Has LABUBU, which created the new richest person in Henan, had a quality control failure?

Author | Wang Xiaojuan

Editor | Zhou Zhiyu

As a top celebrity, LABUBU is almost always trending, with even banks launching promotions offering LABUBU with deposits, further fueling its popularity.

Its consistently high popularity has also driven the stock price of POP MART to soar. On June 10, during trading, POP MART's stock price reached a peak of HKD 262 per share, setting a new historical high.

On June 8, according to Forbes' real-time billionaire list, POP MART's founder Wang Ning surpassed the founder of Muyuan Foods, Qin Yinglin, with a net worth of USD 20.3 billion, becoming the new richest person in Henan. LABUBU played a significant role in this process.

The wealth-generating ability of LABUBU should not be underestimated. However, the parents who helped LABUBU ascend to the top are not so happy lately.

"It's hard to grab one through official channels, and when you do, the quality is often disappointing. Scalpers are rampant, and it's hard to distinguish between real and fake. It's really difficult to buy a satisfying LABUBU." This is the genuine feeling of many parents trying to get LABUBU nowadays.

Many consumers received products with crooked heads, bald spots, or loose threads, and had to argue with customer service before they could exchange them. Some consumers even bought LABUBU that was hard to distinguish as real or fake; meanwhile, abroad, a counterfeit version of LABUBU called LAFUFU has debuted on social media, being referred to by netizens as LABUBU's "ugly stepsister."

Amidst the unstable quality of genuine products and the unexpected counterfeit goods, some consumers have begun to lose their admiration for LABUBU.

In the capital market, POP MART, along with Mixue Ice City and Laopu Gold, is known as the "New Consumption Trio." This year, its stock price has led the Hong Kong stock market.

However, investors' faith in new consumption has gradually diverged. Institutions, including UBS, believe that the current market expectations for "new consumption" are too high and have warned of short-term downside risks.

Failing or succeeding with IP, POP MART, which has been listed for three years, and its accompanying investors feel this deeply. Now, as it stands at the peak again, becoming the darling of capital, what is being tested is a more comprehensive systemic capability in design, operation, and manufacturing. To create an enduring IP in the consumer market, POP MART still has a long way to go.

LABUBU has become "Crooked Bubu"

"Your selling price is 99, not 9.9. Can you pay attention to quality control?" One consumer "complained" about POP MART.

The incident began when many consumers received their LABUBU 3.0, which they had waited a month for. They unboxed it with high expectations, only to find that "the sky had fallen."

Li Nian (pseudonym) is a plush toy enthusiast who has previously bought many plush toys from Jellycat. She told Wall Street Insight that she did not purchase LABUBU when it was not yet a plush version. It was only in the past two years that the fluffy LABUBU came into her view.

This year, she managed to grab one online for the first time, but upon receiving it, she found that the head seam was crooked. So she went for an exchange, but the exchanged one had its feet reversed. After going back and forth, she stated that she has already lost her admiration for LABUBU On social media, a post expressing concerns about LABUBU's quality control has nearly a thousand comments showcasing the various defects found in the LABUBU products received.

Although there is no specific data indicating the defect rate of the recent batch, "poor quality" and "long pre-sale time" have become frequent terms among the 14,000 complaints accumulated on the Black Cat Complaint platform.

On social media, some unboxing bloggers discovered that out of the six LABUBU products they received, five had to be returned due to various issues.

Another seasoned blind box enthusiast, BoBo (pseudonym), who also purchased a complete set of LABUBU blind boxes, found that the LABUBU products he received exhibited typical problems such as bald heads, tilted heads, loose threads, insufficient stuffing, uneven leg lengths, and uneven ear lengths. BoBo told Wall Street News that he generally has a high tolerance for toy defects, so he only exchanged one product with a significantly tilted head.

Regarding the quality control issues, the company has not publicly responded yet. However, the official customer service stated, "There may be uneven dyeing, slight scratches, or bubbles during the production process, which are normal craft situations integrated into the artistic design."

Consumers find it hard to agree with this response.

Li Nian told Wall Street News, "Plush toys are not high-cost products. People are willing to pay a premium for the genuine article because it has better quality, design, and refinement. But if they can't even achieve that, what's the point of spending more on the genuine product?"

It is also not easy to seek consumer rights. Customer service will first explain that it is a normal phenomenon, and if the consumer insists, they will need to provide unboxing videos and other full-process evidence to prove that the product defects are not due to consumer reasons. If purchased on an e-commerce platform, sometimes the official customer service of the platform needs to intervene for a successful return.

It is well known that consumers buy blind boxes for the emotional value, and now the quality control and after-sales service have failed to meet the emotional value of consumers.

From a business model perspective, POP MART has successfully built an "emotional currency" system, transforming randomness into emotional value through the blind box mechanism and strengthening user lifecycle management through a membership system.

Data shows that by the end of 2024, the number of POP MART members in mainland China will exceed 46.08 million, with member contributions accounting for 92.7% of sales, a repurchase rate of 49.4%, and user stickiness being relatively strong across various categories. This model relies on users' emotional recognition of the IP, while quality control issues are eroding this trust foundation.

Moreover, this self-proclaimed artistic design product is not cheap. In the second-hand market, some limited edition items have been speculated to over ten thousand yuan, creating a sharp contrast between the premium generated by scarcity and the frequent quality control issues.

Another consumer who has decided to quit expressed to Wall Street News, "Although LABUBU is still very popular now, I believe that products that withstand the test of time must first pass the quality check. I'm very worried that the pile of dolls at home will become tears of the times in a few years."

It is worth mentioning that this is not the first time POP MART has been questioned about quality control issues. During the "3.15" period in 2022, CCTV exposed problems related to the uncertainty of winning rates and poor quality control in POP MART's blind box business The last time it was mentioned, the "DIMOO co-branded blind box set" was all the rage. It can be seen that over the years, the explosive popularity of POP MART has always been accompanied by questions about quality control.

This may be related to POP MART's OEM model.

According to news from Dongguan, as early as 2020, there were more than 30 OEM factories and partner companies supplying POP MART. Now, with a sudden surge in demand, further requirements have been placed on the stability of processes and quality inspections of these relatively dispersed OEM factories, testing POP MART's supply chain management capabilities.

Dongguan is famous for OEM work for well-known toy manufacturers like LEGO and Bandai, with LEGO being widely recognized by consumers for its excellent quality. This also indicates that for POP MART to become a long-lasting trendy toy company, it needs to overcome the core challenge of quality, which is also a test of POP MART's systematic capabilities.

Unpredictable Future

Currently, POP MART's stock price is soaring, making it a darling of the capital market.

However, for POP MART, relying on scarcity to maintain popularity in the long term is also an important reason for its stock price surge. A series of paradoxes have followed. If it does not actively introduce products to the market, scalpers will infringe on the interests of original consumers, while counterfeit products flood the market; if it actively increases production, scarcity will disappear, accelerating the decline of this IP.

Amidst the support of fans and investors, LABUBU has become the "plastic Moutai."

Many consumers buy toys not for personal use but to resell them at high prices, similar to how many people wait for opportunities to quickly flip Moutai on different platforms, treating them as financial products. This is the financial play of LABUBU.

For many investors, this wave of toy speculation is reminiscent of the sneaker craze from a few years ago, with a golden period lasting only a few years.

This kind of play is unsustainable. Many trendy toys have previously experienced price premiums on second-hand platforms, but most have now returned to normal second-hand trading levels, with only extremely scarce items having premium space. Interestingly, even the price of the extremely stable Feitian Moutai has been continuously declining, which the market sees as a signal of returning to normal levels.

The surge in POP MART's stock price is inseparable from the influx of southern capital. Some institutional investors have told Wall Street Insights that compared to the A-share market, the Hong Kong stock market pays more attention to fundamentals.

Fund managers, including Qu Shaojie and Cheng Yu, only decided to enter the market after the performance inflection point appeared in POP MART's 2024 annual report. They also contributed to the recent surge in POP MART's stock price.

This means that when the "hyped toys" are no longer scarce, whether POP MART's stock price remains strong is worth further observation. Institutions like Tianfeng Securities have also warned in research reports to pay attention to the risks of intensified industry competition, IP performance not meeting expectations, and the initial performance of theme parks not meeting expectations.

Returning to the perspective of consumer trendy toys, many believe that investing in POP MART is investing in the consumer trends of young people, but the consumption trends of young people are also fluid.

From the explosive popularity of LABUBU, most analyses suggest that on one hand, it is driven by celebrities promoting it, becoming social currency; on the other hand, LABUBU resonates with current cultural aesthetic preferences, tapping into the complex and rebellious emotions of today's youth However, each generation has its own LABUBU.

From the perspective of changes in cultural aesthetic preferences, there have been many examples in the past, a typical one being Barbie, which was once a globally popular toy doll with similar playability, such as dressing up, but now, with changing aesthetics, it has become a "tear of the times." The consumers of LABUBU are primarily from Generation Z, who are willing to pay for emotional value, but their interests also shift relatively quickly.

Trendy toys are also a category of toys that need to capture users' attention and consume their time. POP MART has currently become the absolute leader in the trendy toy category, but it also needs to guard against invisible competitors. For example, LEGO, as a physical toy, was once impacted by emerging video games, which at that time were invisible competitors for LEGO.

At the same time, it is also worth being cautious about engaging in disorderly innovation for comprehensive defense.

Continuing with LEGO as an example, after being impacted, LEGO once neglected its core brick users and instead expanded into theme parks, games, films, dolls, clothing, and other areas. However, due to disorderly expansion, it fell into a crisis that lasted for a decade. It was only after returning to its core that the crisis gradually resolved.

Currently, POP MART is also trying various aspects, with more and more theme parks, lifestyle products, and peripherals. However, all of these are linked to the IP foundation, and long-term observation remains whether it can produce another phenomenon-level IP.

At the same time, the explosive IP incubation and the extension of the IP lifecycle are not easy tasks.

Looking at large toy groups around the world, there have been quite limited blockbuster IPs in recent years. Before LABUBU's explosive success, Disney's blockbuster IP, Lina Bell, debuted four years ago, POP MART's last top-tier MOLLY exploded after 2016, and Sanrio's super IP Hello Kitty was born in the 1970s. Bandai Namco's revenue contributors are still from last century's One Piece and Dragon Ball.

To see the long lifecycle of IPs, one must look at Disney, which is why POP MART is committed to becoming China's Disney. However, among Disney's long-lasting IPs, most have complex stories and cultural backgrounds. Over the past years, Disney has continuously invested in these IPs to create unique stories, which have extended their IP lifecycles.

Currently, POP MART has about 90 IPs, of which 13 are expected to generate over 100 million yuan in revenue in 2024, with an average lifecycle of around 2-5 years. POP MART still needs to continue extending the lifecycles of its existing revenue-generating IPs while betting on the next potential blockbuster IP.

Before exploring becoming a great company, POP MART must first become a company with resilient product quality that can cope with rampant counterfeits.

The long journey to becoming China's Disney has just begun for POP MART.

Risk Warning and Disclaimer

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