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

TikTok Shop is a growing threat to major e-commerce players like Shopee and Lazada in Southeast Asia.

It comes as its parent company ByteDance pushes the short video app into markets outside of 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 technology 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 countries in Southeast Asia: Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand.

“TikTok continues to grow rapidly in Southeast Asian countries. We estimate that 2023 (Gross Merchandise Value) of TikTok will reach 20%~ of Shopee, which we suggest prompted Shopee to defensively increase sales and marketing since April” Shawn Yang, an analyst at the Blue Lotus Research Institute, said in a recent report on Sea Group, Shopee’s owner.

TikTok declined to comment or disclose numbers.

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

A TikTok spokesperson told CNBC that the TikTok Shop “continues to grow rapidly” as users large and small 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 is 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 and has about 113 million TikTok users.

“The impulse buying of watching content is an advantage that TikTok has,” Sachin Mittal, head of internet and telecom sector research at DBS Bank, told CNBC.

sea ​​group relies on its e-commerce arm Shopee to improve the group’s bottom line, as its gaming arm Garena continues to see declining revenue, given the lack of a strong gaming lineup and the continued ban on its flagship game Free Fire in India due to national security. threats

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

A survey by online retail information company Cube Asia revealed that consumers spending on TikTok Shop are 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 30-50% traffic share across the region in the past three months, while Lazada ranks No. Second place with a 10% to 30% traffic share. .

TikTok Shop’s push comes as the app is being scrutinized in its biggest market, the US, amid rising geopolitical tensions and Sino-US tech rivalry.

last week, the The US state of Montana banned TikTok, which could cause other states to adapt. TikTok disputed Montana’s allegations that the Chinese government “could access data about TikTok users and that TikTok exposes minors to harmful content online” in a Lawsuit filed Monday to try to overturn the ban.

Tik Tok CEO Shou Zi Chew testimony before Congress in March did not alleviate concerns among lawmakers about the app’s connections to China or the adequacy of Project Texas, its contingency plan for storing US data on US soil.

TikTok has also been banned in India since 2020, along with other apps said to be of Chinese origin. It is not accessible in China, although its Chinese Douyin version 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 spending an incredible amount of money right now on incentives for buyers and sellers, which may not be sustainable,” said Jonathan Woo, a senior analyst at Phillip Securities Research. Woo said that he estimates the incentives will range from $600 million to $800 million a year, or 6% to 8% of a GMV of $10 billion in 2023.

To encourage sellers to join the platform, TikTok Shop waived commission fees when 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 been attracting an increasing number of downloads in Indonesia over the past year.

Meanwhile, Shopee charges more than 5% in commissions, transactions, and service fees.

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

Woo noted that TikTok Shop is “still very young” and is in the “burning cash phase to grow, which may not bode well in today’s market given the higher cost of financing.”

TikTok Shop is also “just a platform with no end-to-end capabilities” unlike Shopee and Lazada, which have been investing heavily in improving logistics for faster deliveries and returns, increasing the overall user experience and trust for sellers and customers. buyers, he said.

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

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

Lazada has been trying to catch up with Shopee ever 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 this could take quite a few years,” Woo said, noting the gap between TikTok Shop and Shopee GMVs.