On 1 June 2020, POP MART, a Chinese toy distributor, applied for listing with the Hong Kong Stock Exchange.

But it seems inaccurate to define it as a “toy distributor.” Over the past few years, POP MART has become a representative of the designer toy market in China. It both sells and produces toys and also holds toy exhibitions in China.

According to the prospectus, between 2017 and 2019, the company’s revenue was $158 million, $515 million and $1.683 billion, up more than 225 percent year-on-year for two consecutive years.

What is the secret of this company’s success?

From selling toys to making toys

For overseas consumers, you may not have heard of PopMart, but you may have seen the company’s best-selling products – Molly and Dimoo – while picking out toys for your kids or decorations for yourself.

The offline storefront of PopMart

Ning Wang, the founder and CEO of PopMart, talks about how Popmart was just a grocery channeler selling groceries, digital products, and stationery at its very begining. He later discovered that a Sonny Angle toy they represented from Japan could account for 30 percent of sales. So they began to study the user portrait and psychological logic behind these toys, hoping to introduce more similar products for sale.

But there weren’t that many similar collectibles on the market at the time, so they decided to start making it by themselves. From there, PopMart began its transformation from a retailer to a branded company.

Sonny Angle inspired Ning to look for not only the cuddliest but also the most distinctive design in the toy market. So, they found Molly.

To this day, Molly is still PopMart`s best product. In its earnings report, Molly generated 27.1% of its revenue in 2019.

Molly’s image is attributed to Hong Kong designer Kenny Wang, and around 2015, Ning visited Kenny Wang’s design studio, where Kenny introduced him to some of Molly’s styles and told him that each one sold well, “some sold 50, some sold 60.”

Ning judged the Molly of the period to be well known in the industry and on the verge of commercialization, describing his “encounter with Kenny Wang” as “meeting Jay Zhou from the bar.” As a commodity, he believes Molly would eventually sell 5 million or 6 million units, not 50 or 60.

Ning wasted no time in praising Kenny Wang’s design talent, saying in an interview that the success of the Molly-related toys was largely due to Kenny’s constant creativity. The original Molly was a pouting painter with a disdainful expression on her face. However, many pop culture elements began to join in, such as the Constellation series, the Princess series, and the Journey to the West series.

Looking back, what Molly and PopMart had done were mutually successful.

Molly was born in 2005 but was never commercialized on a large scale until it met PopMart. PopMart was founded in 2010 and remained in the red until 2017 when it acquired Molly`s authorization and began selling related toys.

Designer toys are hot in China

According to a report by Forrest Sullivan, China’s designer toy retail market is growing rapidly, increasing from 6.3 billion yuan in 2015 to 20.7 billion yuan in 2019, a compound annual growth rate of 34.6%, and is expected to increase to 76.3 billion yuan in 2024, a compound annual growth rate of 29.8%.

On the double 11 Shopping Day 2018, PopMart sold more than 27 million yuan in toys designed to be toys on Tmall, and in 2019 that number rose to 82.12 million yuan, surpassing traditionally well-known manufacturers like LEGO and BANDAI.

Even without these numbers, you can feel the heat of the Chinese market. A search on Weibo with designer toys as a keyword yielded over 50 pages of search results.

On China’s second-hand goods trading platform, XianYu, you can find tens of thousands of items from different sellers by searching with art toys as keywords. According to reports, there were more than 300,000 second-hand transactions on XianYu about artist toys in 2018. Some second-hand traders were earning more than 100,000 yuan just by trading these toys.

How to explain this trend? There are roughly two reasons for this.

Ning compares designer toys to “ice cream” or “chocolate” or “flowers”.

Most of the people who buy collectibles are young adults, and toys are not a necessity for them, just as chocolate is not a daily necessity for us. At the same time, it’s a huge market, and many customers who like it will keep buying.

In China, designer toys are sold in a controversial “gambling style,” so they are often called “blind boxes.”

This sales model means that consumers can only choose the series they buy, but have no way of knowing which specific model they will get until they open the box.

If there are six different looks for a particular series, you need to buy them at least six times, which is nearly impossible, to collect them all. Typically, the more consumers buy, the more likely they will get the product they already have.

But Ning doesn’t think it’s unethical. Instead, he believes it solves a long-standing problem in retail.

He claimed in the interview that if you already had many jeans, you won’t buy jeans anymore, and you won’t be happy with a new pair of jeans, but that was not the case with the blind box.

“You may find that many people will experience emotional swings when unpacking the blind box. They were either surprised or lost, and this strong emotion is brought on outside the commodity. What we sell through the blind box is emotion.”

Another factor in the booming designer toy market is the increased purchasing power of China’s youth.

China’s post-90s were born at the end of a period of economic poverty in China. They all had experiences that wanted to buy toys but couldn’t when they were young. As this group began to have a decent income, they started to buy toys with a vengeance.

Before PopMart, there was few adults in China buying toys for themselves, and the buyers tended to be men. Ning said that he had previously attended a buyer’s party for art toys and found only one woman out of 10 people present.

“They (males) generally buy toys that are derivatives of anime such as GUNDAM, Pokémon, or King of the Sea. But PopMart’s launch of the indie-image toy allows it to be embraced by a broader range of consumers – especially women – by keeping it out of the hands of a specific anime fan base.”

According to prospectus, the seventy-five percent of PopMart’s consumers were women, and they were mostly concentrated between the ages of 18 and 35. Among the high-value users were 26 – 27-year-olds, who had started a long career of 2~3 years and had enough income to support them to follow the trend.

Controversy: “blind box,” obsolescence and plagiarism

While China’s designer toy market is expanding rapidly, PopMart isn’t the only player in this market. Its business isn’t entirely without weaknesses.

Some experts in China believe that the “blind box” sales model is not conducive to the development of good consumption habits among minors. Although PopMart does not target the underage market, it is virtually impossible to exclude children from the consumer base due to its cute toy image.

This sales model is expensive and unhealthy, even for adults. Including PopMart, the “Blind Box” typically sells for 60-80 RMB (about $8.43-$11.24) in China. That’s about the price of two lunches for white-collar workers in first-tier Chinese cities.

In addition, as mentioned earlier, collecting a whole series of art toy often requires multiple repeat purchases, which makes the total expense rise significantly. According to one enthusiast in the interview, those with more than 100 toys are not in the minority in the circle of designer toy enthusiasts.

Thanks to the boom in second-hand trading, some young people became professional toy traders who went long or short on toys like stocks.

This makes some people make much money and makes some people completely bankrupt. It sounds ridiculous, but China’s previous second-hand trade in sneakers has triggered a small-scale financial crisis and caused many people to lose millions of yuan. If the second-hand market of designer toys develops further, the same phenomenon may occur.

On the other hand, although PopMart has completed its transition from a toy seller to a toy manufacturer, but as a toy manufacturer, its business is not as stable as it seems.

PopMart’s most famous series, Molly, is a cuddly villain that exists only in the realm of toys. Unlike other IPs such as Mickey Mouse, Pokemon, Gundam, and My Little Pony, it has no film or television work and no games. This means that there is no way for it to spread among a wider range of potential customers.

If Molly became obsolete and no longer fashionable, it is difficult for PopMart to renovate it through other cultural products.

PopMart is trying to solve this problem by creating more different images, yet this attempt was not always successful.

In February 2019, PopMart released a new collection called “Ally Animals,” but then a Chinese vlogger pointed out that the collection was copied from a DollChateau released in 2017.

Subsequently, the company apologized and took down all products suspected of plagiarism.