

However, Lazada lacks TikTok's massive user base. As of mid-2023, TikTok had a total of 325 million monthly active users in Southeast Asia. This vast traffic pool comprises many young individuals who enjoy watching short videos and are receptive to new things, making them highly sought-after by most e-commerce platforms.

Under TikTok Shop's influence, live shopping has gradually become a preferred shopping format among Southeast Asian consumers in recent years. According to a survey report by Milieu Insight, 82% of respondents in Southeast Asia have visited live streams, with 48% visiting at least once a week and 63% having made purchases during live streams.

Tokopedia sellers have reported that up to 80% of their sales on TikTok Shop come from live streams. Compared to traditional online shopping, the real-time interactivity of live streaming plays a crucial role in stimulating consumer purchases.

To complete its e-commerce ecosystem, TikTok Shop introduced a marketplace model in 2023, embarking on a dual-track growth strategy.

Combining short videos, live streams, product showcases, and an online mall, TikTok Shop's integrated approach has established a robust ecosystem in Southeast Asia, seamlessly connecting content marketing (via short videos), impulse buying (through live streams), and product discovery (in the mall). Similar to China, TikTok Shop has created a seamless experience from content consumption to purchase, fostering a "watch-be inspired-buy" loop.

Unlike its more established competitors focused on cost reduction and efficiency, TikTok Shop has invested heavily in marketing. Analysts estimate that TikTok Shop spends between $600 million and $800 million annually on incentives. In 2024, TikTok Shop intensified its localization efforts in Southeast Asia, establishing operational centers in key markets like Vietnam, Thailand, and Indonesia and collaborating with local influencers to launch culturally relevant marketing campaigns.

TikTok Shop has also blazed a new trail in regulatory compliance. Indonesia, the largest e-commerce market in Southeast Asia, has one of the strictest customs requirements in the region. After a brief ban by the Indonesian government in September 2023, TikTok Shop acquired and merged with local e-commerce platform Tokopedia, becoming the second-largest e-commerce platform in Indonesia.

Can TikTok Shop replicate its Southeast Asian success in the US?

02 TikTok Shop Accelerates in the US

Recently, TikTok Shop shared its US market performance: Over the past year, the daily paying user base in the US has tripled. As of Q3 2024, TikTok Shop's US content-driven GMV grew by 37% quarter-on-quarter, with a 47% increase in the number of short video-driven transactions. In Q3 2024, TikTok Shop nurtured three million-dollar live streams and 37 hundred-thousand-dollar live streams in the US.

TikTok Shop's growth in the US is underpinned by its content ecosystem and subsidies, similar to its Southeast Asian strategy.

Regarding content, TikTok boasts 170 million monthly active users in the US, accounting for half the country's population. Although the US population is less youthful than Southeast Asia, TikTok's user base primarily comprises teenagers, and the platform has even become a significant tool in the recent US elections. Like in Southeast Asia, TikTok caters to a young audience eager to explore new consumption channels and spend more time online. US users spend an average of 2 hours daily on TikTok, outpacing traditional e-commerce platforms in terms of user engagement.

A survey by Morning Consult revealed that 64% of millennials and 76% of Gen Z users are active on TikTok Shop, with 40% of Gen Z users having made purchases on the platform, followed closely by 37% of millennials.

In terms of subsidies, TikTok Shop launched the "New Merchant Launch Program" this year to facilitate the rapid startup of new merchants, offering exclusive benefits such as commission waivers. The program also supports top-performing merchants through the "Billion Dollar Club." As a result, in Q3 2024, top merchants saw a 25% quarter-on-quarter increase in GMV, with a six-fold jump in GMV during Super Brand Day promotions, and nearly 80 merchants achieved their targets.

To alleviate regulatory pressure, TikTok has partnered with Amazon. Users will see Amazon product recommendations in TikTok's "For You" feed and can link their TikTok and Amazon accounts to purchase products directly from the short video platform.

However, unlike in Southeast Asia, TikTok Shop faces stiff competition from Amazon in the US. Currently, Temu and Shein combined hold just 2% of the US e-commerce market, while Amazon commands a 36% share. Over the past 18 years, Amazon has invested over $100 billion globally, establishing 185 fulfillment centers, enabling over half of its orders to be delivered same-day or next-day.

Similarly, Amazon is attempting to counter TikTok Shop's appeal to US merchants. In June 2024, Amazon held an internal closed-door event in Shenzhen, announcing the launch of a "Low-Price Store" section on its main site, focusing on white-label, low-cost fashion and household items with delivery within 9 to 11 days.

On the regulatory front, the current situation is largely due to the distraction caused by the upcoming elections. To replicate its Southeast Asian success in the US, TikTok Shop faces significant challenges.

References:

1. LatePost: The Unending Battle for E-commerce Dominance in Southeast Asia: Shein Joins Forces with Shopee, as TikTok Eyes Second Place

2. Photon Planet: TikTok Shop Races Ahead in the US with 'Content-Driven E-commerce'

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