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TikTok bets heavily on Black Friday

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TikTok bets heavily on Black Friday
FILE - A visitor passes the TikTok exhibition stand at the Gamescom computer gaming fair in Cologne, Germany, Aug. 25, 2022. The same day Elon Musk abruptly dropped Twitter’s name and bird logo as part of its supposed transition to an “anything app” called X, TikTok impishly announced, late Monday, July 24, 2023, it will begin letting its users post text-based messages. (AP Photo/Martin Meissner, File)
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TikTok Shop has officially released the “Official Preparation Guide for the “Fully Managed” Black Friday Sale” and attached a timetable. According to the timetable, cross-border merchants who intend to participate in the Black Friday promotion need to complete their entry before September 30 and complete the listing of their products before October 27.

According to Bloomberg, in order to attract merchants to participate in Black Friday from October 27 to November 30, TikTok Shop will provide sellers with discount subsidies of up to 50%.

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TikTok Shop is TikTok’s e-commerce business. On September 12 this year, TikTok Shop officially announced its launch in the United States, moving from a semi-closed loop to a fully closed loop. This year is the first time that TikTok’s Black Friday promotion covers the United States.

Not long ago, The Information also revealed the news of TikTok’s senior management changes, saying that TikTok hired two retail industry veterans who had worked at Amazon and Meta Platforms to help its US e-commerce business. Sandie Haokins, TikTok’s general manager of U.S. e-commerce, will resign.

The United States is the second largest e-commerce market in the world. According to data from Comscore, a U.S. Internet traffic tracking and analysis company, the size of the U.S. e-commerce market will exceed the trillion mark for the first time in 2022.

The United States is a battleground for e-commerce. Although the e-commerce “newcomers” represented by SHEIN and Temu are still far behind Amazon and Wal-Mart in terms of GMV, they are growing at an alarming rate. Black Friday is an important breakthrough. In September last year, shortly before Black Friday, Pinduoduo made a big move overseas, choosing the North American market as its first stop and launching the e-commerce platform Temu.

During Black Friday, Temu launched 30% off the first order, flash sales, free shipping and returns within 90 days, etc., and repeatedly topped the list of downloads in the Apple App Store. By April this year, Temu’s number of active users in the United States had risen from 6 million to 100 million.

A new Black Friday, a new battle situation. With the strong intervention of TikTok, the competition on Black Friday will become more intense.

Amazon, which accounts for nearly 40% of the U.S. e-commerce market, is also ready. On September 19, local time, Amazon said it would recruit 250,000 employees in the United States to cope with the upcoming shopping season. Amazon does this every year, but this year the number increased by 67%. During last year’s Black Friday, Amazon’s search ranking fell from first place to fourth place.

The other side of the story is that Amazon still firmly occupies the top spot in U.S. e-commerce. While SHEIN and Temu are making rapid progress overseas, they are beginning to expose problems. As a social media e-commerce company, TikTok Shop faces many more challenges than SHEIN and Temu.

The bullets for Black Friday are already loaded. Will TikTok hit the bullseye in the key battle in the United States, or will it misfire?

TikTok’s e-commerce business has been developing for three years.

As early as 2020, TikTok, which has been downloaded 2 billion times globally, cooperated with Shopify to try a semi-closed-loop e-commerce model, starting from Canada and extending to the United States, the United Kingdom and other regions. The so-called semi-closed loop is to bind it to TikTok through a third-party platform plug-in, so that users can click on TikTok to jump to external links to place orders. In the same year, TikTok also reached a live streaming cooperation with the American retail giant Walmart.

The semi-closed loop allows TikTok to quickly enter the e-commerce field and enter the market with a “light” attitude, which can not only form users’ purchasing habits on the platform, but also control the cost of testing the waters. But its shortcomings are also obvious. When it jumps to a third party, the traffic contributed by TikTok is lost at the sales end. When false shipments, incorrect goods, fake and shoddy products, etc. occur, TikTok is the first to bear the blow to word-of-mouth.

In 2021, TikTok began to try a fully closed-loop model, that is, launching its own TikTok Shop, and all e-commerce processes are completed within the platform. The first stop of the trial was Indonesia, which is TikTok’s second largest market after the United States. Since then, TikTok Shop has been launched in the UK, Malaysia, Thailand, Vietnam, Saudi Arabia and other markets.

In 2022, TikTok will launch a British-American fusion car based on the semi-closed-loop model, which means it will still jump to a third-party platform to place orders, but merchants can sell goods to British and American users at the same time.

Since then, TikTok has accelerated the pace of e-commerce. First, it will start testing the fully closed-loop model in the United States in November 2022, testing TikTok Shop, and first introducing local stores.

This period is a transitional period for TikTok’s semi-closed-loop and fully-closed-loop e-commerce models to coexist, but as TikTok Shop tests its largest market, the platform is ready to fully shift to a fully closed-loop.

In August this year, TikTok finally announced that it would stop sellers from being able to click on links that jump to external platforms. Since then, TikTok’s e-commerce business has completely shifted to a fully closed loop. The door to exchanges with “friends” has been closed, and the traffic is only used by the free e-commerce platform TikTok Shop.

When the U.S. TikTok Shop was announced on September 12, it had already been tested for several months, so it was not without a doubt.

On the contrary, at this point, TikTok in the United States has completed its momentum: the number of TikTok Shops in the United States has increased from more than 300 in April to nearly 6,000 in July, and the corresponding monthly GMV has increased from 6.23 million yuan to 340 million yuan. In addition, while cutting off external links on one hand, TikTok Shop is also open to cross-border sellers and implements a fully managed model.

In terms of form, TikTok e-commerce has been aligned with Douyin, with short videos and live shopping, and has launched a series of services for TikTok merchants and creators, including an “affiliate program” that connects merchants and creators. TikTok said that there are currently 200,000 merchants in the United States, including many brands such as L’Oreal, Benefit, and Olay.

According to Bloomberg, 40% of TikTok user interfaces currently include a “mall” first-level entrance, located on the homepage. It is expected that this first-level entrance will be fully available in the United States before Black Friday in early October. It is not difficult to see from the eloquent 60-page “Official Preparation Guide for the “Full Managed” Black Friday Sale” that TikTok regards this Black Friday as an important battle after the comprehensive shift to a fully closed loop.

TikTok needs e-commerce, especially in the United States, and now is a good time.

The number of monthly active users has reached 1 billion, and TikTok has become the third largest traffic pool in the world after Google and Facebook. It took TikTok only 4 years to reach this number. However, while TikTok has become the world’s leading social media in just a few years, it faces commercialization difficulties: the number of global users is 1.5 billion, twice that of Douyin, and its commercial revenue in 2022 will only be 10 billion U.S. dollars, accounting for 10% of ByteDance’s revenue. one eighth.

As a social media platform, it is natural that TikTok’s previous mainstay revenue came from digital advertising. However, TikTok’s advertising conversion rate is not high. According to official figures, it is only 0.7% to 3%. Coupled with the impact of regulation in Europe, the United States and other regions, the advertising business of large Internet platforms is under pressure. TikTok needs another growth curve. TikTok, which was born out of Douyin, chose e-commerce business, which is the first choice.

To develop e-commerce, the United States is a city that must be conquered.

On the one hand, the United States is TikTok’s largest market, where TikTok has 150 million users, accounting for almost half of the U.S. population.

On the other hand, the United States itself is a piece of fat that everyone in the e-commerce market covets. At the beginning of this year, the U.S. Department of Commerce stated that consumption in the U.S. e-commerce market will exceed one trillion U.S. dollars in 2022, almost doubling in three years. According to previous predictions, this performance milestone was originally expected to be reached in 2024.

Chinese e-commerce companies have been testing the waters in the United States in the past few years when going overseas, and have achieved good results with a self-operated full hosting model. The most typical ones are SHEIN and Temu. The former started as an independent clothing fast-moving consumer goods station. When the global consumer market was overall weak due to the new crown in 2020, SHEIN achieved a growth myth of US$10 billion, a year-on-year increase of 250%.

At its peak, SHEIN’s valuation exceeded 100 billion. According to 36 Krypton, the European and American markets contribute the most to SHEIN’s global GMV, both exceeding 30%.

Temu, on the other hand, was born in September last year. It directly started in the North American market and copied Pinduoduo’s domestic extremely low prices and “help me chop a knife” and other marketing methods, quickly becoming an e-commerce upstart. In June this year, 36Kr reported that Temu’s GMV in the first half of this year has approached US$3 billion. If the traditional peak season and the end of the year Black Friday are taken into account, Temu is expected to achieve its GMV target of US$10 billion this year.

With the influx of upstarts, local giants in the United States are also fighting fiercely. Wal-Mart is accelerating its omni-channel retail transformation and opening it up to sellers outside the United States. Last year’s Black Friday saw online sales by U.S. consumers hit a record high, reaching $9.12 billion. Surprisingly, Amazon, which ranked first in Black Friday traffic last year, fell to fourth place, with Walmart gaining the upper hand.

In the past few years, testing the waters in different regions and to varying degrees has built the confidence for TikTok to develop e-commerce. The most important U.S. market is currently fiercely competitive and full of opportunities. TikTok e-commerce, which has been accumulating strength for a long time, is ready to attack.

Of course, there is a “but” to all this. There are still many challenges for TikTok e-commerce to enter the US market.

What cannot be ignored are geopolitical and regulatory pressures.

In March this year, TikTok CEO Zhou Zhou was involved in a capital battle on Capitol Hill, which put the grim reality facing TikTok in the spotlight. The extremely bad possibility of being forced to sell or banned is right in front of you. Six months have passed, but TikTok has not yet completely escaped from danger, and there is even a general trend. Following the United States, Canada and the European Union, the United Kingdom, France and New Zealand also announced that government employees would ban TikTok.

The intensifying regulatory actions against large Internet platforms will inevitably affect TikTok. In the European Union’s Digital Services Act (DSA) that came into effect not long ago, TikTok is included in the first batch of lists. To comply with regulations, TikTok needs to increase its efforts to combat harmful and false information, disclose the transparency of its algorithm, and stop Pushing algorithmic ads to underage users.

In Indonesia, the situation is even worse. This was originally an important base for TikTok Shop to test the waters, but it is encountering local resistance. Just this month, the Indonesian Minister of Cooperatives and Small and Medium Enterprises accused TikTok Shop of being a “monopoly” and claimed that TikTok e-commerce business in Indonesia should be banned. Moreover, a few months ago, the Indonesian Trade Minister also stated that the local market would restrict the online sales of imported goods priced below $100, and imported goods would also be required to obtain supplementary licenses.

Secondly, the “seniors” SHEIN and Temu who are making great progress also have unresolved problems.

In 2022, SHEIN’s revenue growth has slowed down, and in June of that year there was even a year-on-year decline in sales for the first time since the epidemic. The company’s valuation has also shrunk by one-third from over 100 billion a year ago.

Temu is still burning cash. According to China Merchants Securities Finance Company, Temu, which operates in Canada, Australia and New Zealand, loses 4.15 billion to 6.73 billion yuan every year. Technology media WIRED pointed out that Temu invested a lot of money when entering the US market and lost an average of US$30 per order. Behind Temu’s low prices, many sellers also complained that their profits were greatly squeezed.

With fierce competition, the fully managed model “moving forward with a heavy load”, low price strategy, etc., TikTok, which is transforming to a fully closed loop or even fully managed, must also face the same challenges. The Information quoted people familiar with the matter as saying that TikTok expects to lose more than $500 million in the United States this year.

In addition, compared to SHEIN and Temu, content-based TikTok, as a social media e-commerce company, also faces challenges that its “predecessors” did not have.

In the United States, many people are skeptical about whether social media e-commerce, represented by live streaming of goods, can take off. In August last year, Facebook announced that it would shut down the live shopping function in its main app, while this function will still be retained in Instagram. Previously, Facebook had been planning live shopping for four years.

American consumers have not yet formed live-streaming shopping habits similar to those in China. iResearch predicts in its “2021 China Livestreaming E-commerce Industry Research Report” that China’s livestreaming e-commerce market will exceed US$725.2 billion in 2023. In contrast, Coresight Research’s report predicts that the live streaming shopping market in the United States will reach 25 billion US dollars in 2023 – the scale is expanding, but the “plate” is still not big enough.

In addition, although TikTok has more than 1 billion users and the viral spread of platform content has become a cultural phenomenon, its users tend to be younger. Nearly half of the global users in 2022 will be between 13 and 24 years old. In comparison, YouTube and Facebook cover all age groups.

The young user group has vitality, but this vitality is the vitality of content creation and dissemination, and it cannot bring the vitality of consumption. In 2021, TikTok’s average revenue per user (ARPU) is US$4.18, Kuaishou is 2.3 times that, and Douyin’s advertising ARPU in China is as high as US$20.

Amazon still occupies the largest share of the U.S. e-commerce market. SHEIN and Temu disrupted the situation but did not change the pattern. There was also a lawsuit between the two, setting off a legal war in the United States. TikTok’s high-profile entry into the game is bound to attract attention. Whether it can disrupt the situation and change the situation is still unknown.

References:

  1. Far EasTone Research Institute: “There are many users but it is difficult to make money?” The commercialization dilemma faced by TikTok》
  2. 21st Century Business Herald: “Can TikTok’s e-commerce business “live streaming” in the United States be replicated?
  3. IT Home: “To compete with Amazon on “Black Friday”, TikTok Shop provides subsidies to sellers”
  4. E-commerce News: “Amazon’s Black Friday stalled, but China’s cross-border e-commerce is booming”
  5. 36 Krypton: “Closing external links, Tik Tok is building a high wall for its own e-commerce | Focus Analysis”

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