TikTok Shop also aligns with the products Gen Z consumers tend to purchase. An International Council of Shopping Centers (ICSC) survey released earlier this year found that 48% of Gen Z frequently shop at discount stores or off-price retailers, 25% often shop at dollar stores, and just 9% shop at luxury retailers.
Gen Z’s attitudes about the U.S. economy and their financial situations are driving shopping behaviors. A Bank of America study from last fall found that 73% of Gen Z claimed the economy was making it difficult to save money, and 56% reported inflation had put stress on their finances.
Despite the promising forecast on Gen Z shopping habits, TikTok and other social commerce platforms are facing headwinds. According to the eMarketer report, annual growth in new social buyers is declining and expected to level off in the 2% range by 2025. Growth in per-capita social commerce sales is also expected to decrease from the 20% range today to 16% in 2027. Given current market dynamics, double-digit growth in social commerce may only be sustainable for the short term.
On top of that, TikTok Shop is expected to lose $500 million this year as parent company ByteDance invests in staff and infrastructure. Rumors about the abundance of cheap products remain rampant, with strong evidence that some products may be counterfeit. In just one example, a TikTok seller listed a face serum as available for $5 while the manufacturer’s listed price was $25. A TikTok spokesperson could not confirm whether the discounted serum was real and heavily discounted or fake.
TikTok’s parent company, China-based ByteDance, also raises significant data privacy concerns. The company delayed the public availability of TikTok Shop, which requires payment information, for several months due to concerns the U.S. government would issue an outright ban of TikTok. To address this in part, the company has separated U.S. consumer data from other customer data and stored it on servers within Oracle’s U.S. Cloud infrastructure located in the U.S. Still, the House of Representatives voted on a nationwide TikTok ban as recently as March 2024, with its fate in the Senate to be determined.
Where is there opportunity?
You have to look at the secular trends in the industry to understand the opportunity ahead for social commerce.
Easy access to technology, low-cost capital and the human drive to create have contributed to the growth of startups. The “creator economy” is thriving and accelerated by the explosion of new products and services. According to Goldman Sachs, there are over 300 million content creators, and the creator economy is expected to reach $480 billion by 2027. If you believe in the entrepreneurial spirit and the prospects of the creator economy, you have to believe in the power of social commerce.
Social commerce has a compelling proposition for upcoming brands. Yet, it also must be recognized that great businesses and brands are not built through a single-dimensional engagement with the audience. While social commerce and TikTok may be a great starting point, building a sustainable business outside the “latest trend” is about finding your audience across all channels and engaging them across their journey of awareness, research and consideration.
