In the context of rising spending on emotional and spiritual experiences, the demand for trendy toys (also known as art toys or designer toys) is expected to persist over the long term, according to a recent research report from Guotai Haitong Securities Co., Ltd. (601211). Creating a hit IP requires a combination of timing, innovation, creative vision, and patience. Rather than focusing on a single blockbuster IP, investors should pay more attention to a company's ability to consistently build and develop new IPs.
The competitive advantage of trendy toy companies lies in their ability to establish a comprehensive operational system centered on IP creation, channel development, marketing conversion, and community building. The key barriers to entry in this industry are concentrated in these four areas. The report suggests that globalization and the formation of a diversified, group-level business structure will be the main growth drivers for the sector in its next phase.
Is the demand for trendy toys sustainable?
An appreciation for art has been a constant throughout human history. Trendy toys are a commercialized form of contemporary art. They are consumer goods built around an IP, possessing both cultural expression and collectible value. Their worth is primarily derived from three aspects: emotional value, social connection, and investment potential. Emotional value forms the foundational basis for consumption. Social sharing expands the user base, while scarcity and collectible trading further enhance the perceived value of the products. With the continued growth of spending on spiritual and emotional fulfillment, the demand for trendy toys is sustainable over the long term.
What does it take for an IP to become a massive hit and sustain its popularity?
Creating a hit IP requires four key elements: timing, innovation, creative vision, and patience. The journey of LABUBU from a long-term incubation to a globally recognized phenomenon illustrates that a blockbuster is the result of a combination of IP accumulation, product innovation, and external market timing. After an IP explodes in popularity, companies must manage the flow of traffic through content engagement, product iteration, and meticulous operational management. The decline and subsequent recovery of the Sanrio brand's performance demonstrate that operations can, to a certain extent, influence the value realization of a mature IP. However, operational management cannot eliminate the non-linear nature of a single IP's lifecycle. Therefore, it is more important to focus on a trendy toy company's overall IP creation capability rather than just one hit IP.
What are the competitive advantages of trendy toy companies?
A company's competitive edge is determined by its ability to build an operational system around IP creation, channel development, marketing conversion, and community building. The industry's competitive barriers are mainly found in four areas:
1) IP Creation: This involves expanding the pool of potential candidates, incubating them in stages, validating them in the market, and then managing long-term operations and scale delivery through series iteration, category expansion, and a flexible supply chain.
2) Channel Development: This involves using asset-light channels to pre-validate demand, gathering end-user data through a direct-operated retail network, and strengthening brand expression and sales conversion through experiential store formats.
3) Marketing Conversion: This involves building recognition through differentiated character expressions, capturing traffic via digital platforms, and using mechanisms like blind boxes, hidden figures, and limited editions to boost repeat purchases and holiday sales.
4) Community Building: This involves deepening user relationships through player activities and membership programs, which support the spread of new products and the reuse of traffic across different IPs.
What is the growth path for trendy toy companies?
Globalization and the formation of a diversified business group will be the main growth directions for the next phase. Taking Pop Mart as an example:
1) Globalization: Pop Mart has strengthened its overseas expansion capabilities by upgrading its organizational structure and infrastructure. It enhances cultural resonance by collaborating with local artists and optimizes its store layout and customer reach strategies to improve market penetration. Its overseas business already has a strong foundation for rapid growth, with significant room to increase channel density and consumer coverage.
2) Group Diversification: Pop Mart is continuously expanding into new business formats around its core IPs. POPLAND enriches the IP image through immersive experiences. POP BAKERY extends the IP into daily consumption scenarios. POPOP enhances brand prestige and offline exposure through the jewelry business. These new formats not only contribute incremental revenue but also continuously strengthen the IP's influence and user stickiness, creating synergy with the core trendy toy retail business.
Related Companies
Trendy toy companies have already formed differentiated operational paths.
1) Pop Mart is upgrading from a trendy toy retailer to a global IP operation platform, with artist IPs and full-chain operations at its core.
2) Bloks Group relies on licensed IPs, standardized R&D, and a large-scale supply chain to expand its user base, price range, and overseas markets with cost-effective building block products.
3) Kardiss builds a collection and competitive ecosystem through the rarity design of its cards, rapid development, a distribution network, and tournament events.
Investment Recommendation
The report recommends the building block character toy leader, Bloks Group (00325). Its cost-effective products, ability to expand its user base, and potential for overseas replication could unlock new growth.
Risk Factors
Risks include the failure to anticipate or manage IP lifecycles and iterations; failure to expand overseas markets as expected; and failure to successfully diversify or achieve profitability from new business ventures.