PE-backed Chinese pop toy retailer pursues Hong Kong IPO
Pop Mart International Group, China’s largest fashion toy retailer, has filed for a Hong Kong IPO. Sequoia Capital China, Loyal Valley Capital and Huaxing Growth Fund are its three largest institutional backers.
The filing comes a matter of weeks after Pop Mart raised more than $100 million in a pre-IPO round led by Loyal Valley and Huaxing. Sequoia has a 4.96% stake in the business, while Loyal Valley and Huaxing own 3.5% and 1.98%, respectively.
Founded in 2010 as a supermarket for young people, Pop Mart started specializing in designer toys because these were its best-selling products. A key breakthrough came when the company teamed up with Hong Kong designer Kenny Wong and launched the enduringly popular Molly series of dolls. Wong inserted characteristics of traditional Chinese creatures into the classic Molly persona of a Western girl with golden hair and blue eyes. This led to an entire “Journey to the West”-style series.
The company operates under a blind box model: customers can buy a full set of 12 dolls for RMB708 ($100) or an individual doll without knowing which one. De Si, the company's co-founder, previously told AVCJ that the typical customer stays in the store for a long time, trying their luck by purchasing one blind box after another. There is a vibrant online community based on exchanging duplicates. Individual Pop Mart stores have their own WeChat groups as well to help fulfill the same purpose.
The company generated RMB1.68 billion in revenue last year, up from RMB514.5 million in 2018, while net profit rose from RMB99.5 million to RMB451.1 million. Gross and net profit margins came to 63% and 27%, respectively, in 2019.
However, Si stresses that rapid growth isn’t the product of high cash burn and high marketing expenditure: “We control our growth rate and our marketing cost is low. Moving too quickly can create problems in areas like customer service and supply chains.” Advertising and marketing expenses were RMB46.8 million last year, which equates to 2.7% of revenue.
Pop Mart regards intellectual property as its key competitive edge. The company claims the rights to 85 commercial concepts. Twelve of them - including Molly - accounted for 27% of sales last year. Pop Mart also has exclusive licenses over an additional 22 pieces of intellectual property, which were responsible for 18.7% of sales. The company is keen to accumulate more IP as part of its efforts to expand internationally.
Pop Mart has 114 retail stores across 33 Chinese cities, plus 825 vending machines - known as roboshops - in 57 cities. Its wholesale channel comprises 22 distributors in China, and 19 in 21 overseas markets, including South Korea, Japan, Singapore, and the US. The company also sells online through Tmall, the Pop Draw mini-program via WeChat, and the Paqu pop toy community.
Retail stores represent the major part of sales, but this share is falling. It dropped to 43.9% in 2019 from 48.3% in 2018, while online sales rose from 9.4% to 32%.
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