TikTok Shop has now completed a year in the United States, and its journey in the Western world has been somewhat mixed. While significant progress has been made in sales and user acquisition, the economic expectations were not met.
According to estimates by Bloomberg, the social network anticipated sales of $17.5 billion during the first year, but it is estimated to have reached only a third of that figure ($4.5 billion). Additionally, the brands that performed the best are relatively unknown and are limited to the health, wellness, and beauty sectors.
Juozas Kaziukėnas, a technology entrepreneur and director of Marketplace Pulse, offers a summary of the key points regarding TikTok Shop’s performance in the U.S. market over the past 12 months. Let’s take a closer look.
While TikTok Shop has generated billions of dollars in product sales and is the closest that the Western world has come to social commerce, there is not a single major brand that can boast significant sales on this channel.
In fact, the best-selling products belong to brands that designed a unique strategy for TikTok Shop or went viral on the platform since its launch, with most of them being Chinese brands, such as GuruNanda, a brand specializing in natural and essential oils. According to Kaziukėnas, the list of the top 20 brands on the platform is “mediocre.”
The TikTok shopping funnel is unique. While the shopping channels on Amazon, Walmart, eBay, and other marketplaces in the United States are well understood, providing key metrics (ad spend, conversion rate tracking, listing optimization, and similar processes) and following the typical discovery, consideration, and purchase process, TikTok offers none of this.
Although the Chinese platform is not a substitute or competitor to Amazon, TikTok Shop relies on a content and affiliate system that very few brands have been able to decipher. Most of the sales are from low-priced items.
Content is the driving force behind sales on TikTok, and while many brands often create their own content, the use of influencers to generate it has become increasingly common. This has led to the platform being flooded with a sea of influencers who take a share of the brand’s revenue.
In this regard, affiliates are responsible for generating most of the sales and are deeply integrated into TikTok, eliminating the need for discount codes, special links, and allowing for precise tracking. One example of affiliate use is Goli Nutrition, a leading vitamin and supplement brand on TikTok at the moment, with sales exceeding $7 million in the last 30 days.
This brand relied on an aggressive affiliate campaign to promote its product, offering additional rewards beyond the typical revenue share. For instance, those who generated a certain number of sales could win a BMW vehicle, a strategy that most brands do not even consider.
“TikTok Shop is a content and affiliate problem that, for now, only a select few brands have solved,” summarizes Kaziukėnas.
According to Bloomberg, TikTok had set a goal to grow TikTok Shop to $17.5 billion in sales during its first year, but reality painted a different picture, with the trend reaching only a third of the expected amount (it is estimated that the Gross Merchandise Value (GMV) for the year to date is $4.5 billion).
According to TabCut, a TikTok analytics tool for sellers, the top 20 brands sold around $70 million worth of products in the last month. When this figure is extrapolated to an annual run rate, it translates to approximately $1 billion. The discrepancies in the estimated sales volume and the long tail of smaller brands do not account for the other $16 billion.
The primary reason for the poor economic results may be that TikTok Shop does not offer the wide variety of products that customers want, and Western buyers are still getting used to shopping through social media.
Although TikTok Shop organized some live streaming events that managed to raise over $1 million, “most users lack the patience to watch that type of content, and most brands lack the vision to produce it,” states Kaziukėnas. As a result, it still is not a significant channel for brands, nor does it have substantial scale. In fact, Facebook and Instagram launched their own social commerce projects but soon abandoned them to focus on selling ads.
In his final conclusion, Kaziukėnas explains that TikTok spent its first year solving the “cold start” problem, successfully getting brands interested and users accustomed to social commerce. The list of the top-selling brands on the platform will likely look very different over the next twelve months.
However, in the UK, TikTok Shop has become the ninth largest beauty and wellness eCommerce retailer in the market, while in the UK it is the second largest in the market.
Photo: ChatGPT
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