Behind TikTok’s consignment ecommerce model: Progressing amidst chaos and disorder?

This article was originally published in Chinese by Yao Dan of Leiphone, translated and republished with the author’s permission. You can refer to Momentum Works’ “The TikTok Shop Playbook” and “Who is Temu” reports for structured analysis and insights about these two companies mentioned in the article. You can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections. 

Read on!

 

“Couldn’t reach anyone for half a day, I have no idea what they have been doing.” – Supplier of TikTok Shop’s consignment model. 

In May this year, numerous suppliers joined TikTok Shop’s “全托管” (“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.

 

1. Chaotic process, lackluster sales, unhappy suppliers

One of the suppliers, Mr. Chen has witnessed the helplessness of suppliers in his category.

In the toy category of the consignment model, TikTok Shop has only one experienced team member. Most of the team members are new joiners, including the category leader who was parachuted in. 

These new joiners are unfamiliar with the workflow, forcing suppliers to operate in “self-service mode.”

The toy category is divided into several sub-purchasing team, and suppliers need to coordinate with multiple teams simultaneously, often realising they’ve engaged the wrong team after the interaction, causing confusion.

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 issues 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, 10.30am to 3pm 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. 

According to Mr. Zhang, one of the earliest batch of suppliers for TikTok Shop’s cross-border business in the UK, due to the requirement to complete contract renewal before August 1st, he had to transition his business from the UK cross-border shop model to the all-inclusive consignment model,  while having to deal with issues related to category misplacement concurrently.

When the goods were wrongly categorised, Mr. Zhang was not informed of the wrong categorisation by the supplier liaison team. Meanwhile,  the backend team has approved and placed orders for Mr. Zhang’s goods. Only after Mr. Zhang prepared the goods did he realise the goods were not listed on the platform. When he asked for an explanation, the supplier liaison team attributed the problem to the category misplacement. “You take your products back. I’ll resend the product request”, the liaison team suggested. 

“These orders are worth tens of thousands of RMB, and now I’m still waiting for them to be returned. After they return, I need to promote them again,” said Mr. Zhang. TikTok Shop could have developed a feature to allow sellers to modify their product categories, making relisting of goods easier. However, it didn’t, and instead returned the goods, which is a waste of both time and resources.

Apart from the back-and-forth, the average basket size of Mr. Zhang’s goods under the consignment models is priced around 50% lower than those under the marketplace model. Consequently, during the transition, the order volume of the cross border shop gradually decreased, and monthly GMV shrank to only 10% of its original value. He could barely make 10 RMB from a single order.

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.

A supplier on Temu, Mr. Huang, said that the same product often received thousands of orders on Temu, but on TikTok Shop the traffic was unstable, and he sold only dozens of products in a day, sometimes even none. Selling 100 products on TikTok was already considered impressive.

It’s commonly known that TikTok’s short videos and livestream models are significant selling points for sellers to get onboard. 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. 

Handle name

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.

Mr. Chen is also one of the suppliers who hasn’t received payment for old bills. He has accumulated more than ten thousand RMB of unpaid bills from June to July and hasn’t received a single cent from TikTok. He has been urging the team, who merely states that it’s under processing.

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 labor and time costs, compared to normal circumstances where platforms make automatic payments during settlement.

 

2. Lack of strategy, short-term-focused: Business progressing in chaos

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 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 frontend. 

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”. 

Tom, an early TikTok employee, attributed the emerging issues in Project S to a data-driven management approach.

Many frontline employees complain, “The bosses haven’t figured out how to proceed, they’re thinking every day, to the point that the executing teams don’t know what to do, and everyone is driven by short-term goals and targets.”

Management team doesn’t have clarity and many employees lacked experience in 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 ecommerce 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 ecommerce within its 1 billion monthly active users.

 

3. 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 ecommerce 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. 

According to sources, TikTok Shop has softly launched its marketplace in the US on a small scale, and has shown promising potential. 

Some suppliers noticed that the US marketplace has been prominently featured on TikTok’s homepage. This, combined with the exposure of supplier store names and logos, has led to a substantial increase in their traffic.

“Recently, the US marketplace has seen a surge in orders for popular products, to the point where official shipments can’t keep up, resulting in product shortages,” said supplier Mr. Chen, expressing both delight and concern. While he’s happy about the influx of orders, he’s worried about potential shortages leading to delisting.

Currently, major cross-border ecommerce 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 fulfillment, 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 ecommerce venture, the consignment model is a crucial battle and a pivotal weapon for penetrating the US market.

According to one of the TikTok Shop’s employees, TikTok places great emphasis on the consignment model project. Temu’s rapid growth has also exerted significant pressure on the leadership team. 

The consignment model project is led by Jenny, a seasoned veteran in TikTok. Jenny was previously responsible for TikTok Shop’s business in Southeast Asia and, before that, she reported to Chen Lin (陈林) in the ByteDance education division.

Regarding the array of issues facing TikTok Shop’s consignment model, the internal team is well aware and diligently working to patch any gaps.

One of the TikTok Shop employees revealed that, as the US site officially goes live, TikTok Shop is accelerating team integration and internal refinement, focusing on enhancing store visibility, contracts, taxes, compliance, and other details. Consequently, from the outside, TikTok Shop has not been overly aggressive in its consignment model business target. 

Simultaneously, the company is actively recruiting more suitable and business-savvy talents to help streamline operations swiftly.

TikTok Shop’s consignment project is primarily divided into two categories: apparel and non-apparel. The non-apparel category is led by former cross-border business head Shi Ben (石奔), while the apparel category is under the leadership of Zhang Qing (张庆), who recently transitioned from TikTok’s ecommerce apparel division. Both Shi Ben and Zhang Qing report to Jenny.

According to feedback from suppliers, the workflow of TikTok Shop’s consignment model has undergone significant improvements recently. Suppliers who hadn’t received payments are now receiving overdue payments for orders placed before August. Orders placed after August 1st are also being settled within approximately one day. 

Suppliers speculate that TikTok has streamlined the automatic payment process, moving away from manual processing.

Upon receiving payments, suppliers finally breathe a sigh of relief. The platform’s positive turnaround has rekindled their enthusiasm. For most suppliers, they remain optimistic about the prospects of TikTok Shop’s consignment model, particularly due to its potential to claim a share in the ecommerce market, driven by its massive user base of over a billion monthly active users.

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.

 

More insights

You can refer to Momentum Works’ “The TikTok Shop Playbook” and “Who is Temu” reports for structured analysis and insights about these two companies mentioned in the article.