“Will TikTok Evolve From Social Commerce Enabler to E-Commerce Titan?” by Brian Wassel via Retail Wire

“Will TikTok Evolve From Social Commerce Enabler to E-Commerce Titan?” by Brian Wassel via Retail Wire

TikTok is reportedly preparing to capitalize on its social commerce success with a marketplace that could launch as soon as early August, people familiar with the matter told The Wall Street Journal. The store would focus on selling made-in-China goods to U.S. consumers, putting TikTok in direct competition with Shein and Temu.

The marketplace, called the TikTok Shopping Center, would integrate multiple channels to create a single page where users can view and buy goods. The selection would include items stored and shipped by TikTok on behalf of Chinese manufacturers and merchants as well as products sold directly to shoppers by other retailers.

TikTok also plans to include marketing, transactions, logistics, and post-sale experience among the services it will offer Chinese companies. The overall marketplace will feature a wide range of items, including clothes, electronics, and kitchen gadgets.

The social media giant is no stranger to retail. TikTok Shop lets browsers purchase items from retailers without needing to leave TikTok’s ecosystem, and e-commerce solution provider WooCommerce recently integrated support for this feature into its own platform. Capabilities for retailers using WooCommerce include in-feed videos, livestreams, and product showcase tabs on profile pages.

Additionally, TikTok is testing the “Trendy Beat” shopping section in the U.K., according to TechCrunch. This aspect of the platform showcases popular items from trending videos and could serve as a beta test for a larger e-commerce marketplace launch in the U.S.

Americans on average purchased four items on TikTok totaling $150 in the 52-week period that ended Nov. 1, 2022, according CouponFollow’s survey of 1,000 social media followers. The hashtag #TikTokMadeMeBuyIt had more than 30 billion views at that time, and since then it’s doubled to 63.8 billion views.

Even with numbers like this in mind, TikTok’s plans are ambitious: The platform is aiming to quadruple its gross merchandise value to $20 billion in 2023 from $5 billion in 2022, sources told The Wall Street Journal. With an average of over 150 million monthly active TikTok users in the U.S., according to TikTok internal data from March 2023, the platform has the audience to make its goal a reality.

However, the leap from a social commerce enabler to an Amazon-style marketplace is a major undertaking. TikTok understands this challenge — sources told The Wall Street Journal that an e-commerce team began studying the business models of TikTok’s “fast-growing rivals” in March — but it remains to be seen if TikTok and parent company ByteDance can bridge the gap between understanding and execution.

People familiar with the matter also said that merchants using TikTok’s existing third-party seller platform in other regions have struggled to maintain adequate customer service and grow profit. Additionally, complaints about fakes and scams are a challenge that plagues marketplaces around the world, to the point that Amazon has invested $1.2 billion into fighting the problem, and TikTok is no exception.

TikTok faces additional pressure in the U.S. from lawmakers who have branded the Chinese-owned social media sensation a national security risk. The Biden administration is supporting the bipartisan RESTRICT Act, which would empower the Department of Commerce to “review, prevent, and mitigate” information communications and technology transactions to prevent threats posed by “technology from foreign adversaries,” potentially hampering TikTok’s ability to operate in the U.S.

Despite the challenges, TikTok seems ready to launch the next step in its evolution. Job recruiters told The Wall Street Journal that the social media giant is recruiting professional buyers as well as warehouse and order managers — including experts employed at Temu and Shein. TikTok reportedly also plans to expand the program to companies outside China as it builds up its international logistics system, which could set the stage for international retailers to sell through the TikTok Shopping Center.

Retail Wire Comments on this article from Retail Experts

Neil Saunders

TikTok has the audience, and it has embryonic experience in ecommerce. However, becoming a major marketplace is a challenging ambition. For one, more existing users need to be converted into shoppers which isn’t easy as they’re not all receptive to being sold to. For another, the logistics and supporting infrastructure required is costly to build out and maintain. And finally, with a proliferation of marketplaces in terms of Shein, Temu, Amazon, and others, TikTok is going to have to work even harder to differentiate itself and drive trade. 

Gene Detroyer

Neil hit all the essential points regarding TikTok’s challenges.

Consider it took Amazon decades to refine its systems. Walmart, the most efficient retailer in the world, stubbed its toes many times on the way to success. It took Target massive resources to fine-tune its thriving online business.

While TikTok has likely learned much from Alibaba (over a trillion dollars per year.), the most significant challenge may be getting TikTok users to pay enough attention to buy something.

DeAnn Campbell

There is no doubt TikTok has access to all the resources it needs to integrate an eCommerce marketplace, and there is an eager pool of consumers already primed and ready to shop. The popularity of Shein and Temu only underscores that Americans don’t mind buying from Chinese companies. The only question mark is whether government regulations around privacy and climate will take shape because that is the only wild card that could slow this juggernaut.

Lisa Taylor

Completely agree DeAnn. TikTok has been the driver of numerous viral product sell outs in stores (The Pink Stuff, Maybelline’s Sky High mascara, Aerie leggings to name a few). The value of TikTok is showing the audience how things work – it’s relatable, clear and fast enough to hold their attention. According to App Annie, TikTok comes in second to YouTube for in-app spending, so I wouldn’t underestimate their power to drive sales if they can scale and navigate regulations effectively.

John Lietsch

It’s hard to argue with Neil or the US Government. I would add competitors to the list of challenges because TikTok isn’t the only player in the social commerce space. I would also add competing forms of commerce because social commerce competes with ecommerce. Ironically, social commerce is smaller than ecommerce and ecommerce still accounts for less than 20% of total global retail sales. The challenges are significant and will require time, people, money, better than average execution and maybe a little luck.

Scott Norris

Didn’t we have a discussion about this just a few weeks ago?

Social commerce in China is a unique beast because traditional brick-and-mortar retail chains never fully developed for Tier 2, 3, and 4 cities except for Walmart (which is still “Walmart with Chinese Characteristics”). Payment systems on mobile phones were fleshed out before credit cards could get solidly established – they went directly from a cash society to a mobile one. And shopping is about the only mass-social activity still endorsed by the Party.

Social selling is not nearly as prevalent in Japan, Taiwan, or South Korea as those countries got to develop more Western-style retail and payment logistics and societal norms. Not to say there won’t be growth, but outside the PRC we won’t see this channel become dominant.

Georges F Mirza

With the scrutiny they faced so far and continue to from the US government, it is interesting that they continue with the aim of reaching the goal of $20 billion in gross merchandise value in 2023. They must be unphased and confident that they can get it and that the US government will not stop the marketplace plans.

Shep Hyken

This is a similar conversation that we had about Facebook a few years back. While the plan to move to becoming an e-commerce platform is different than Facebook, the same comments were made. Just look at how the TikTok demographics have changed in the past year. Older “customers” are now participating and enjoying the TikTok experience. It’s just a matter of time before TikTok does a better job of monetizing its product.

Doug Garnett

Merely having lots of people viewing Tik Tok is no guarantee that this idea will work. After all, it’s been tried over and over in the past. The key will be whether Tik Tok merchandise has any uniquely attractive value. It might. And it most likely might not (just given the odds on things like this failing). Only time will tell. But their headline which appears to be “shop with us because we are Tik Tok” seems to be a translation of “we need more revenue so shop with us” and that’s never a good start.

Brad Halverson

TikTok going from a fun, entertaining social media platform to enabling serious and safe customer e-commerce is quite a leap.

I’m skeptical for the moment. The largest deterrent to their success is convincing existing customers they are a believable and safe platform for financial transactions. As of now, there are many insufficiently unanswered questions where TikTok data is being stored, who has access to it, and what this means to long-term privacy concerns.

Michael Zakkour

Yes, yes, it will.

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