TikTok Fulfillment Centers: A Gamble for Success

Will:
All right, everybody, we are back with another episode of Safety Stock. Dan Magida is right in front of me. I’m Will Davis. It’s great to have you, Dan. We’ve got a good episode today.

Dan:
Yeah, I’m, I’m excited for this one. Are you a TikTok user?

Will:
I am not. I only viewed ticks when my wife sends them to me and then I look at them, or I see them as they get put onto Instagram. But I have not taken the punch and joined TikTok. What about you?

Dan:
Yeah, I am not on TikTok, but maybe I’m compelled to get on TikTok after they haven’t fully announced it. But through postings on LinkedIn, it sounds like TikTok is entering the e-commerce world as our next progression into I guess monetizing after ad sales and wants to challenge Amazon directly for to fulfillment centers and product. Very, very interesting.

Will:
Dan. I’m surprised. If you told me, you know, a month ago that TikTok was going to open their own fulfillment centers to support their e-commerce business, I would be as surprised as I am now because I don’t get it. I’m curious in this sense of what signals did they have that led them to this position because not only are they entering into a new space, but they’re entering into a new space that is difficult to achieve. Like it’s one thing to partner, but they’ve just now said, we’re gonna do it on our own.

Dan:
Yeah, and, and it’s not like the, I mean, they’re on the ad side, so obviously influencers are going on to tote their products, but I haven’t seen anything that Facebook or Instagram has done that I think is more of a comp to TikTok that Amazon directly with that influencer based marketing approach of, Hey, let’s go up and up our own fulfillment center. Now you can buy directly off of Instagram, but that routes to most, mostly those product pages of those companies and then goes from their own distribution center, not controlled by Facebook or Meow, whatever we call it these days. Tick’s approach is gonna be let’s hold inventory on behalf of these brands and then set up our own fulfillment center. And it sounds like they want to create this from scratch as opposed to partnering with the many fulfillment centers out there, which, hey guys, well, you know, tons them, we can easily point in the right direction. You can help you with all these different skews, but the cap X cost to build this robust international warehousing, customs clearance, don’t want to get involved with that personally, rely on the experts return program, which I’ve experienced doing is a beast in itself. Also, what are you selling on TikTok? If it’s cosmetics, you really don’t wanna do a beau, you don’t really wanna do a return anyway, cuz that’s just not really compliant. So there’s just a lot to unpack here and I’m a little concerned that they’re going too far out there to start.

Will:
Yeah, I I think that I, they have to get to the point to where they’re saying from a liability perspective, when it comes to all that inventory, they’re going to have to hold at some point they’re gonna put that on the influencers or saying, Listen, if, if this doesn’t sell, you know, what’s the level of responsibility that they’re going to have to take or long deliveries, It’s like for them to pump as much money into what they’re going to have to do. Given that we know right now e-com space and fulfillment space in general is tight as it is. You know, there’s people are, you know, in the spots that you want to be in. So are they gonna build new places? Are they gonna buy from people that are already existing? That’s gonna be interesting to see. But if you’re an influencer, they’re probably pitching it to you as, yeah, this is another great avenue for you to make money, but if somebody doesn’t buy your stuff and you’re having to hold onto inventory, that’s what I’m interested in. Who’s holding the bag?

Dan:
Well, I, I actually, I think there’s two things I’m, I’m, I’m a little unsure of is, are these influencers promoting their own brands or are they promoting other brands that are out there? Like we’ve seen, like Jennifer Anton’s fa, well she has her own skincare brand, but her face is on a lot of different products already and she’s paid obviously as a spokesperson. But are these influencers doing their own launches? Because I don’t know, as a brand myself, if I would want to have TikTok hold my inventory, I would rather just go through my normal distribution center that’s already built out that you have a pulse check on. So I’m very curious cuz if it’s the one you mentioned first where it’s these influencers are gonna sell their products directly. Now they’re responsible for MOQs and forecasting like’s not gonna do that unless they’re buying these brands. But I don’t know, I I am very confused by this model cause that’s different than the Amazon approach cuz the brands are still responsible for inventory from selling on Amazon.

Will:
Right. But the interesting thing is, like with Amazon is that typically they’re partnering with people that are somewhat established. Yes. And so now you’re a new company or you’re not a new company, but you’re entering into a new space and you are possibly relying on people to push product whether they own it or push another brands product that they may have not done before. There’s just a lot of, there’s a lot of unknowns and I’m not necessarily saying that they’re not gonna execute because they’ve obviously had a meteoric rise when it comes to being relevant. And that makes a ton of sense, you know, and why not capitalize on it? Yep. It’s just, it’s just interesting that the level of difficulty it seems that they’re choosing is high across the board.

Dan:
No, exactly. And I think two things to call out, and this is from like Axios, is they’re not gonna enter the transportation space yet. Like Amazon, which is probably smart, like don’t do that yet. But the part of that’s interesting is that it, last year they began piloting a shopping feature through Shopify. So point of sale system. But Shopify in the past year plus has expanded their own fulfillment centers but also have kind of made it known that if you’re using Shopify, they want, Shopify wants you to use their fulfillment centers moving forward. So what does that mean Fort moving forward? Like if they’re using Shopify as the point of sale e-commerce platform, is Shopify gonna make them actually use their fulfillment centers or not? Cuz if not, then they’re gonna have to find something else to do those transactions. So it’s a really interesting, interesting thing here that I don’t know what’s gonna happen. I un cuz Shopify’s way closer to Amazon and that sense of putting their own fulfillment centers up cause they’ve already done it then TikTok is.

Will:
Yeah. and you know, I think for people out there too, if you’re, you know, if you’re never really given a thought about, you know, fulfillment centers and where after you’ve bought a product, how does that product get to you? I love them. I know you love fulfillment centers that I know, that I know. I think the one thing for people to think is that if you’re entering into a new space, if you’re going to sell something that’s totally new, that you’re a brand, you know, how do you typically go into it? You’re normally looking to say, All right, maybe I’m going to sell, you know, if I’m brand new and I haven’t sold something before, am I gonna sell 10,000? Am I gonna sell 50,000? You know, what’s that number that you’re not saying, All right, I’m gonna sell millions right away. But, you know, you’re easing into a number and then as you’re doing that, you’re building your process. I mean, that’s one way to look at it. What TikTok is doing is the complete opposite. They’re like, this thing is gonna be a giant hit. We need to do this in order to maximize revenue and we’re going to compete. You know, it would be equivalent to be like, if you’re a burger chain and you’re like, Hey, I’m competing with McDonald’s and Burger King and five guys, like right off the bat and you haven’t sold a burger before.

Dan:
Yep. Lot of headwinds coming their way. It’s just, and then the holiday season, they’re exploring it. You’re, you’re just gonna run into so many issues that, look, I hope they hire a great team to build this out, but I would pilot this with the existing fulfillment centers and understand the market before building my own. It’s just, there’s, there’s been a huge proliferation, fulfillment centers, many fulfillment centers over the last two years. And transportation, arms leverage those. They’re the experts.

Will:
And if you’re a brand and you’re looking for an introduction to someone who is a pretty well known player in the e-comm space, let us know. We have a lot of contacts both on the marketplace side for e-commerce and for people who can produce your product. Reach out to us at hello@anvyl.com. That’s A-N-V-Y-L.com and you might get a hold of Dan and he’ll tell you what to do. But until then, Dan, we’ll talk to him at the next episode.

Dan:
Yeah, maybe we’ll do a little tick for them for the next,

Will:
There you go. See you soon.