TikTok's survival story

The US e-commerce business has just been successfully launched, and the "ban" storm has re-emerged. Faced with this situation, TikTok Shop is also looking for other plans in 2024. TikTok Shop has a small store in the US and semi-closed-loop accounts in 8 countries. If it wants to expand into more markets, what are the chances of TikTok Shop's success?

TikTok has had a rough ride in the United States and is facing another change.

On March 13, local time, the U.S. House of Representatives quickly passed a new bill that could actually ban TikTok with an unbalanced vote of 352 to 65. Five days ago, a bill proposed and unanimously passed by the Energy and Commerce Committee of the U.S. House of Representatives required ByteDance to divest TikTok within about six months, otherwise the app would face a ban in the United States.

However, the bill has not yet been implemented and must be voted on and approved by the U.S. Senate before it can be submitted to the president for approval.

TikTok CEO Zhou Shouzi posted a video on TikTok saying, "If this bill is signed into law, it will lead to TikTok being banned in the United States... and will cause billions of dollars in losses to creators and small businesses, and 300,000 American jobs will be at risk."

Before this news came out, TikTok had been popular for half a year. This is because the US TikTok Shop experienced a significant growth in the second half of last year. If all goes well, the US TikTok Shop will become a major growth market outside of Indonesia.

Starting from September 2023, TikTok Shop in the US region "exploded". According to FastMoss data, during the "Black Friday" promotion last year, the GMV of TikTok Shop in the United States on a single day (November 24, 2023) exceeded 33 million US dollars.

The initial success in the United States has brought new opportunities to TikTok Shop. In 2024, TikTok's e-commerce business will expand and enter more developed markets.

In late February, the market reported that TikTok launched semi-closed loop trailer accounts in eight developed countries. Currently, the internal beta launch countries include Australia, France, Italy, Germany, Spain, Canada, Japan and South Korea. It is expected that more countries will be opened in the future, covering South America, Central Asia, Southeast Asia, New Zealand and other regions.

It is reported that in September 2021, TikTok and Shopify cooperated to launch a semi-closed-loop business. Shopify merchants with TikTok corporate accounts can add shopping tags (ie, "Little Yellow Car" external links) to TikTok short videos and live broadcasts, or they can put a showcase and URL on the homepage of the TikTok account. Users can click on the Little Yellow Car to jump to the brand's independent site to make transactions.

This feature was first launched in TikTok UK and US. Sellers regard TikTok semi-closed loop accounts as one of the channels for attracting traffic, just like investing in Facebook and Instagram to gain more external traffic for independent sites. For TikTok, semi-closed loop accounts can also sell goods, but it is more like a test of potential markets before the official opening of TikTok Shop.

The US e-commerce business has just been running smoothly, and the "ban" storm has re-emerged. Faced with this situation, TikTok Shop is also looking for other plans in 2024, such as replicating the successful experience in the US to developed markets such as Europe, Japan and South Korea. In addition, when e-commerce platforms such as Temu and Shein have achieved good results in Europe, TikTok Shop is not far behind.

1. TikTok Shop in the US explodes amid risks

Since the Trump era, the US government has been trying to "ban" TikTok, which has frequently sparked heated discussions around the world. This tug-of-war has lasted for several years, and for some time before that, US sellers were skeptical about whether to invest in TikTok Shop.

However, from the semi-closed loop TikTok accounts in the US to the small TikTok Shop stores in the US, many Chinese sellers have developed a calm mentality. Recently, Fay, a TikTok brand operator who sells well on Amazon in Shenzhen, told Xiaguangshe, "No matter who is in control, they will definitely not give up consumption scenarios like TikTok Shop."

But she believes that if TikTok is controlled by the United States, the entire ecosystem of TikTok Shop will be benchmarked against Amazon, on the one hand, it will be more inclined towards American consumers, and on the other hand, it will be stricter on Chinese merchants. "If the initiative (of TikTok) is in China, it will more or less give domestic merchants opportunities."

Danny, a manufacturer of Qingdao Flat Eyelashes Industrial Belt, started selling products through short videos on TikTok in the Southeast Asian market in June 2022, and entered the TikTok Shop US market in June 2023. He also owns multiple stores of three types: cross-border stores, ACCU stores, and local stores. He also told Xiaguangshe that he has become accustomed to the news that the United States wants to "ban" TikTok from time to time, and is not too worried.

However, from last year to now, TikTok Shop in the United States has been slow to open and the entry threshold is high, which is enough to show TikTok's cautious attitude towards the U.S. market.

TikTok Shop US stores have been tested since May 2023. Initially, only US local stores are allowed, that is, local qualifications such as US companies, US business licenses, US legal persons (Chinese shareholders do not exceed 25%), and US overseas warehouses and local shipments are required to open stores. "US stores require second, third, and fourth reviews, legal person face verification, warehouse photography, etc. There are many requirements and they are very strict," Danny pointed out.

Starting from July 2023, TikTok Shop's ACCU store in the United States will be open for occupancy. The so-called ACCU store, or "Chinese-funded American company cross-border store," is a U.S. company applied for by a Chinese legal person (Chinese hold more than 25% of the shares). The store has a U.S. business license, but also requires local warehousing and local delivery.

TikTok Shop's US ACCU stores and ordinary cross-border stores (application for Chinese business licenses) also have a specific requirement that "the annual sales GMV of the Amazon store is not less than 2 million US dollars" to specifically attract Amazon sellers to settle in.

Danny had previously worked in domestic Douyin e-commerce and had no experience in cross-border e-commerce. In order to enter the TikTok Shop US market, he found an emerging "agent" and opened a store using unreal information. In August 2023, he officially registered a batch of stores, but by October 2023, many stores were closed.

According to market news, in October 2023, TikTok Shop closed 400,000 stores in the United States. One reason was that the stores were non-compliant, such as incorrect information, and the other was that the stores violated discipline, such as shipping from virtual warehouses, brushing orders, and delivering goods that were not the same as the ones described.

At the end of last year, Danny found an Amazon seller friend to cooperate with, used real Amazon store transactions, and re-registered a store in the United States, and gradually entered a stable operating state.

He also pointed out a phenomenon that it is very difficult for Chinese sellers to use the "live streaming with goods" model in small stores in the United States. "If the live streaming is done a little better, there will be traffic restrictions, which will limit the traffic from China. I lost 300,000 yuan for this." He believes that TikTok is avoiding political risks. "The Americans don't really want the Chinese to make this money." Therefore, the company gave up the live streaming with goods model in stores and mainly cooperated with North American experts to sell goods through short videos.

The risk of "banning" TikTok continues to exist, but sellers in the US TikTok Shop are not leaving the market, which is related to the performance of TikTok Shop in the US market. Compared with Southeast Asia and the UK, the US TikTok Shop last year can be described as "explosive", and the data is more eye-catching.

When working in the Southeast Asian market, Danny did not open a TikTok Shop, but adopted the influencer model of the MCN agency to help other stores bring goods. "The Southeast Asian market is too competitive now, and we want to go to places with higher profits."

The United States is a high-profit market. From November 2023 to the present, Danny's weekly sales in the US range from $6,000 to $15,000. "To be honest, because the threshold is high, there are not many sellers in the US now, and there are not many in each field, so the competition is not that fierce, and the profit is very high. As long as the product is popular, it will sell well, and there is often a situation where there is not enough stock to sell. "

Toy seller Gigi entered TikTok e-commerce in 2022, starting with a small TikTok Shop store in the UK, then to a semi-closed loop account in the US, and now has also opened a small TikTok Shop store in the US.

Starting with the TikTok Shop UK cross-border store, Gigi’s team entered the TikTok social e-commerce track, but due to poor market data and small profits, after only one year, they withdrew from the UK market.

In the U.S. market, live broadcasts usually have hundreds of thousands of views. The team’s best live broadcast achieved sales of $15,000. “The United States (TikTok Shop) refreshes our cognition time and time again.” Less than half a year after the U.S. store opened, the team’s monthly sales have exceeded one million U.S. dollars.

Guosen Securities' in-depth e-commerce research series report "It's the right time for TikTok Shop to go global in the US" pointed out that the GMV ceiling of TikTok Shop is expected to be US$100 billion to US$200 billion. Based on an annual growth rate of 5% for online retail in the United States, TikTok's e-commerce share can reach 7% to 15%.

"It is expected that overseas regulation of TikTok will continue in the future, and TikTok Shop in the US will strengthen its ties with the local economy by introducing more local merchants and influencers to gain more bargaining chips."

2. Launching semi-closed-loop accounts in 8 countries and conducting global testing in developed markets

TikTok Shop wants to expand its business to more developed countries, and this task will be handed over to the "veterans" cross-border sellers who have gained the first wave of dividends in the United States.

Xiaguangshe has verified from various sources that TikTok's semi-closed-loop accounts in the above-mentioned eight countries have already started internal testing, and currently only some invited sellers have enabled this function.

At the end of February, Cheryl, founder of Kikstart Ecom, the official partner service provider of Shopify in Canada, told Xiaguangshe that she learned that semi-closed-loop accounts will soon be launched in Canada, but applications are not yet open.

Wang Yuqiao, founder of NOVOLOULAN, the official partner service provider of Shopify in Spain, also told Xiaguangshe that she learned that TikTok will launch a semi-closed loop account in Spain in the second quarter, but the specific opening time has not been determined.

At the end of February, Danny told Xiaguangshe that he submitted the application materials for a semi-closed loop account, but it was not reviewed and approved for more than a week.

He pointed out that the semi-closed loop requires a "white" account, that is, the TikTok corporate account of the independent station seller is added to the "white list" so that it can be listed on the "Little Yellow Car". "There are many requirements for white, such as advertising account turnover, such as an account that consumes more than $1,000 (delivery fee) per week for a consecutive week, to be eligible to apply." He said that this depends on the number of quotas available to the TikTok account manager. "If the seller (advertising) consumes more, it is better for him (the account manager), and he will keep your name."

Around March 8, Danny reported again that TikTok officially stopped approving semi-closed-loop accounts. "The official said it would be suspended for a while for adjustments, and it will probably be reopened after a while."

However, Danny also said that there is no rush to open up new markets, and that we should first "maintain the account" and "make the content of the account good before we can sell goods." In his view, the "TikTok+independent station" model is essentially not a transaction within the TikTok site, and the platform does not bear any responsibility. " (TikTok) wants us to go around and test the waters in these national markets. "

Starting from the end of February, Danny asked the anchors to "test broadcast" on the corresponding accounts. Later, the accounts could be "hooked up" and they could start selling goods.

Having just learned that TikTok will soon launch semi-closed-loop accounts in eight developed countries, Gigi applied for it immediately and made a dinner appointment with the TikTok account manager.

"Because of the good relationship with the account manager, our first batch of accounts ('Little Yellow Car') have been opened, which can cover these eight markets." She told Xiaguangshe that starting from February 23, semi-closed-loop accounts have been approved.

But similar to Danny, she also believes that there is no rush to "hook up" to sell goods, and one must first maintain the account. "I won't be in a hurry if I have an account, but it's not that fast. Right now, the profits of small stores in the US are considerable, and there is no need to divert my attention to some unknown markets. " She also pointed out that if the account weight is not built up, no matter how good the anchor is, he will not be able to sell goods.

At present, Xiaguangshe believes that sellers in the US region of TikTok Shop will become the first players in the eight countries in Europe, Japan and South Korea that it is about to expand. In other words, sellers who have run their business in the US market will directly help the TikTok Shop business and replicate their successful experience in these eight new markets.

3. Expanding into more markets, what are the chances of TikTok Shop’s success?

From a semi-closed loop to a fully closed loop, it took TikTok nearly three years to officially launch its e-commerce business in the United States.

As early as 2021, independent website sellers tested the TikTok e-commerce ecosystem in the United States through a semi-closed-loop model. In 2023, TikTok Shop in the United States was gradually opened. In September of the same year, TikTok closed its semi-closed-loop account in the United States and officially launched its closed-loop e-commerce business.

In China, Douyin and Taobao also cooperated in a semi-closed-loop e-commerce model before 2020. Douyin attracted traffic to Taobao stores and earned service fees and advertising fees from sellers. However, in October 2020, Douyin cut off Taobao's external links and started an in-site e-commerce closed-loop model, turning its partnership with Taobao into a competitor.

The transition from a semi-closed-loop account to a fully closed-loop e-commerce means a change in TikTok's role, from an advertising platform to an e-commerce platform, and this transition is not easy. Especially in today's volatile global situation, TikTok has already encountered "difficulties" from official policies in the US, Indonesia and the Middle East markets, and is unwilling to take risks easily, and has once again fallen into a passive situation.

Danny said frankly that due to political reasons, TikTok is in a tough situation in the United States. "TikTok may also want to test the attitudes of the governments of these countries (the eight countries mentioned above). If they are also very strict, the opening (of small stores) will be delayed; if the government acquiesces to the operation, it can continue to do (closed-loop e-commerce). "

Before the launch of TikTok Shop in the US, Gigi's team used TikTok's semi-closed-loop account to enter the US market.

She pointed out that the semi-closed-loop model is a transition model, and there is still a big gap between it and the fully closed-loop store, especially in terms of conversion rate. "From the click of the TikTok semi-closed-loop account to the independent website, there is no platform endorsement, but the transaction is completed directly in the TikTok store, customers will feel more assured, have a strong sense of trust, and the conversion rate will be very high."

Although the semi-closed-loop model is a test of the market, TikTok has cultivated the habit of users shopping in social scenarios in the United States. When TikTok Shop was launched, it immediately achieved explosive performance. However, whether the same path can be successfully repeated in Europe, Japan and South Korea needs to be questioned.

TikTok Shop has not been able to achieve economies of scale in the UK market.

Gigi said that when the UK market was good, a live broadcast would only sell for 1,000 to 2,000 pounds. "I remember when we did our first live broadcast, the number of viewers exceeded 10,000, which was an encouragement. But after a year in the UK, we didn't make much money."

In March last year, TikTok Shop changed its policy in the UK, requiring cross-border stores to prepare goods in advance. In view of the low profits and the sudden increase in costs, Gigi's team gave up the UK market. "The volume of the UK market is not increasing, and the market development is very slow. Many of the colleagues who started to do it at the time disappeared, and only a few survived. As soon as the US market opened, we immediately switched to the US market."

In terms of population base, the United States, with 170 million TikTok users, is unmatched by major European countries such as the United Kingdom, Germany, France, and Spain. In these countries with only tens of millions of people, it is difficult to develop the social e-commerce market.

Of course, there are precedents for Chinese cross-border e-commerce platforms to successfully enter the European market. According to statistics from ECDB, a German e-commerce data analysis platform, SHEIN's market share in the fast fashion brand field in Spain, Italy, and Greece exceeds 10%, becoming a mainstream brand in many major countries. In addition, Temu is seizing traffic in multiple markets, and AliExpress has become one of the top e-commerce platforms in Spain.

Because he has lived in Japan for 10 years and owns local companies and resources, Danny hopes that TikTok Shop will enter the Japanese market as soon as possible so that he can invest in both the US and Japanese markets at the same time, reducing risks while gaining more profits.

According to official information, TikTok Shop has set a GMV target of US$50 billion by 2024. In addition to Indonesia and the United States, it is time for TikTok Shop to expand into more markets, otherwise this year's ideal performance may fall through.

*Fay, Danny and Gigi are pseudonyms

Author: Yinting Hou, Editor: Weber

WeChat public account: Xiaguangshe