Labubu’s biggest threat is not Wakuku, or Lafufu

Shuli Ren, Bloomberg

Labubu, an elf-like plush toy with pointy ears and nine serrated teeth, has become a global sensation, worn by celebrities including Rihanna and Dua Lipa. These dolls are sold out in stores from Singapore to London; a human-sized version recently fetched a whopping $150,000 at an auction in Beijing. With all the social media buzz, it’s worth asking if we are witnessing the rise of a new-age collectible, or whether Labubu is a mere fad destined to fade.

Investors certainly want to know. Pop Mart International Group Ltd., the Chinese manufacturer behind this trendy toy, has rallied 178% this year. With $43 billion market cap, the company is worth more than twice as much as Sanrio Co. and Mattel Inc. combined, owners of long-time favorites Hello Kitty and Barbie.

Last year, Pop Mart’s revenue doubled to 13 billion yuan ($1.8 billion), while its gross margin came in at an enviable 67%, roughly twice as profitable as a generic toymaker. The company generated 4 billion yuan in operating profit, versus 1 billion yuan in 2023.

There are worries, however, that copycats might dent Labubu’s brand image, which underpins Pop Mart’s outsized profitability. Wakuku, a chubby character with a familiar mischievous grin, is being rolled out by lifestyle retail chain Miniso Group Holding Ltd. Whereas Labubu is about a little monster inspired by Nordic fairy tales, Wakuku tells the story of a rebellious wild child in the forest. These dolls are also being sold in blind boxes, a clever marketing ploy that Pop Mart championed to add an element of surprise to its products. For Miniso, it’s a good bet so far: Wakuku dolls have drawn long lines at the retailer’s flagship stores across China. Meanwhile, Nasdaq-listed QuantaSing Group Ltd., which ultimately owns the intellectual property through an acquisition deal in March, is up 365% this year.

There’s also Lafufu, a term collectors use for counterfeit Labubu dolls that are flooding online marketplaces. These cheap knockoffs, with lopsided faces and misaligned limbs, are getting their own cultural moment, competing with the original on how ugly they can get. After all, Labubu went viral because of its weird, yet somehow cute looks, and custom-made Lafufus with unique outfits or expressions are accentuating that aesthetic.

While both might chip away some of Labubu’s business, neither can tank it. Wakuku is still swimming in the more lucrative designer toy category, not undercutting Pop Mart on pricing. Meanwhile, Lafufu owners often end up buying the original to establish a frame of reference for their customized dolls if nothing else. As for state media’s warnings on blind box sales, Labubu as a brand has already moved beyond this marketing tool.

Rather, the biggest threat to Labubu’s lure as a collectible is Pop Mart’s fragile dance with the toy’s resellers. On the one hand, the company will have trouble fostering a broad fan base if its dolls largely end up in scalpers’ hands. On the other, Labubu can’t become a luxury item if it doesn’t have a resilient resale market. In an economic slowdown, consumers tend to seek out luxury products that command higher resale value.

Right now, Pop Mart’s biggest puzzle is to figure out what percentage of its Labubu sales is going to resellers. For other luxury items such as the fiery baijiu moutai liquor, industry analysts have a rough estimate on how many bottles resellers have hoarded over the years, thus giving producer Kweichow Moutai Co. a sense of how much new supply it should bring to the market while maintaining scarcity and thus brand exclusivity.

But this kind of information is impossible to obtain for Labubu, because it’s such a recent phenomenon. Social media buzz can also cloud one’s judgment. [Abridged]

Courtesy Bloomberg/Shuli Ren