Pop Mart Takes Its Trendy Toy Story On Global Roadshow

Key takeaways:

• Pop Mart has moved into Europe with a London store, expanding its global footprint to 23 countries since opening its first international store a year ago
• Company is hoping to copy its successful domestic model of selling trendy toys over low-cost channels such as online and vending machines, helped by social media promotion

By Doug Young

Watch out, world. First China’s ByteDance gave us TikTok, the wildly popular short video app that has become all the rage among teens around the globe. Now the much smaller but equally trendy Pop Mart International Group Ltd. (9992.HK) is hoping to bring us names like Dimoo and Pucky, as it seeks to sell its toys that have gained big followings at home to a global audience.

The company officially dipped its toe into the lucrative European market with its launch of a store in London last Thursday, according to an announcement on its website. The opening brings Pop Mart’s global footprint to 23 countries since it opened its first overseas location in South Korea at the end of 2020.

Pop Mart is quite remarkable for its ability to turn ordinary toys into gold, while using a very cost-efficient distribution network that combines high-margin online and vending machine sales with costlier traditional brick-and-mortar stores. It also uses a heavy social media element to get online communities buzzing about its latest gimmicky toys, facilitating trading in such items and also generating buzz about upcoming products.

Its combination of low costs and big prices it can charge for its collectible toys have rewarded the company with extremely enviable profit margins when compared with peers. Its gross margin stood at an eye-popping 63.4% in the first half of last year, more than double the latest 27.4% for trendy domestic retailing rival Miniso MNSO. The similarly trendy U.S. retailing giant Target TGT posted a similar gross margin of 28%, while Pop Mart’s figure was also well above global toy giant Mattel’s MAT 47.8% figure.

Investors have rewarded Pop Mart with a rich trailing price-to-earnings (P/E) ratio of 74, which, again, is well above the 58 for Miniso, 18 for Target and just 9 for Mattel.

So far Pop Mart’s success has come mostly in its home China market, where it uses a “blind box” model that gets fans to buy its toys in opaque boxes, adding an element of surprise since they can’t see what toy they’re getting until after they complete a purchase and open the box.

But now it’s hoping it can take that successful model on the road with its global expansion. It launched an international division at the end of 2018, headed by Korean Moon Duk Il, who uses the English name Justin Moon. Not surprisingly, the first stop on its international roadmap was South Korea, which shares many cultural similarities with China and is often an early stop on many consumer-facing Chinese companies’ international expansions.

The company’s most recent annual report shows it now has overseas subsidiaries in South Korea, as well as in Japan and Singapore. In addition to its new shop in Britain, the company says its other markets include Canada and the U.S.

It officially announced its European foray in late 2019 by tying up with a local partner. At the time it said it would initially target the French market, meaning that campaign must have hit delays that led it to make its European launch from Britain instead.

Early stages

Aside from telling us how many countries it’s entered and the repeated mentions of Korea, Singapore, Japan, Canada, the U.S. and now Britain as its global markets, Pop Mart is relatively stingy with other details about its expansion. That leads us to guess that much of that expansion so far is limited to online and perhaps some vending machine sales, known in company jargon as “roboshops,” while the actual number of brick-and-mortar stores is probably quite limited.

The company launched a “global brand ambassador” program last October, indicating it was pursuing its successful formula of using online influencers and social media to advance its overseas ambitions. In its latest financial report for the first six months of last year, it admits that international sales accounted for less than 10% of its total in that period, and therefore it wouldn’t provide any more specific figures for that part of its business.    

It has also given clues about its experience so far in various interviews and announcements. Those include word that its global push will include toys developed with the likes of Disney DIS and Sanrio, owner of the “Hello Kitty” franchise, indicating it won’t rely too heavily on its popular Chinese toys for that part of the business.

In an interview with Forbes, Moon also noted the company will bow to local tastes by letting consumers in North America and Europe see what they’re buying before they pay, diverging from its “blind box” strategy that has proven so popular in Asia.

The company also appears to be directly owning more of its overseas operations so far, rather than a franchise-style model used by Miniso that relies heavily on local partners. The company owns 80% of its South Korean operation, and probably has similarly controlling stakes in its other overseas companies. That’s actually quite normal while the expansion is in its early stage, and Pop Mart could quite possibly shift to a more franchise-style operation once it finds the right formula for its overseas business.

For a potential look at what Pop Mart’s global footprint might look like eventually, we can look at Miniso for comparison. Whereas Pop Mart didn’t open its first international store until a decade after its founding in 2010, Miniso was much quicker by opening its first non-China stores just two years after its own founding in 2013.

At the end of September, Miniso had an international network of almost 1,800 stores in nearly 90 countries. By comparison, it had about 2,800 stores in China at that time, accounting for about 60% of its total sales. But its international revenue grew 78% in the three months through September last year, more than four times as quickly as its sales in China. As a result of that fast growth, international sales grew to 23% of its total revenue from 17% a year earlier.

Pop Mart is undoubtedly looking enviously at those numbers and hoping it can find similar success overseas. Its gamble is slightly different from Miniso’s, since it relies on creating a collectors’ culture to sell its toys and get its fat margins. While it has succeeded in doing that in China, it’s still far too early to say if it can enjoy similar success outside its home market.