Economy

Played Out

As competition heats up and the market for mystery boxes cools, art toy makers like Pop Mart need to start thinking outside the box

By Xie Ying , Meng Qian Updated Mar.1

Pop Mart holds a Skullpanda exhibition at Shanghai World Trade Shopping Mall where the dolls are displayed as scenes in well-known Hollywood movies, October 12, 2021 (Photo by IC)

A six-meter-high Sweet Bean doll, a popular Pop Mart character, stands in front of a new shopping mall in Xiangyang, Hubei Province, December 1, 2021 (Photo by IC)

“ Now, here’s a Molly doll. Bids start at 35 yuan (US$4.9),” shouted auctioneer Lin Ye on shortvideo platform Douyin (TikTok). More than 120 people were viewing the livestreamed auction on October 2, 2022. 　

Despite the auctioneer’s shouts, no one responded. “It’s a Rainbow doll, a real popular one from the My Childhood series. No one wants it?” Lin asked. “OK, on to the next one... Now, this is a Bob doll, bids starting at 80 yuan (US$11.2),” he said. 　

Soon a chat message popped up: “80,” followed by a few more bids for the same price. “Anyone want to bid higher? No? OK, it’s yours.” 　

Lin has more than 55,000 followers, making him one of Douyin’s most popular livestreamers of mystery boxes. Also known as “blind boxes” in China, mystery boxes are toys packaged to hide their contents from consumers until after they purchase them. 　

Lin holds two auctions daily, where figurines from brands like Pop Mart, Toy City, Find Unicorn and 52 Toys are the most popular. Figurines like Molly fetch between 20-50 yuan (US$2.8-7.0), onethird to three-fourths their original price. 　

“It seems you all don’t like Molly anymore, huh? You guys aren’t loyal,” Lin joked to his followers. 　

Established in 2010, Pop Mart designs and creates art toys, known in China as chaowan. In 2016, Pop Mart had its first hit with the Molly Zodiac series, selling at 59 yuan (US$8) each. Its first batch of mystery boxes on Tmall, China’s biggest e-commerce platform, reportedly sold out within four seconds. 　

The company listed in Hong Kong in September 2020 and achieved a HK$150 billion (US$19.1m) evaluation in early 2021. 　

But just one year later, Pop Mart’s market value plunged to around HK$26.9 billion (US$3.4m). Its 2022 Q3 fiscal report showed that Pop Mart’s overall revenue declined 5-10 percent due to a 10-15 percent loss of market share on the Chinese mainland, despite an increase in overseas sales which contributed 4 percent of the company’s revenue in the first half of the year. This happened after Pop Mart already reported an 8.3 percent operating profit drop over the first six months of 2022, the company’s first negative profit growth since 2020. 　

The decline of revenue and profit is partly due to rising costs in the wake of the pandemic. But the root causes, according to analysts, are the cooling mystery box market and increasingly fierce competition, which are challenging brands to crank out fresh character designs and find new avenues for development.

Getting in Character

Now the primary retail format for art toys, mystery boxes did not sweep the Chinese market until 2015-2016 when Pop Mart released characters for 59 yuan (US$8) each, bringing the previously niche toy market to a wider public. 　

“Art toys actually started developing in China many years ago, but at the beginning, it was limited to a small circle of artists and fans... The toys were not for mass production, but for exhibition or circulation among a small group of fans,” Yi Hui, manager of the China International Comics Festival Chaowan Expo, told NewsChina. “But mystery box companies like Pop Mart later tried to reduce production costs, put them in mystery boxes, and slashed their price to 59-79 yuan (US$8-11). Once they lowered prices, the industry boomed,” he added. 　

According to Yi Hui, Pop Mart’s original success was based on exploring characters. By the time it was listed, Pop Mart had 93 licensed characters, including 12 of its own designs like Molly and Dimoo, 25 exclusive licenses such as Pucky and The Monsters, and 56 non-exclusives. 　

Yet, despite rising revenues, Pop Mart was criticized for depending too much on Molly. Fiscal reports show Pop Mart’s operating revenue growth slowed between 2019 and 2020 when Molly’s share of the revenue decreased to 14.2 percent. When earnings from the Molly toy bounced back in 2021, Pop Mart’s earnings grew. 　

Pop Mart sought to reduce this dependence by expanding their characters. The Skullpanda series, released in 2020 has ghost and zombie-themed designs to appeal to adult fans. Released the same year, character Sweet Bean attracted younger people and children. According to Lin, the Skullpanda and Sweet Bean series are more popular than Molly and Dimoo, with some Skullpanda figurines going for double their retail price. According to Pop Mart’s latest fiscal report, Skullpanda overtook Molly for the first time as its top revenue source in the first half of 2022. 　

But Skullpanda failed to copy Molly’s success. The latest fiscal report shows that Skullpanda’s revenue growth rate in the first half of 2022 plunged from 1,423.76 percent to 152.27 percent over the same period of 2021, with figures for some of Pop Mart’s exclusively licensed characters performing even worse. 　

“When the industry is booming and expanding, it’s harder for companies to keep good designers since many want to start up businesses themselves,” Yi Hui told NewsChina, warning that Pop Mart is increasingly facing a crisis – as older characters become less attractive, the company must scramble to find new ones.

Fiercer Competition

The industry boom not only brought Pop Mart rising revenues but also more competitors. Data from Qcc.com, an enterprise registration website, shows that China is home to 5,380 art toy companies, 1,661 of which registered in 2022, 138.31 percent more than that in 2021. 　

“As the first to take mystery boxes to the mass market, Pop Mart took a big share of the pie. But mystery boxes are not special products. It’s easy for other companies to follow and divide the market,” Zhang Shule, a senior observer of internet-related industries, told NewsChina. 　

Lin’s livestreams, which auction more varieties of mystery boxes than any brickand-mortar art toy store, reflect that assessment. 　

“My current favorites are the Laura series [by Toy City] and the zZoton series [by Find Unicorn]. I think they are better designed and higher quality than Pop Mart. But perhaps I will go with other brands later on. Who knows?” Li Jing, a mystery box collector in Beijing, told NewsChina.

Li still keeps an eye out for Pop Mart’s new products, but said she will not buy entire series like she did in the past. 　

Cao Zixuan, another fan in Shanghai, argued that beginners always start with Pop Mart because the company is good at marketing and operates many offline stores and has vending machines everywhere. 　

“But if you get deeper into it, you’ll find a wider variety to choose from... They may not be common in offline art toy stores but they’re well known among fans. Though a bit more expensive, especially some niche ones, they’re very well designed,” she said. 　

Cao said that many handicraft companies have also jumped on the mystery box bandwagon with resin figurines, which are much cheaper to make than the PVC plastic of popular brands.

A resin figurine sells for only-one third the price of one made from PVC, Cao said. Although generally from littleknown brands and not as well-crafted, resin dolls of popular characters from well-known online games like Tencent’s Honor of Kings and fantasy anime series Douluo Continent promise big returns. 　

“Given resin dolls are much bigger and heavier, a complete series of resin mystery boxes generally contains four to six dolls (a PVC series often contains 10-12), and their low price makes collecting a full series much more affordable,” Cao said.

A new Pop Mart flagship store with an area of over 500 square meters opens on Nanjing Road, Shanghai, August 29, 2022 (Photo by IC)

Feeling Toyed With

Douyin livestreamer Xiao Tian recently shifted his sales strategy to unboxing mystery boxes, so buyers know what they’re getting from the start. 　

“Mystery boxes don’t sell now... Fewer people are willing to buy a couple of boxes just for a chance to score the one doll they like, let alone buy a full series (at around 500-700 yuan),” he said. 　

A recent survey by iiMedia, a leading Chinese industrial analyst, found that the Chinese mystery box industry is hemorrhaging customers. More than 30 percent of respondents said mystery boxes were a gimmick with little practical value and more than 20 percent said they were overpriced. 　

“I regret buying so many mystery boxes,” Li said. “I have to pack the rest in cartons because I have no more room to display them and rarely take them out,” Li said. 　

Cao agreed. “In the past, I would buy multiple series sets just for a chance to get a rare character... But it often turns that you’ve spent tons on a pile of the same dolls, while the rare one is in other boxes you haven’t bought yet,” she said. 　

Critics compare mystery boxes to gambling. The thrill can be addictive, especially for minors. 　

In August, 2022, China’s State Administration for Market Regulation issued a draft regulation that suggested a 200 yuan (US$28) price cap on mystery boxes and forbids sales to minors under 8 years old. It would require operators and vendors to reveal the number of rare figurines for each carton and the probability of getting one. 　

Although the draft regulation is a trial, livestreamers are already posting notices that warn minors not to buy. Platforms are complying too, threatening to temporarily block livestreamers who do not reveal the probability of getting a rare doll. 　

Facing these factors and rising costs – an increase of 67.4 percent compared to 2021 based on the Pop Mart’s latest fiscal report, mystery box production shrank in 2022. 　

An unnamed leading mystery box maker told the Guangzhou-based Times Weekly in August 2022 that orders reduced by half compared to 2021, and some competitors have stopped production. 　

Another maker in Shenzhen told the same paper that their newest factory, opened in 2021, has not received any orders in 2022 and that many factories are sitting on stock because some art toy companies have not yet paid. 　

To recoup their outlay, factories sell overstock cheaply to retailers, mostly online sellers like Xiao Tan, who sell them at about half or even one-third of their original price. 　

Xiao Tian said because many of his customers are DIY hobbyists that use the dolls to decorate handmade items like keychains and are not collectors, they prefer buying unpacked mystery boxes and are not willing to pay high prices for them.

Customers buy mystery boxes containing Winter Olympic Games-themed dolls at a shopping mall in Shenyang, Liaoning Province, February 8, 2022 (Photo by IC)

Open to New Ideas

This is why popular brands like Pop Mart and Find Unicorn are trying to increase their products’ collectability. Find Unicorn issues mystery box figurines with a limited edition number, while Pop Mart has turned to “big dolls,” which can be up to 10 times larger than mystery box dolls. 　

Released in 2020, Pop Mart’s first limited-edition “big doll” Girl from the Earth which cost 4,999 yuan (US$698) saw 8.7 million people enter a draw. After it sold out, its price skyrocketed to 30,000-80,000 yuan (US$4,182-11,152) on the second-hand market. Now, the doll’s price varies greatly on Xianyu, China’s leading second-hand marketplace platform, but it can go into the tens of thousands of yuan. Pop Mart’s big doll follow-ups never broke 10,000 yuan (US$1,394) on the secondary market. 　

“As the majority of mystery box customers are minors or young people like university students and graduates, Pop Mart’s marketing often causes controversies... And when the public considers buying mystery boxes as low-end consumption, it’s very hard [for art toy companies] to make a high-end product that convinces those who can afford them that it will increase in value,” Yi Hui said. 　

Zhang believes that Pop Mart’s biggest disadvantage is a lack of licenses from Disney, Harry Potter and other popular established characters with well-known good stories. 　

“Most globally known characters are based on stories which have helped improve the vitality of their merchandise. A company that hypes a character’s price without any value-added content has got it backwards,” he said. 　

Insiders revealed that Pop Mart is planning to build theme parks and develop online games around its characters. Speaking to NewsChina, Wei Xiang, director of the National Academy of Economic Strategy, Chinese Academy of Social Sciences, praised Pop Mart’s theme park strategy because its current sales model is easy to duplicate. 　

Pop Mart is now rebranding as a company promoting art toy culture. However, Zhang warned it should take more than retrofitting existing characters into theme parks and video games to secure Pop Mart’s future. 　

“A company generally needs decades to make such a huge commercial leap from selling mystery boxes to art toys and then leading art toy culture,” he said.

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