TikTok is betting its future on e-commerce. Should it?

Luckily for TikTok, Shop’s intrusion isn’t scaring users away. But questions remain: Should TikTok is pinning its future on shopping. Will it make enough money from its Shop feature to justify its dominant presence in the app?

From conversations with e-commerce analysts, TikTok Shop partners, merchants, and creators, it’s clear that Shop is growing steadily in the U.S. and generating significant sales for some brands. But third-party data and Shop partner testimonies paint a mixed picture for the first six months of the year. It’s not exactly a runaway success.

First, the good news: Shoppers are spending more on TikTok than they did at the beginning of the year. On average, U.S. users who made purchases on the TikTok Shop spent about $67 between mid-June and mid-July, compared with about $54 over a four-week period in January, according to Earnest Analytics, a research firm that tracks credit and debit card transactions.

Another bright spot for TikTok is user retention. Since launching, it has had a higher average repeat purchase rate than every major e-commerce platform except Amazon, according to Earnest data. TikTok Shop is also showing strong momentum in regions outside the U.S. that have embraced social shopping more, such as Southeast Asia. Its future success in the U.S. is not a foregone conclusion, however.

Order tracking platform Route saw global orders on TikTok Shop grow by a modest 35% between January and June. By comparison, Shein orders grew by 63% during the same period.

The TikTok app must overcome certain structural challenges to become a competitive e-commerce player.

For one, TikTok’s product sales often rely on viral videos from influencers, which are unpredictable. That makes the platform a tough sell for big brands that want to forecast potential revenue up front. For small sellers who made big bucks after a few videos went viral, the good times didn’t necessarily last. That can be frustrating.

“It’s almost impossible to stand out with an authentic brand story,” said one retailer. who saw a ton of sales on the TikTok store during the beta period last Apriltold Business Insider. “It’s become really saturated.”

TikTok trends also don’t guarantee sales on TikTok. Users sometimes click to buy products they see in a video elsewhere, rather than checkout through TikTok’s shopping cart, Shop partners told BI.

“It’s really not a platform for people who have the mindset of, ‘I’m going to come here and go viral and make a ton of sales,’” said Nicole Rechtszaid, co-founder of social commerce company Ghost Agency, a TikTok Shop partner. “It’s for those brands that are more innovative, that are willing to change direction, adapt, try new things, fail, and then rebuild and use new features and then grow.”

What’s Working in the TikTok Store

Well-planned promotional campaigns and live sales have boosted the growth of TikTok Shop this year, sources at BI told the agency.

Consistent discounts for buyers and sellers help drive first-time and repeat purchases. And in July, the company ran a Deals for You Days promotion that overlapped with Amazon Prime Day, leading to hundreds of thousands of videos featuring the campaign’s hashtag. A TikTok spokesperson told BI that beauty brands like L’Oréal Paris, Maybelline New York, and NYX Professional Makeup participated in the campaign.

Creators and sellers have also found success with livestream sales: Stormi Steele of Canvas Beauty and streamer Mandys Pena have both surpassed $1 million in livestream sales in the past two months, the spokesperson said.

“The most exciting space for us and our customers right now is live shopping,” Rechtszaid said. “We’re at a point where we’re getting about five to 10 different requests every week from brands that are interested in launching TikTok Shop Live.”

Live shopping could be a huge opportunity for TikTok in the U.S. if it follows the same trajectory as apps in Asia, where shoppers and influencers have embraced the format. TikTok’s sister app in China, Douyin, generated about $200 billion in sales in 2022, The Information reported. TikTok has hired a small army of outside coaches to help creators improve their live streaming performance.

“TikTok continues to prioritize that, and consumers are definitely starting to watch it,” even if those live streams don’t appear on your For You page, said Julian Reis, founder and CEO of e-commerce company and TikTok partner Shop Superordinary.

The biggest obstacles in front of the store

While new formats like live shopping promise to retain and keep customers, retaining merchants (and attracting new, bigger brands) may prove to be TikTok’s biggest challenge going forward, industry sources told BI.

TikTok sales often come in viral bursts, much like non-shopping video trends do on the app. These flashy moments can boost demand but don’t guarantee long-term revenue.

“Just because a product becomes popular doesn’t mean the entire brand becomes popular,” Reis said. “We see that product becoming popular and potentially selling millions of dollars, and the rest of the brand being left behind.”

Reis added that some brands have also criticized TikTok’s promotional discounts, which boost sales.

“Brands may have complained that TikTok’s prices were so low,” Reis said. “But what it did was create a new consumer behavior, and it was intentional.”

Not surprisingly, a potential U.S. sell-off or ban on TikTok also poses challenges for the company as it tries to attract new buyers.

“We saw a lot of merchants signing up to use the TikTok Shop right after it launched, but we saw a decline in the number of new merchants joining,” Michael Yamartino, CEO of Route, told BI. “For many of them, the realization that this is a channel that could go away is scary enough that they’re waiting and watching.”

For smaller, more nimble brands, Shop is still worth a try, even if TikTok’s future in the U.S. remains uncertain. The benefits of becoming a trendy product on the app could be life-changing for small businesses, even if that virality is fleeting.

However, no one should treat going viral as a business strategy.

“I still get questions about the ban to this day,” Rechtszaid said. “We simply recommend that all our clients use TikTok as a great brand awareness generator, and sales should be seen as an additional success for them.”