TikTok Shop thriving in a crowded field of S-E Asia e-commerce players
Benjamin Cher
NEWCOMER TikTok Shop – TikTok’s e-commerce arm – has made a splash in the e-commerce market in South-east Asia, according to a report by consultancy Momentum Works.
TikTok Shop’s gross merchandise value (GMV) grew from US$600 million in 2021 to US$4.4 billion in 2022, noted the report.
TikTok Shop has expanded from just Indonesia to five more countries in 2022 – Thailand, Vietnam, Malaysia, the Philippines and Singapore. But this still lags behind leader Shopee.
Sea’s e-commerce arm clocked in US$47.9 billion in 2022, almost half of the region’s total GMV of US$99.5 billion. Lazada came in second, with its GMV growth reversing slightly to US$20.1 billion in 2022 from US$21 billion in 2021, the only e-commerce player to have negative growth.
Indonesia continues to be the largest e-commerce market in South-east Asia, and accounted for 52 per cent or US$51.9 billion of GMV in 2022. This was followed by Thailand at US$14.4 billion and the Philippines at US$11.5 billion.
Singapore came in last in the region with a GMV of US$4 billion in 2022.
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“E-commerce in South-east Asia will likely follow a normal and healthy trajectory over the next few years. In our opinion, Shopee and Lazada will always be there, splitting market share with one or two other global players,” said Li Jianggan, founder and chief executive officer of Momentum Works.
E-commerce players have been observed increasing investment into logistics and payment infrastructure, a key trend highlighted in the report. For instance, Shopee has built over 360 Shopee Xpress Hubs across South-east Asia, and ramped up its loan receivables and property equipment investment.
This increased investment has resulted in Shopee and Lazada relying quite heavily on its in-house logistics. Shopee fulfils about 35 per cent to 40 per cent of its orders in-house, while Lazada fulfils 50 per cent to 60 per cent in-house.
In Indonesia, Shopee Xpress is now the No 2 logistics player in terms of volume, behind third-party logistics (3PL) player J&T Express. Lazada eLogistics is in fifth place, behind 3PLs JNE Express and Sicepat. Currently, TikTok fulfils 90 per cent of its orders via J&T Express.
Lazada has listed strengthening capability in logistics and fulfilment as a key focus area in 2023, and Tokopedia has consolidated its fulfilment and e-commerce delivery under GoTo logistics.
But structural challenges are hindering the path towards greater operational efficiency. For instance, congested roads in South-east Asia are reducing the speed of logistics. Still, e-commerce players need to make these investments to build their long-term moats, according to Momentum Works.
The e-commerce players are unlikely to eliminate 3PL providers, but their in-house capabilities will give them a better negotiating position with these providers. Larger 3PL players will continue to diversify into more markets and offer more services, for example, Ninja Van’s expansion into global freight forwarding and international parcel delivery.
On Shopee achieving positive adjusted earnings before interest, depreciation and amortisation, the consultancy noted that the e-commerce player has been using its financial ecosystem to boost e-commerce conversions. Shopee users can be converted to use Shopee Pay for their purchases which can be converted to Shopee PayLater and Shopee micro-loans down the road.
Shopee Pay is a prominent method of payment on Shopee, making up 63 per cent out of 500 respondents. The same respondents also used Shopee’s buy now pay later offering, Shopee PayLater with 14 per cent using that on Shopee. Even TikTok Shop saw Shopee Pay usage, with 12 per cent of respondents using it on that e-commerce platform.
There also has been a ruthless execution with regard to cutting costs. Shopee has exited non-core markets in Europe and Latin America, and scaled back on subsidies, marketing and ShopeeFood. Its leadership has also instilled a culture of frugality that was not present before.
Single country-focused e-commerce players, such as Tokopedia and Bukalapak, are facing questions about the viability of being in just one country, and whether there’s room for differentiation for them. Momentum Works believes that offline will be key for these players.
The consultancy sees three scenarios for e-commerce GMV growth in South-east Asia, with the best-case seeing GMV hitting US$232 billion by 2028. The normal-case scenario sees GMV hitting US$175 billion, while the worst-case scenario has GMV reaching only US$121 billion by 2028.
The best-case scenario accounts for accelerated infrastructure spending across the region, political stability and the arrival of Temu, with Shopee and Lazada restarting growth plans.
The normal-case scenario is where interest rates persist at the current elevated levels, infrastructure building remains the same, and Temu does not enter South-east Asia.
The worst-case scenario is where e-commerce players move their focus out of the region, and worsening capital markets with the US and China’s economy in trouble. This also assumes that the war in Ukraine gets worse, that there are surprises in regional elections, and infrastructure building gets delayed or cancelled.
“Ultimately, the end game might not be a steady state, but a result of continuously shifting currents and how leading platforms are able (or unable) to ride such currents,” said Momentum Works’ Li.
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