The Retail Economy Doesn't Rise Even though the TikTok Shop is Closed

Yesterday the government took drastic steps to limit TikTok Shop operations in the country. Minister of Trade Zulkifli Hasan will revise Minister of Trade Regulation no. 50 of 2020, so In commercial terms, social media is only permitted to facilitate the promotion of goods or services or advertise.

This has a wide impact, including limiting the movement of the TikTok Shop, which could be said to be a phenomenon in the e-commerce industry this year. TikTok Shop is allegedly the cause of the quietness of retail markets, including Tanah Abang. The popularity of TikTok Shop has skyrocketed, along with the increasing popularity of this social media platform among various groups, especially young people. The algorithm is considered better than similar platforms.

The massive promotions, or what is commonly called "burning money", carried out by TikTok Shop are considered to be disrupting MSME businesses and the Government is taking steps to "protect" them. Protection here must be underlined considering that sellers at TikTok Shop of course vary, from MSMEs to brand big.

At today's close, shares of Sea Ltd, owner of Shopee, immediately rose 11% on the New York Stock Exchange. Meanwhile GoTo, Tokopedia's parent, also rose 5%. TikTok Shop's two closest competitors have seen their market eroded because their focus is on pursuing profitability.

Of course the big question remains to be answered: Will the closure of the TikTok Shop make the economy vibrant again in the people's market??

World economic downturn

Globally, the economy is not doing well. During the pandemic, many countries printed money excessively to maintain the affected economy lockdown.

The side effects of this policy will begin to be felt in 2022, when inflation skyrockets and purchasing power continues to decline. Inflation that reached double digits forced policymakers in superpower economic countries to continue raising interest rates. Practically the value of money owned by people is not as good as before the pandemic.

World economic growth will still be at a slowing stage during 2023 / IMF

In 2023, conditions have improved slightly, especially with the end of the pandemic and mobility restrictions, but the snowball effect has resulted in systemic impacts. People are increasingly careful about spending their money on any needs.

Changes in shopping behavior

During mobility restrictions during the pandemic, it was easier for people to purchase various goods online. There has been a massive acceleration in e-commerce adoption. Retail stores, which have gradually begun to be displaced over the last 10 years, have been hit hard.

Various malls have become quieter. Not only in Indonesia, this also happens in the United States and China. Various shopping centers, both on the side of the road and inside the mall, are now no longer available tenant. The important thing is to have a distribution center to send goods directly to consumers.

Starting from the availability of e-commerce platforms, the convenience of online shopping became increasingly "smart" when TikTok entered this segment.

TikTok, with its smart algorithm, tries to read trends on social media and convert them into goods that consumers will apparently like. The result turned out spot-on. Consumers like the recommendations offered by TikTok, not only about promotions.

TikTok Shop has risen in a short time to become one of the leaders in the country's e-commerce industry. According to predictions Momentum Works, this year transactions (GMV) at TikTok Shop Southeast Asia reached $15 billion (Rp. 230 trillion) or the same as the market share of Tokopedia and Lazada.

The closure of the TikTok Shop could be a "blessing" for its competitors.

TikTok GMV Prediction in Southeast Asia / Momentum Works

Next step

The combination of the economic downturn, allocation priorities and changes in shopping behavior means that Tanah Abang is no longer busy. Before the pandemic, the fasting month was the golden age for clothing sellers in the Tanah Abang area. Traffic jams everywhere are commonplace. Now this condition no longer occurs.

Between people spending less in the clothing category (due to shopping priorities) or a shift in shopping behavior towards online convenience, the hustle and bustle of the retail economy has shifted.

It's not that consumers don't need the goods, but they feel more comfortable swiping while relaxing in their room. The concept of having to travel long distances and jostle to get your dream item is outdated.

Synergy between online platforms and retail traders must continue. They need each other. Training on how to sell, fulfillment, and even do live-shopping (if necessary) is a way of embracing new habits.

Everyone must adapt or die, because times and trends continue to change. The closure of the TikTok Shop is just a scapegoat, because the market will find a new balance and that will no longer happen in people's centers.