In recent years, China's trendy toy brands, represented by Pop Mart and TOP TOY, are accelerating their sail to the sea, reporting successes in the Southeast Asian market, and actively laying out the European and American markets with great potential.

Huatai Securities has released a series of new consumer research reports to analyse this phenomenon in depth, believing that China's trendy toy industry is ushering in a "golden age" of global expansion and is expected to give birth to world-class toy brands thanks to the comprehensive upgrading of its product power, design aesthetics, supply chain efficiency and comprehensive IP operation capability.

Overseas toy market is vast, emerging brands quickly seize market share

According to Frost & Sullivan, the global toy market size of about 773.1 billion yuan in 2023, is expected to 2024-28 years CAGR of about 5.1%, of which the collection of toys category rapid penetration, in China, the United States, Western Europe in 2009-23, the share of the collection of related categories were raised 19, 11, 12 pct.

Category structure changes, LEGO, MGA Entertainment, Jazwares and other collectible toy companies continue to increase the share, and Pop Mart has category innovation, "social currency" attribute, the commonality of emotional consumption, reflecting the new collectible toys to subvert the industry has become a global trend.

In recent years, the tide of national products continue to innovate, blind box, block people, set of cards and other emerging categories of rapid rise, driving the industry high boom growth, the domestic head of the brand in the quality of the product, design aesthetics, cost-effective and so on, have global competitiveness, and gradually from the cost-effective seafaring towards the output of new categories.

Global market is wide open and new forces are on the rise

The report points out that the global toy market has huge space, with a size of about RMB 773.1 billion in 2023, and a compound annual growth rate (CAGR) of about 5.1% is expected between 2024 and 2028.Among them, the category of collectible toys is rapidly penetrating globally, with the share of collection-related categories in major markets such as China, the United States and Western Europe rising by 19, 11 and 12 percentage points respectively between 2009 and 2023.In this structural change, LEGO, MGA Entertainment (L.O.L Surprise Dolls), Jazwares and other companies focusing on collectible toys continue to increase their share of the market, while Chinese brands such as Pop Mart are becoming an important part of the global emerging force by virtue of their category innovation, "social currency" attributes and emotional consumption value.According to Huatai Securities, China's trendy toy market has been growing steadily.

According to Huatai Securities, the continued innovation of China's leading fashion toy companies in new categories such as blind boxes, building blocks, and collectible cards has driven the industry's high growth.Their product quality, design aesthetics and price-performance ratio have become globally competitive, and their overseas route is upgrading from the "price-performance ratio" advantage in the early days to "exporting new categories and new ways of playing" to the world.

"People, goods and field" change, the national goods "bend the road to overtake"

A report by Huatai Securities focuses on the three key change factors that drive the success of China's trendy toys going overseas - "people, goods and field":

Change of customer base: from children to universal collection.The toy consumer group has expanded significantly, and adults have become an important increment. 2022, the United States and Europe, the proportion of toy consumption of people over 12 years of age reached 25% and 29% respectively, and the growth rate continues to outperform the broader market.Aesthetic preferences are more trendy and personalized.The global cultural phenomenon of "Kidult" (children and adults) has injected strong impetus into the toy collection market.

Changes in IP and marketing: the rise of image IP and the emergence of social media as a core position.The social media and short-video consumption of entertainment has put pressure on the influence of "story IPs" that rely on long content narratives, while "image IPs" (such as Pop Mart's Labubu and Molly), which rely on unique visual designs that strike a chord in people's hearts, have seen an outburst.The "social currency" attribute that comes with trendy toys is highly compatible with social media, and it quickly breaks the circle through KOL recommendation, UGC content (user-generated content) and viral dissemination.This is exemplified by the fact that Pop Mart's single-day sales on TikTok's U.S. website exceeded US$160,000, and its single-session GMV was nearly US$290,000, which is an example of the success of Pop Mart.

The change of channels: online breakthrough, live e-commerce empowerment.The epidemic has accelerated the process of online toy consumption, helping Chinese brands bypass the monopoly of traditional toy giants on offline channels (such as Toys R Us).Southeast Asia, as one of the fastest growing markets in the world in terms of e-commerce penetration, the live-streaming with goods model is highly compatible with the strong display and interactive play of hip toys.Pop Mart recorded a single GMV of over $100,000 through live streaming on TikTok Thailand.In the North American market, TikTok Shop has also become an important platform for Gen Z and Millennials to reach out to and purchase trendy toys.

Regional markets: Southeast Asia rides the wave, Europe and the United States have a bright outlook

Huatai Securities also pointed out in the report that after years of development, Chinese tide game enterprises have accumulated rich experience in product matrix covering a wide range of age groups, IP operation and marketing, online and offline omni-channel layout, etc., and are able to keenly capture and make full use of the profound changes in the global "people, goods, and field" to realise the "curved road to overtake".The report has made an analysis of the key overseas regions.

The report gives an outlook on key overseas regions:

South-East Asia: a region with great potential.The region has a young population structure (the population aged 15-34 is equivalent to 61% of China), strong entertainment consumption concepts, and a high degree of acceptance of East Asian trend culture.Chinese brands have successfully ignited market fever through localisation strategies such as celebrity cooperation, live e-commerce and high-quality shops (e.g., Pop Mart and 52TOYS are rapidly opening shops in Thailand), and are replicating and expanding from Thailand to Indonesia, the Philippines, Vietnam and other countries.The rapid growth of local salaries and the obvious trend of consumption upgrading provide continuous impetus for the penetration of trendy games.

Europe and the United States: strong consumption power, promising.North America (per capita consumption of toys is 12.1 times that of China) and Europe (4.6 times) have strong consumer power, high acceptance of multiculturalism, and relatively small cultural barriers in the field of trendy toys.U.S. consumers have a significant preference for collectible toys (61% of consumers buy collectibles) and high price acceptance.Chinese brands' local fan base is growing rapidly, with frequent circle-breaking events.The large number of mid-to-high-end shopping malls in the US (A-grade malls with a ping-efficiency of around 59,000 yuan per square metre) offers a wide range of offline channels to expand.Although we need to pay attention to the risk of trade friction, but the report believes that the head of the enterprise by virtue of overseas production capacity layout and high product premium ability, with strong anti-risk resilience.

Core advantage: from "designer dividend" to "cultural industry" system

The report emphasizes that the underlying support for China's fashionable games going overseas is the upgrading of China's manufacturing industry's "cultural industry" system:

Design and R&D strength jumped: thanks to the huge domestic "designer dividend" (the number of art graduates far exceeds that of the United States), the head of the tide of the toy enterprise R & D team scale (such as Pop Mart, the relevant team of MINISO more than 1,000 people), and sustained investment to promote product innovation, such as Pop Mart Labubu Vinyl Plush series in Europe and the United States triggered a craze, the product price has been compared with the international price of the toy, and the product price has been compared with the international market.For example, Pop Mart Labubu Vinyl Plush series has caused a craze in Europe and the United States, and the selling price of the products has been on a par with international brands or even slightly higher, but won the market by virtue of better design and quality.

Advantage of supply chain integration: China's perfect toy manufacturing industry chain (such as Dongguan, Shantou cluster) for the integration of technology innovation (such as vinyl plush, quicksand acrylic) provides a strong foundation.General-purpose parts platforms like Goddes Precision, through the integration of orders to enhance the scale effect and technical precision (close to the level of Lego), help the whole industry upgrade.

IP ecology and fan operation: China's leading fashion game has evolved from simply selling "goods" to building a comprehensive ecosystem that includes IP operation, community interaction (e.g., unboxing, DIY, baby-swapping), themed shop experience, flash mob activities, tournaments (e.g., Card Game's Heroes Duel), content incubation (e.g., animated shorts), and even crossover co-branding, with the ability to establish a deep emotional connection with global fans.It has the ability to establish a deep emotional connection with global fans.

Investment Advice and Risk Warning

Huatai Securities is optimistic about China's leading companies in hip games, whether through tapping the resources of original artists around the world to create their own IPs or leveraging famous copyright IPs to "borrow the ship to go to sea", both of which have a broad space for development.With their IP operation foundation and profound layout of the whole value chain including R&D, production, marketing and channels, the leading companies are expected to continue to seize the global market share.

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