ts fortunes were transformed when it started focusing on collectable toy figures. Initially, these toys were licensed from Japanese toy figure brand Sonny Angel, but it quickly also acquired its own IPs, such as the wildly popular Molly character. Within 10 years, Pop Mart had become China’s largest toy seller in this market, with an 8.5 per cent share.  The company’s target market is broadly 18- to 35-year-old professionals and students. Three-quarters of customers are said to be female. The popularity of pop toys has risen in recent years due to rising levels of affluence, as well as China’s post-’95 generation using the toys as a way to express their individuality.   Key to Pop Mart’s success was the move to sell the collectable toys in blind boxes, where shoppers experience the thrill of not knowing what is inside. A set of Molly toys may consist of 12 different versions, but there will also always be a hidden variety, which is only included in one in every 144 boxes.    While the figures are not necessarily expensive, at around US$8 each, some consumers in China have been reported to have spent considerable sums to complete the sets. There is also a thriving trade of second-hand models on online marketplaces such as Alibaba-owned Xian Yu.  A vertically integrated business Pop Mart is a vertically integrated business. It works with a stable of artists to create new IPs, although it also continues to license characters from third-parties such as Disney and Universal Studios.  It also operates an extensive distribution network of 136 retail stores in 33 first- and second-tier cities in China, as well as more than 1000 roboshops, automated vending machines that offer its customers a “playful shopping experience”. In addition, its online channel accounts for around 10 per cent of overall sales, including a presence on Tmall, and it also works with wholesale partners.  The strength of Pop Mart’s business model is underlined in the company’s gross margins. These are as high as 71.2 per cent for its own branded products, but that dips down to 37.1 per cent for third-party IP. As third party products only account for less than a fifth of sales, it is clear that Pop Mart has the ability to generate substantial profits.  There is concern, though, about Pop Mart’s dependence on the Molly character. As recently as 2017, Molly accounted for 90 per cent of its turnover. This could be risky for the company, as a negative reaction to a new set of characters could have a real impact on its revenues.  However, in recent years Pop Mart has been steadily diversifying its portfolio of IP. Other characters it has developed include Dimoo and Yuki, and it has become the exclusive distributor for the popular Pucky and The Monsters franchises. As a result, Molly accounted for just 15 per cent of turnover in the first half of 2020.   Another worry is whether Pop Mart’s physical retail operations in China have reached saturation. The business already has a good coverage of its retail stores in Tier 1 and Tier 2 cities, but it would appear to have little interest in opening new stores in lower-tier cities. Indeed, its 1000-plus roboshops are already present in 62 cities in China – these are probably sufficient to meet demand in China’s smaller cities.  Investors are, therefore, betting on overseas growth to generate further momentum. Pop Mart is currently engaged in wholesale activities in 21 countries, with Korea, Japan, and Singapore the main pop toy markets in Asia. According to a Frost & Sullivan Report, the global pop toy market was worth US$20 billion in 2020 and is forecast to double in the next five years. Clearly, Pop Mart has much to play for over the coming years.  Increased government scrutiny As Alibaba has recently found out, a business must remain in the Chinese government’s good books. Looking ahead, this could potentially be a problem for Pop Mart.  At the start of the New Year, the state-operated Xinhua News Agency expressed criticism about the blind box craze sweeping the country. It stated that the phenomenon promotes “twisted consumerism” and is comparable to gambling.  The news agency — often seen as the official mouthpiece of the Chinese government — is now urging for tighter regulations on selling such products. It will be interesting to see how this plays out this year, as clearly Pop Mart’s prospects will depend on its business model remaining unregulated.