TikTok Shop is taking Southeast Asia’s e-commerce market by storm, and nowhere is this truer than in Indonesia, the platform’s #1 market in Southeast Asia. This is the country where TikTok has invested both the longest and with the highest pressure, and so far it appears to be paying off. In this Cube Pulse post we share a primer on the performance of TikTok Shop in Indonesia in the first half of 2023, all powered by our own e-commerce market data sets.
TikTok Shop in Indonesia (almost) reached its total 2022 GMV in the first six months of 2023
In a year where Indonesia’s e-commerce market is set to grow a modest 13-18% (slightly lower than Southeast Asia’s other large markets), TikTok Shop is still growing very fast. In fact, according to our estimates, the platform recorded approximately 97% of its total 2022 sales during the first six months of 2023.
Importantly, this feat is only possible because TikTok Shop’s growth rate accelerated further in the second quarter of 2023, driven primarily by a substantial expansion in the number of consumers on the platform. Average quarterly spending per consumer is slightly down in Q2 versus Q1, echoing what we observe on other leading platforms.
TikTok Shop sales in Indonesia could reach 6.3~8.4 bn USD in 2023, growing 2-3x versus 2022
Despite its rapid growth, TikTok Shop is still not among the largest e-commerce platforms in Indonesia. Its number of participating consumers and spending per consumer both trail incumbent platforms by a significant margin, although the gap is getting narrower each month.
So how big could TikTok Shop get before the end of this year? We have constructed three scenarios shown in the chart below:
Forecasting sales for a young platform like TikTok Shop is not a precise science. Predicting the company’s own moves alone is a major challenge, and that is not even considering moves from competitors and broader macro changes. Nevertheless, we have constructed the following scenarios to define a rough envelope of growth paths:
- Scenario A: Assumes TikTok Shop will remain predominantly a channel for fashion and beauty purchases for female consumers, and that other platforms (most importantly Shopee) will fight back against its aggressive marketing and promotion campaigns
- Scenario B: Assumes TikTok Shop starts to onboard more male consumers and builds a significant beachhead in a third key category such as FMCG or low-ticket electronics with a strong growth in non-impulse transactions
- Scenario C: Assumes TikTok Shop builds significant traction in 2-3 categories beyond fashion and beauty, including in low-ticket and high-ticket electronics, and that Shopping Center (Malaysia announcement) becomes the default e-commerce destination for a significant volume of consumers
Between these scenarios we see a credible path for TikTok Shop to reach between 6.3~8.4 bn USD in 2023 Indonesia GMV, making them a serious contender for a Top 3 e-commerce platform in the country next year.
TikTok Shop remains over-indexed in female consumers and in the fashion and beauty categories
One of the key differences between TikTok Shop and other large e-commerce platforms in Indonesia is that it has much higher GMV concentration in two female-dominant categories, namely fashion & footwear and beauty & personal care.
This trend makes sense; most of TikTok Shop’s early trade volume has come from livestream selling and purchases driven directly from short-form videos, two selling modes that lend themselves well to promoting and showcasing fashion and beauty products. For this reason, the customer base of TikTok Shop also skews more female than that of its main competitors.
In these categories, a balanced mix of official brand accounts, resellers, and influencers/KOLs fight for shoppers’ attention and dollars. That scattered seller landscape has resulted in TikTok Shop’s GMV concentration being lower than peers like Shopee (where the Top 10 official brand accounts can often capture more than 25% of total category GMV) but is increasing month-by-month as more large brands launch and grow their official presence on the channel. We forecast several fashion and beauty brands to reach 2023 sales of over USD 30mn on TikTok Shop in Indonesia, so the scale is already significant.
With such a high share of sales coming from fashion and beauty, these are also the categories where we see the most direct impact on the sales growth of competing platforms like Shopee, Lazada, and Tokopedia. Taking fashion as an example, TikTok Shop has now already surpassed Tokopedia and Lazada in sales volume in Indonesia:
Based on our research, most of TikTok Shop’s fashion category assortment overlaps with that of competing platforms, and at substantially similar prices. Hence, there is credible evidence that some consumers simply prefer shopping for these types of products on TikTok Shop, which could create a structural challenge for other platforms vying for consumers’ fashion and beauty dollars.
Implications for brands: You cannot afford to ignore TikTok Shop, nor to consider it in a vacuum from other e-commerce channels
TikTok Shop has disrupted Indonesia’s e-commerce landscape in a manner not seen since Shopee’s rise 5-7 years ago. It is however also a very different selling platform with different traits and limitations. Here are some of our top tips for consumer brands in 2023:
- If you are selling products in high-impulse categories, launch fast and invest ahead of the curve
While TikTok Shop’s applicability in high-ticket categories like smartphones remains unclear, there is no doubt that the channel will play a significant role in fashion, beauty, and other high-impulse categories like FMCG and home & office goods - Master the basics of selling on TikTok Shop
The key success factors for growing sales on TikTok Shop are very different from Shopee, Tokopedia and other e-commerce platforms; focus on mastering three key basics, namely (a) frequent short-form video publishing, (b) low-fidelity live selling sessions on weekday evenings and (c) participating in TikTok’s affiliate program
- Avoid planning for TikTok Shop growth in a vacuum
Our preliminary research indicates that 20% of TikTok Shop GMV is truly incremental while 80% is cannibalising sales on other channels; the most impacted channel, surprisingly, is offline sales, followed by large e-commerce platforms including Shopee. That means some of your TikTok Shop investments should result in budget reductions on existing channels.
The above insights are a small sample of what is available in our monthly and quarterly TikTok Shop market datasets. Subscribers include leading consumer brand groups, institutional investors, and several leading consulting firms. Are you interested in learning more? Reach out on info@cube.asia now.
