Covid-19 No Barrier to Top Toy Retailer Going Public This Year

China’s largest toys and collectibles retailer, Pop Mart International Group Ltd., is on course for an IPO in Hong Kong before the end of the year, despite the effects of Covid-19 deflating sales at its brick-and-mortar stores.

The “blind box” sensation, known for its popular collectible figurines sealed in artistic but opaque packages, has won approval to list from the Hong Kong Stock Exchange, according to a post-hearing information pack filed on Sunday.

The country’s fastest growing toy company, which had an 8.5% share of the fragmented $3.15 billion retail toy market last year according to Frost & Sullivan research, is aiming to list on the Hong Kong bourse before mid-December, sources told Caixin.

But this step closer to listing comes as the company’s half-year revenue growth significantly decelerated this year to 50.5% year-on-year from more than 200% in both 2018 and 2019, according to its prospectus. Pop Mart’s profit growth for the first-half also slid, slowing to 24.4% year-on-year from in excess of 300% for the entire previous year.

The Covid-19 outbreak in January and subsequent restrictions on people’s mobility notably dragged on sales of toy items at Pop Mart physical stores, which were down by 23.1% in the first half. In comparison, same-store sales registered some 60% year-on-year increases in 2018 and 2019.

In addition to online retail, the Beijing-based company had 136 retail stores and 850 automated vending machines across the country as of June. But it temporarily shuttered 88 toy shops during the pandemic, according to its prospectus.

On top of the diminished revenue growth, the company attributed its narrowed profit margin, which slipped to 17.3% in the first half from 20.9% last year, to increased spending on opening more physical stores and unstaffed roboshops, and hiring more staff in administration and creative design departments.

The company’s flagship “blind box” products, however, remained robust, with 27,476 items sold, reflecting 70.5% sales growth in the first nine months. Each item was 3 yuan ($0.46) cheaper than last year, primarily because of a concerted focus on discount promotions in the third quarter as Covid-19 travel restrictions eased and people emerged from their homes to shop.

Despite being founded 10 years ago, Pop Mart evolved into its current model over only the past four years by transforming from a seller of other companies’ toys to a developer and seller of its own intellectual property.

As of June, Pop Mart held 93 copyright licenses for its products, 25 of which were exclusive and 12 were for self-designed models. Its “Molly” series of figurines and toys is one of its oldest self-developed product lines, and accounted for more than 30% of sales last year.

Sales have boomed as a result of the “blind box” toy phenomenon, which involves products being sold in opaque boxes so buyers can’t see what they’re getting until after a purchase. The concept adds an element of surprise, and also creates a trading culture whereby people can round out a collection of figurines by exchanging them with other collectors.

The amount of shares Pop Mart plans to offer in the upcoming IPO and the size of investment it will gain from the listing have not been made public, people close to the company told Caixin.

Pop Mart has had seven rounds of funding, the last of which valued the company at $2.5 billion in April.

Contact reporter Anniek Bao (yunxinbao@caixin.com)

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