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

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 pushes the short-form video app to 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 showcase and sell their products to users.

In 2022, TikTok Shop expanded to six Southeast Asian countries – Singapore, Malaysia, Indonesia, Philippines, Vietnam and Thailand.

“TikTok continues to grow rapidly in Southeast Asian countries. We estimate that TikTok 2023 [gross merchandise value] will reach 20% ~ of Shopee, which we believe has prompted Shopee to increase sales and marketing defensively since April,” Shawn Yang, an analyst at Blue Lotus Research Institute, said in a recent report on Sea Group, the owner by Shopee.

TikTok would not comment or reveal numbers.

TikTok Shop’s GMV, or total value of goods sold, more than quadrupled to $4.4 billion in Southeast Asia in 2022, according to internal data obtained by tech outlet The Information. The TikTok store is would aim 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 made $73.5 billion in GMV in 2022 while Lazada’s GMV was $21 billion for the year through September 2021, according to publicly available figures.

A TikTok spokesperson told CNBC that TikTok Shop “continues to grow rapidly” as large and small users use the platform to reach new customers. TikTok is “focused on the continued development of 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 the most populous country in Southeast Asia, where 52% are young people and it has around 113 million TikTok users.

“Impulse buying while watching content is an advantage of TikTok,” Sachin Mittal, head of telecoms and internet industry research at DBS Bank, told CNBC.

Sea Group is counting on its e-commerce arm Shopee to repair the group’s balance sheet as its gaming arm Garena continues to see declining revenue, given the lack of a strong gaming pipeline and the continued banning of its flagship game Free Fire in India due to national security threats.

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

A survey by online retail information firm Cube Asia found that consumer spending on TikTok store reduce their spend on Shopee (-51%), Lazada (-45%), Offline (-38%) in Indonesia, Thailand and the Philippines.

Shopee and Lazada declined to comment on competition from TikTok Shop.

Data from web analytics firm Similarweb revealed that Shopee is currently Southeast Asia’s largest online marketplace, holding 30% to 50% traffic share in the region over the past three months, while Lazada ranks second with 10% to 30% traffic share. .

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

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

TikTok CEO Shou Zi Chew’s testimony before Congress in March did not allay lawmakers’ concerns about the app’s connections to China or the adequacy of Project Texas, its contingency plan to store American data on American soil.

TikTok has also been banned in India since 2020, alongside other apps believed to be of Chinese origin. It is not accessible in China, although its Chinese version Douyin is widely used by more than 750 million daily active users.

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

“TikTok is currently spending an incredible amount on in-app buyer and seller incentives, which may not be sustainable,” said Jonathan Woo, principal analyst at Phillip Securities Research. Woo said he estimates the incentives to be between $600 million and $800 million per year, or 6% to 8% of a GMV of $10 billion in 2023.

To encourage sellers to join the platform, TikTok Shop removed commission fees when launched in Singapore in August. Merchants were only required to pay a 1% payment fee.

Data from Apptopia, an app analytics firm, showed that the TikTok Shop Seller Center app has attracted an increasing number of downloads over the past year.

Meanwhile, Shopee charges more than 5% on commissions, transaction and service fees.

A CNBC check revealed that Nomieo’s four-ply toilet paper was selling on TikTok for 5.80 Singapore dollars for twenty-seven rolls. In comparison, the same products sell for around SG$16.80 on Shopee.

Woo noted that TikTok Shop is “still very young” and in the “money consumption phase to grow, 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 who have invested heavily in improving logistics for faster deliveries and returns, increasing the overall user experience and confidence of sellers and buyers, he said.

It also has a smaller user base right now with a younger demographic, which means less spending capacity, Woo said.

“I don’t think TikTok poses a big risk 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 has the potential to be as big as Shopee or Lazada, although it may take a number of years,” Woo said, noting the gap between TikTok Shop and the Shopee’s GMV.