It wasn't hard to find around here, TRU, Children's Palace, Babbages, EB, pretty much all the places people here were going to get games at the time had it. Yet I still never met another person who had one other than on the internet.
I knew other people with Genesises, SNESes, and nearly everyone had NESes, but never a TG16.
I don't think you can discount the lack of 3rd party support as a factor. Other than Working Designs stuff, how many 3rd party games were there? It's almost as bad as Sega Master System (in the US anyway) on that part.
Add to that how it came out at roughly the same time as Genesis, yet had graphics and sound which, while a huge step up from the NES, were inferior to that one, and on top of that, if you want to play with your friends not only do you need a 2nd controller but a friggin multitap?
Speaking of controllers, while the NEC pads were nice, basically a slight refinement of the NES pads, the Genesis pads had a lot more "wow" factor, with the sleek curves and the additional action button. Sure when you really look at it they both had the same number of buttons, but select and run plus two action buttons just seems less cool than start plus three action buttons.
And while back in the day it wasn't as much of an issue as it would become a few years later, the lack of support for anything but an RF box for hooking it up to a TV was a major drag. Sure, there were turboboosters and the CD addon to correct this, but like the multitap it just felt like they were trying to nickle and dime you with the system. It's like buying a car and finding out the tires aren't included.