TikTok is going all in on shopping: One-third of TikTok's U.S. job openings are e-commerce-related, according to the company's careers portal. Nearly a year after it launched its commerce feature, Shops, the company is still offering deep discounts to first-time buyers and is also using influencers, live sellers and more to drive sales.
The company seems committed to making shopping a success, but the feature, which allows users to buy items like hair straighteners and battery packs through videos, live streams and a dedicated commerce tab, has angered some users who lament TikTok's shift from a dance and comedy video app to a shopping mall.
Luckily for TikTok, the intrusion of Shop won't alienate users, but questions remain. should TikTok is betting its future on shopping, but can it generate enough revenue from stores to justify a dominant presence within the app?
From conversations with e-commerce analysts, TikTok Shop partners, merchants, and creators, it's clear that Shop has grown steadily in the U.S., driving big sales for some brands. But third-party data and testimonials from Shop partners paint a mixed picture through the first six months of the year: it's far from a huge success.
First, the good news: Shoppers are spending more on TikTok than they did earlier this year: On average, U.S. users who shopped through TikTok Shop spent about $67 from mid-June to mid-July, compared with about $54 in a four-week period in January, according to data from Earnest Analytics, a research firm that tracks credit and debit card transactions.
Another bright spot for TikTok is its user retention: Since launch, it has seen a higher average repeat purchase rate than every major e-commerce platform except Amazon, according to data from Earnest. TikTok Shop has also seen strong momentum outside the U.S. in regions such as Southeast Asia that are more open to social shopping, but its future success in the U.S. is by no means certain.
Order tracking platform Root found that global order volume on TikTok shops grew 35% between January and June, compared to 63% for Shein in the same period.
And TikTok's app has some structural challenges it must overcome to become a competitive e-commerce player.
First, selling products on TikTok relies heavily on influencer viral videos, which can be unpredictable. This makes it a tough platform to sell to for big brands who want to forecast potential revenue in advance. For smaller sellers who make a ton of money after a few videos go viral, the good times don't always last, which can be frustrating.
“It's nearly impossible to stand out with an authentic brand story,” says one seller. During the beta period in April last year, the TikTok Shop recorded huge sales.“It's really saturated,” he told Business Insider.
TikTok trends don't guarantee sales on the platform: Shop partners told BI that users may click elsewhere to buy items they saw in a video rather than checking out with a TikTok shopping cart.
“This isn't a platform for people with a 'I'm going to come here, get some buzz, and make big sales' mentality,” said Nicole Rechtzeid, co-founder of social commerce company Ghost Agency, a partner in TikTok Shop. “This is a platform for brands that are more innovative and are willing to pivot and adapt, try and fail, and then rebuild and use new features and grow from there.”
What's working on TikTok Shop
Well-timed promotional campaigns and live sales have driven TikTok Shop's growth this year, agency sources told BI.
Ongoing discounts for buyers and sellers help drive first-time sales and repeat purchases. TikTok also ran a “Deals for You Days” promotion in July that coincided with Amazon's Prime Day event, resulting in hundreds of thousands of videos being created featuring the campaign hashtag. Beauty brands such as L'Oreal Paris, Maybelline New York and NYX Professional Makeup participated, a TikTok spokesperson told BI.
Creators and sellers are also finding success with livestreaming, with Canvas Beauty's Stormi Steele and streamer Mandys Peña each making more than $1 million in sales from livestreams in the past two months, the spokesperson said.
“Right now, the most exciting area for us and our customers is live shopping,” Rechtszuid said. “We're seeing around five to 10 different requests per week from brands interested in launching TikTok Shop Live.”
Live shopping could be a big opportunity for TikTok in the U.S. if it follows the same trajectory as its Asian sister app, where buyers and influencers have embraced the format. TikTok's Chinese sister app, Douyin, generated roughly $200 billion in sales in 2022, according to The Information. TikTok has hired a small group of third-party coaches to help creators improve their livestreaming performance.
TikTok Live has become an e-commerce hub for retailers of all types, including pre-owned luxury goods store What Goes Around Comes Around, which has set up a streaming studio within its stores. Dan Whatley.
“TikTok is still very much focused on this, and consumers are definitely starting to see this,” even if livestreaming videos don't show up on the “recommended” page, said Julian Reis, founder and CEO of Superordinary, an e-commerce company and TikTok Shop partner.
Shops’ biggest obstacles are yet to come
While new formats like live shopping show promise and customer retention has been strong this year, retaining merchants (and attracting new big brands) could be TikTok's biggest challenge going forward, industry sources told BI.
Sales on TikTok often spike virally, similar to when non-shopping videos trend on the app. Those flashy moments can spike demand but don't guarantee long-term revenue.
“Just because a product goes viral doesn't mean the whole brand goes viral,” Reiss said. “What we're seeing is that the product goes viral, potentially selling millions of dollars, and the rest of the brand gets left behind.”
TikTok's promotional discounts, which boost sales, have also come under criticism from some brands, Reis said.
“Brands may have complained that TikTok was too cheap,” Reiss said, “but TikTok created new consumer behaviors. And that was by design.”
Naturally, the possibility of TikTok withdrawing or being banned from the U.S. will pose a challenge as the company tries to attract a new buyer.
“Many retailers signed up for TikTok Shop shortly after it launched, but the number of new retailers joining is declining,” Root CEO Michael Yamtino told BI. “For many retailers, knowing that the channel may go away is scary enough that they are waiting to see how things go.”
For smaller, more agile brands, Shop may be worth giving a try, even if TikTok's future in the U.S. is unclear. Even if the virality is fleeting, the benefits of being a trending product on the app could be life-changing for a small business.
But no one should bet on going viral as a business strategy.
“We still get questions about the ban,” Rechtszuid said. “We simply encourage all our clients to use TikTok as a great way to build brand awareness, and any sales should be considered an incremental success for our clients.”
