Gen Z’s TikTok-Driven Spending and the Erosion of Traditional UK Retail Margins

The UK retail landscape is undergoing a seismic shift as Gen Z’s TikTok-driven spending habits redefine consumer behavior. With £360 billion in disposable income, this generation prioritizes sustainability, digital-first experiences, and viral trends, creating a stark divide between high-street retailers and shoppertainment-focused platforms like TikTok Shop. By 2025, Gen Z’s purchasing power is projected to grow to $12 trillion globally, with 70% of UK users discovering brands on TikTok rather than Google [1]. This shift is not just cultural—it’s financial, eroding traditional retail margins while fueling the rise of digital-first e-commerce.

The TikTok Shoppertainment Revolution

TikTok Shop has become the UK’s fastest-growing online retailer, with 300% year-over-year sales growth in 2024 [5]. Its success lies in blending entertainment with commerce: shoppable videos, live-stream shopping, and influencer-driven content create a “shoppertainment” model that resonates with Gen Z. For example, collectibles like POP MART The Monsters Vinyl Toys generated 1.1 billion video views, while comfort-driven denim brands like RELA RELA saw a 27% sales boost via TikTok LIVE [4]. The platform’s algorithm prioritizes engagement metrics like replays and comments, enabling brands to capitalize on real-time trends.

This model contrasts sharply with traditional retail, which struggles with declining foot traffic and high operational costs. High-street retailers face an average labor cost increase of 8.1% year-on-year, compounded by rising minimum wages and National Insurance Contributions [6]. Meanwhile, TikTok Shop’s low setup costs and viral scalability allow even small businesses to compete with established brands.

Return Culture and Profit Margins: A Tale of Two Models

Return rates and policies highlight the financial divergence between TikTok Shop and high-street retailers. While TikTok Shop offers a 30-day return window and seller-funded refunds for change-of-mind returns [3], traditional retailers grapple with a 20.4% average e-commerce return rate, driven by bracketing behavior and lenient policies [6]. Apparel and footwear, in particular, face return rates of 12.2% and 9.1%, respectively, due to fit issues [6].

High-street retailers also contend with £27 billion in annual returns from serial returners, a costly burden exacerbated by inflation and wage hikes [3]. In contrast, TikTok Shop’s high engagement—50% of live viewers make purchases during sessions—suggests lower return rates due to targeted, impulse-driven buying [5]. While exact return data for TikTok Shop remains elusive, its viral marketing and influencer partnerships foster customer loyalty, reducing post-purchase regret.

Strategic Investment Implications

The erosion of traditional retail margins underscores the need for capital reallocation toward adaptive digital commerce players. TikTok Shop’s integration of AI-driven personalization, buy-now-pay-later services, and omnichannel flexibility aligns with Gen Z’s demand for seamless, value-driven experiences [2]. Brands leveraging TikTok’s creator economy—such as Wonderskin (one lip stain sold every five seconds) and Labubu vinyl toys—demonstrate the platform’s ability to drive hyper-conversion [5].

High-street retailers, meanwhile, face a dual challenge: adapting to Gen Z’s sustainability preferences (80% buy second-hand) [1] while managing operational costs that now consume 8.1% of revenue [6]. Those that fail to integrate digital-first strategies risk further margin compression.

Conclusion

Gen Z’s TikTok-driven spending is not a passing trend but a structural shift in retail. As return cultures and operational costs widen the gap between digital-first platforms and legacy retailers, investors must prioritize shoppertainment-focused e-commerce. TikTok Shop’s viral scalability, low-cost model, and alignment with Gen Z values position it as a cornerstone of the future retail ecosystem.

Source:
[1] UK Lifestyles of Generation Z Consumer Report 2025 [https://store.mintel.com/report/uk-lifestyles-of-generation-z-market-report]
[2] Gen Z-Driven Consumer Shifts and Their Implications for Retail [https://www.ainvest.com/news/gen-driven-consumer-shifts-implications-retail-commerce-sectors-2508]
[3] The Cost of Serial Returners in 2024 [https://www.retaileconomics.co.uk/retail-insights/thought-leadership-reports/the-cost-of-serial-returners-in-2024-zigzag-retail-economics]
[4] TikTok reveals the biggest shopping trends of 2025 so far [https://newsroom.tiktok.com/en-gb/tiktok-shopping-report]
[5] TikTok Shop UK 2025 Trend Report [https://beautymatter.com/articles/tiktok-shop-uk-2025-trend-report]
[6] Spotlight: Shopping Centre and High Street – Q2 2025 [https://www.savills.com/research_articles/255800/379775-0]