Research From Consumer Retail Team

• Vendors’ 4Q23 sales through Douyin up 15%–20% yy, deteriorating vs. 3Q23 for 7 of 12 and below plan for 9 of 19 (vs. 5 of 16 in 3Q23)
• Brands shifted focus back to BABA’s Tmall, PDD during Singles’ Day, advertised more though Tencent’s (700 HK) Shipinhao or Xingyin’s Little Red Book; only 3 of 15 vendors added marketing budgets qq for Douyin (vs. 6 of 14 in 3Q23)
• Livestreaming sales momentum losing steam; sales per livestreaming show up yy for 6 of 13 (vs. 13 of 16 in 3Q23)
• Vendors’ outlook on 2024 cautious, given sluggish consumer and slowing momentum in livestreaming sales

Growth Moderates, Outlook Cautious

Sales: Vendors’ sales through ByteDance Ltd.’s Douyin increased an average 15%–20% yy during 4Q23, decelerating from 3Q23 for seven of 12 sources and improving for four. Despite lapping an easy comparison — widespread infection had caused a shortage of labor that severely disrupted logistics in December 2022 — five of 17 vendors reported a sales decrease yy in 4Q23. “During 4Q23, daily sales Douyin Little Store were poor. In the first half of last year, our sales were still very high. But it has been difficult to increase sales since the second half of last year. If you want to achieve higher sales, promotional costs are very high,” a vendor said.

Sales compared with plan also weakened, falling below for nine of 19 vendors during 4Q23, compared with five of 16 falling below in OTR Gobal’s September note on 3Q23. In addition to overall weak consumer spending, most of the sources who fell below plan said traffic dropped significantly because their marketing budgets were down, caused by sources’ own internal restructuring or reduced resources on Douyin in response to low ROI. “Our sales on Douyin decreased a surprisingly big number in 4Q23,” an electronics brand source said. “Our company reduced the marketing budget a lot for Douyin in 4Q23, due to poor ROI. Besides, Douyin is not spending on 3C categories. And our management team began to regroup operation teams for ecommerce, which also hurt sales.” An apparel vendor said, “Daily sales of our Douyin Little Store is about one to two million yuan, which was down quite significantly [yy] already. The traffic of our store is declining, and it’s difficult to operate. We need to spend a lot on advertising to boost traffic for each livestream.” A few sources said price competition from traditional ecommerce also hurt sales on Douyin. A large apparel brand said, “During this year’s Singles’ Day promotion, every ecommerce platform demanded the lowest price on their platform, otherwise we would not get enough support from them. So, we chose [Alibaba Group Holding Ltd.’s] Tmall as the most important platform for our brand, and we basically gave up on Douyin this quarter.”

Several big brands expressed disappointment with Douyin ecommerce. In addition to its low ROI, the big fluctuation in traffic was also a concern. “Traffic changes too much on Douyin — sometimes very high, sometimes really low, and it’s not always explained by advertisement spending or livestreaming hosts’ popularity. It’s hard to operate stores like this,” a vendor said. Most bigger brands  offered the same products for the same price on Douyin, Tmall and JD.com Inc., but the products that sold through on Douyin were lower priced ones because consumers on Douyin, who largely made impulsive purchases, were mainly attracted by low prices. However, impulse purchases also led to higher return rates and more after-sales service costs.

Douyin Mall: Exposure for Douyin Mall continues to grow, aided by frequent couponing, constant marketing and advertising, and deep discounts and links from livestreaming shows. Vendors’ sales through Douyin Mall represented an average 20%–25% of their total sales through Douyin, compared with 18%–23% in 3Q23; five of 11 repeat vendors said their mix of sales on Douyin Mall was higher than in the September report. However, another five each said sales on Douyin Mall were the same and lower compared with September and organic growth of Douyin Mall would remain a question if Douyin’s support get less aggressive. “Douyin continues to support its Mall and released numerous promotions to vendors. But we still put more resources on livestreaming — we don’t think many consumers will go to Douyin Mall if there is no livestreaming sales links to it,” one said. Vendors’ sales on Douyin Mall were up yy for 11 of 15 sources, a deterioration compared with all 12 in 3Q23.

Livestreaming Sales: Six of 13 sources said livestreaming sales per show on Douyin increased yy during 4Q23, a deterioration compared with 13 of 16 in 3Q23. A few sources said even if livestreaming traffic increased, sales still declined because the conversion rate was low. Some said consumers might be tiring of livestreaming sales and some noticed consumers are comparing prices even in livestreaming rooms instead of impulsively purchasing. One said, “We did not work with too many top KOLs on Douyin and the sales per show decreased [yy]. I believe sales would have decreased anyway, no matter which KOL we worked with. Livestreaming sales decreased on every platform [during 4Q23].” Another said, “We believe livestreaming sales are coming to the turning point and short video could be more important for Douyin in 2024.” 

Market Share: Douyin gained share from traditional ecommerce platforms during 4Q23 for 17 of 19 sources, compared with 11 of 16 in 3Q23. Similar to 3Q23, 11 sources said Douyin gained share from Tmall and Taobao, which were still struggling with traffic loss and internal reconstruction. However, because of the low ROI from Douyin ads, big brands shifted some budgets to Tmall, Taobao, JD and other social media platforms including Tencent Holdings Ltd.’s (700 HK) Shipinhao or Shanghai Xingyin Information Technology Co. Ltd.’s Red (Little Red Book) for the Singles’ Day promotion. Therefore, only four of 16 sources said Douyin gained advertisement budget share from other ecommerce platform, compared with six of 14 in 3Q23. Eight sources maintained their advertisement budget on Douyin, and four sources said Douyin lost marketing budget to Red or PDD Holdings Inc.’s Pinduoduo.

Advertising Costs: Vendors allocated an average 44%–49% of their total 4Q23 ecommerce advertising budget to Douyin, as in 3Q23. Only three of 16 sources allocated a higher portion of advertisement budget to Douyin qq compared with other ecommerce platforms. In 3Q23, only five of 14 had allocated more to Douyin qq. Bigger brands in particular reallocated marketing and promotional budgets to traditional ecommerce platforms and other social media platforms because of low ROI of Douyin. One said, “Douyin ecommerce momentum is weaker now, and we moved some investment back to Pinduoduo. Douyin’s marketing and promotional budget share is about 35%, while Pinduoduo is more than 50%.”

Vendors’ total cost paid to Douyin was an average 15%–20% of sales during 4Q23, as in 3Q23. Douyin’s advertisement ROI remained at a low level, all but two fell between 1:1 to 3:1, and most vendors were not satisfied with the ROI. A large brand source who just reduced a big portion of their advertising budget on Douyin said, “ROI decreased from last quarter though we did lower our spending. We are not satisfied with ROI.”

Outlook: Vendors expressed a more cautious outlook compared with three months ago, because of their disappointment in the economic recovery, sluggish consumer spending, as well as the softness in Douyin’s ecommerce momentum. Thirteen of 18 vendors expect their 1Q24 sales through Douyin to be up yy . “We only expect Douyin sales to be up 10% [yy] as traffic growth has already reached the ceiling on Douyin and it is already too commercialized,” one said. Nine of 19 expect consumers to become more cautious on consumption in 2024, based on current weakness and lack of consumer confidence. Thirteen of 19 expect consumers to trade down in 2024 and five expect no change. One said, “We do not expect consumer spending to come back to pre-pandemic levels in 2024 as the macro economy will continue to be very challenging, but we don’t expect consumer will continue to trade down, especially the middle and upper middle class as they are going to spend on good quality and good brands.”

Additional Quotes
“In 4Q22, sales were OK since people relied on ecommerce heavily because of COVID. [Our] 4Q23 sales decreased [yy] as traffic dropped and the overall market were sluggish.”

“Douyin increased very fast and gained a lot of share from Taobao and Pinduoduo, but now momentum is slowing. For many consumers, Douyin is not a professional ecommerce platform, not like Pinduoduo.”

“Our livestreaming sales per show are unchanged [yy]. Although we have purchased traffic and increased our exposure, traffic conversion is not particularly accurate and efficient — new consumers have not increased significantly.”

“I’m not too optimistic about 2024. Consumption in 2023 was weak, and consumers are more picky.”