Behind TikTok’s consignment e-commerce model, progress amidst chaos and disorder?

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Today’s Publisher’s Parmesan talks about whether TikTok Shop’s consignment model can match Temu’s trajectory and achieve a similar level of success

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Behind TikTok’s consignment e-commerce model, progress amidst chaos and disorder?

Disclaimer: This article was originally published in Chinese by Yao Dan of Leiphone.

TikTok Shop’s “Project S” generated a lot of buzz in markets as well as across the large seller community in China. The consignment model is initially available in the Middle East and UK - with plans to expand to the US (i.e., no plans for Indonesia).

In May this year, numerous suppliers joined TikTok Shop’s (“fully managed” or “all-inclusive”) consignment model with high hopes and full confidence. However, in just a short two to three months, their enthusiasm has dwindled significantly amidst a series of chaotic situations.

After launching the all-inclusive consignment model, TikTok Shop frequently collaborated with cross-border enablers, service providers and institutions to host online and offline seller onboarding events. They dispatched a team of over 100 people from the purchasing team (like eagles soaring across the country’s industrial zones) to search for suitable suppliers.

During these events, TikTok Shop’s purchasing managers passionately emphasised to suppliers that its all-inclusive consignment model had large traffic, a short payment settlement period, and was hassle-free. Many attendees were eager to try and enthusiastic to hear, including suppliers from Temu, SHEIN, and AliExpress.

However, when the suppliers finally settled in, they discovered that TikTok Shop’s all-inclusive consignment model was not as splendid as they had heard. The supplier liaison teams seemed hastily assembled and were quite unfamiliar; the backend processes and mechanisms were far from perfect; the traffic on the platform was unstable, with product sales fluctuating and unpredictable; and even if products were sold, the payment settlement cycle was long.

While some major sellers have dedicated official liaison teams for personalised support and prompt issue resolution, many small and medium-sized suppliers were left without proper guidance and assistance for extended periods. There were even instances where some Temu suppliers attempted to join but struggled to get in touch with the relevant team, ultimately having to return disappointed.

Chaotic process, lacklustre sales, unhappy suppliers

Upon joining, suppliers receive numerous documents related to the consignment model, but no one is there to provide explanations. Suppliers must read through these documents word by word. When issues arise, suppliers can only communicate the problems or provide feedback in the official communication groups (where there are hundreds of people). However, they often don’t receive timely responses from the TikTok Shop team, so suppliers have to help each other.

In contrast, SHEIN holds regular live broadcasts every Monday to Friday, 10.30 AM to 3 PM to explain the basic supplier operations. This greatly benefits new suppliers.

TikTok Shop is in its early stages and faces a shortage of SKUs. Thus, in certain categories, they require the suppliers to list over 50 products before they can provide an official contract.

Although suppliers push/ promote large quantities of products, the classification of products on the platform stops at the secondary level, which results in a lack of diverse and clear product categorisation. Besides, there are often bugs in TikTok Shop’s backend. Suppliers often need to perform certain actions repeatedly before products are uploaded successfully.

On other platforms, you can easily scale your product sales through low prices, but this isn’t always effective on TikTok Shop. Many suppliers have found TikTok Shop’s traffic unstable, resulting in poor product sales. As such, some products were very popular on Temu but not necessarily on TikTok Shop.

It’s commonly known that TikTok’s short videos and livestream models are significant selling points for sellers to get on board. However, not everyone / every influencer can promote consignment goods; only a few MCNs are authorised to promote consignment goods, and the process is relatively complex.

Suppose an organisation wants to promote consignment goods, it must first submit its account’s UserID and Handle name (for example if the name is @abcd). Then, official personnel will open a directional plan for specific products on the account, followed by approval. This process can take nearly ten days before the approval to promote consignment goods. The same thing applies to local influencers, this process is very complex and lengthy.

Furthermore, commissions for influencers to promote consignment goods in the UK and the US are exceptionally low, fixed at 10%. In contrast, commissions for the general marketplace model range from 15% to 25%. As a result, influencers are not willing to promote consignment goods. Unless it is officially promoted (by TikTok), the traffic for less popular categories on TikTok Shop is virtually nonexistent.

As many suppliers complained about the low traffic for consignment goods, some suppliers were authorised to promote the goods themselves. Alternatively, TikTok allowed certain suppliers to create product videos for the platform themselves.

Several industry practitioners believe that having suppliers solve the traffic issue by themselves essentially reverts to the old model, where suppliers are required to participate in front-end traffic operations. This is contrary to the consignment model as promoted, with less flexibility and profitability.

While suppliers might be able to accept traffic issues, what ultimately dampens suppliers’ enthusiasm and confidence is the delayed payments.

Many suppliers reported that TikTok Shop’s payment cycle under the consignment model is long, which is inconsistent with the bi-monthly settlement during the supplier onboarding event. Some suppliers still haven’t received payments after two months, which is slower than TikTok’s marketplace settlement.

The key reason, according to suppliers, is due to TikTok Shop’s misunderstanding of corporate account tax issues.

Based on the seller’s business license, small-scale taxpayers should pay only one tax point, but TikTok Shop initially requested three tax points. The mismatched tax points slowed down the payment speed for some suppliers.

Under TikTok Shop’s consignment model, payment settlement falls under three cases: companies with corporate accounts, companies with personal accounts, and individuals with personal accounts. Corporations using personal accounts must link with LianLian International Payment, which has a 0.7% to 1.2% withdrawal fee.

Therefore, until August 1st, TikTok Shop’s consignment model relied on TikTok doing manual transfers to suppliers, which costs a lot of labour and time costs, compared to normal circumstances where platforms make automatic payments during settlement.

Lack of strategy, short-term-focused

TikTok Shop’s consignment venture seems underprepared and hastily launched. However, in reality, TikTok Shop’s consignment project has been on trial for over a year. The precursor to TikTok Shop’s consignment model, known as IfYooou, dates back to the end of 2021.

ByteDance invested $100 million in IfYooou, aiming to rival SHEIN. Led by ByteDance veteran Di Minxia (狄敏霞), who previously oversaw South China operations for Toutiao. IfYooou project, however, didn’t go well and Di Minxia retired.

Last year, TikTok Shop evolved from IfYooou, initially piloting its consignment model in Saudi Arabia, and later going live in February. IfYooou employees were among those participating in the launch of the consignment model in Saudi Arabia. Later, coinciding with the Ramadan month, the business grew rapidly.

With the success in Saudi Arabia, TikTok Shop formally launched a consignment model (i.e., Project S) in April-May, resulting in significant organisational changes.

Initially, TikTok Shop benchmarked itself to SHEIN, downplaying the concept of ‘storefronts’, which means, users wouldn’t see supplier names behind the products.

However, with the rise of Temu, TikTok Shop pivoted towards Temu’s model.

TikTok Shop’s leadership announced during an internal meeting in May that Project S will fully emulate Temu, including by stocking and selling the same viral/ top-selling products.

Like Temu, TikTok Shop began emphasising the concept of ‘storefronts’. This means that in the recently launched interface, supplier names and logos will be shown in the front end.

This shift reflects a lack of business understanding and strategic judgment from the management. They are imitating successful models without a clear vision, leading to an “awkward amalgamation”.

The management team didn’t have clarity and many employees lacked experience in the consignment model, which contributed to the project’s chaos.

Despite almost two weeks of training, employees joining Project S must juggle multiple tasks like supplier communication, product selection, quality checks, and order tracking, causing difficulties in resolving issues quickly.

As a result, the team often leaned on daily GMV data, becoming trapped in short-term thinking.

Contrastingly, Temu has a top-down management approach and strong organizational efficiency which allow for better execution. The management has a clear direction and framework, and the lower-level team is responsible for execution.

In TikTok Shop’s consignment model, sellers’ sales fell short of expectations due to confusion over internal processes, as well as the attributes of the platform itself.

According to people familiar with TikTok, although TikTok boasts 1 billion monthly active users, which looks promising, this is all the traffic it can have.

In contrast, Temu can tap into a global audience across all platforms, including Facebook, YouTube, and Google. Facebook alone can provide 2 billion monthly active users for Temu.

While TikTok can buy traffic, at its core, it is a content platform. This means that for the traffic it acquires, it needs a layer of conversion to convert this traffic into e-commerce buyers. This results in lower conversion rates.

For instance, in Saudi Arabia, despite having similar daily active users as SHEIN, SHEIN’s GMV could be 100 times that of TikTok Shop’s consignment model.

The issue of traffic distribution has trapped data-driven TikTok e-commerce within its 1 billion monthly active users.

Overcoming shortcomings and progressing steadily, the US market might become a turning point

Currently, TikTok Shop’s consignment model is only available in Saudi Arabia and the UK, with 10,000 to 20,000 registered suppliers and over 100,000 SKUs.

Internally, the core metric for TikTok Shop’s consignment model is the daily average GMV. Currently, the daily average GMV of TikTok Shop’s consignment model is $600,000, far from Temu’s $3 million daily average just two months after its launch. However, the management team of TikTok Shop remains unfazed.

This is because TikTok Shop’s consignment model is yet to be fully launched in the US, which holds the largest share of the global e-commerce market. Given that TikTok’s consignment model has yet to expand into the US market, its current performance, objectively speaking, is not that bad.

Experts attribute Temu’s early success in the US to the timing of its launch, which happens in time for the US Black Friday. Therefore, similarly, TikTok Shop’s true capabilities need to be assessed based on its performance during Black Friday.

Currently, major cross-border e-commerce platforms are advocating for an all-inclusive consignment model. The advantage of this model lies in its ability to ensure supplier quality and consistency in fulfilment, all while striking a better balance between user experience and cost than Amazon’s FBA model. Additionally, the all-inclusive consignment model helps platforms effectively mitigate policy risks.

For TikTok’s e-commerce venture, the consignment model is a crucial battle and a pivotal weapon for penetrating the US market.

Whether TikTok Shop’s consignment model can match Temu’s trajectory and achieve a similar level of success remains to be seen and will require further observation once the US site is fully operational.

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