China slammed 'blind box' addiction — but that shouldn't faze Labubu-maker Pop Mart

Analysts say the fears of regulatory headwinds are overblown as Gen Zers and millennials, rather than young children, are Pop Mart's main consumer demographic

Local peers that focus on minors, on the other hand, will ly be "heavily impacted," one analyst said

But although the Labubu frenzy shows no sign of slowing, Pop Mart faces other challenges

Pedro Pardo | Afp | Getty ImagesBeijing may have warned against "blind box" toys, but analysts are betting that Pop Mart International — the company behind Labubu dolls — will remain one of China's hottest consumer brands this year

In an editorial on June 20, China's state media People's Daily called for tighter regulations around selling blind-boxed toys and trading cards to children under the age of eight, such as verifying buyers' age upon payment and requiring parental apval in online transactions

Without naming Beijing-headquartered Pop Mart, the paper slammed es for enticing young children to spend heavily on "blind cards" and "mystery boxes" — a model central to Pop Mart's appeal

The company often sells its dolls in a blind box to buyers who don't know what character is inside until they open it

Its stock has regained some ground since then, hovering near the all-time high levels hit in mid-June

The state media ary on blind-box toys is reminiscent of Beijing's regulations on games in recent years, which were aimed at curbing gaming addiction and unsupervised in-game purchases by minors

Visual China Group | Getty Images"The magnitude of Chinese policymakers' impact [on es] is way higher than that in other countries," said Alfredo Montufar-Helu, senior advisor for the China Center at The Conference Board, a think tank

That said, analysts view the fears of regulatory headwinds as overblown as Gen Zers and millennials, rather than young children, are Pop Mart's main consumer demographic

Pop Mart will largely be insulated from intensifying regulatory scrutiny as it targets younger adults with adequate purchasing power, Montufar-Helu said

Local peers that focus on minors, however, will ly be "heavily impacted," said Jeff Zhang, equity analyst at Morningstar

There's another factor that could cushion the regulatory impact on Pop Mart

It's increasingly driven by overseas sales, especially in Southeast Asia, Zhang said

Pop Mart derived 61% of its revenue from mainland China in 2024, according to its annual report, drawing the rest mainly from Southeast Asia and East Asia, as well as Hong Kong, Macau and Taiwan

HSBC Bank expects Pop Mart's overseas revenue in 2025 to more than double to 14 billion yuan ($1. 95 billion) from 2024 on strong sales momentum from "Labubu 3. 0," released in April

Dopamine economyThe rapidly growing ity of the ugly-cute toys contrasts with otherwise sluggish consumption in the country, as many become increasingly frugal in the face of an economic slowdown

Younger Chinese consumers want to build toy collections for the sense of "affordable exclusivity" it gives them, said Montufar-Helu, as it can be satisfying to be "one of the lucky ones to get the special edition" at a reasonable price

Collectors often spend hundreds or thousands of yuan, and rare models can fetch six-figure sums at second hand auctions

Medianews Group | Getty Images"The very point blind boxes is the unknown, the uncertainty

There is some inherent curiosity what someone's gonna get

That brings a certain degree of excitement when people are buying blind boxes," said Chris Wong, senior clinical psychologist at Singapore-based Resilienz Clinic. "When that uncertainty is resolved," he said, referring to when the blind box is opened, "[that] usually comes with certain pleasant emotions, fun, surprise and delight

That also plays a part in why people just keep on doing that. "Seeing others their own experiences of blind boxes on social media also amplifies such a response from the brain, as it fulfils the human need for social connection, the psychologist said

Scalpers, counterfeits, duction delaysBut although the Labubu frenzy shows no sign of slowing, Pop Mart still faces other challenges that may dent its momentum, analysts said. "While Pop Mart's major IPs, such as Labubu have received some global ity over the past two years

There is no guarantee that what is now will stay relevant over the next five to ten years," Zhang said

Other risks include uncertainty around the company's ability to meet shifting demand and scalping, which could drive genuine consumers out of the market, HSBC analysts said

Pop Mart issued a rare apology last month after a surge in orders caused dery delays, with consumers complaining online not having receiving orders weeks after placing them

Counterfeit toys may also dampen Pop Mart's reputation at and abroad, analysts said, despite the government's efforts in stepping up scrutiny at export checkpoints

Pedro Pardo | Afp | Getty ImagesTo keep its brand fresh, Pop Mart has taken a page from Disney's playbook, doubling down on expanding its IP portfolio, launching pop-up stores, a film studio and a theme park

Pop Mart's founder Wang Ning once hinted at his aspiration to turn the company into "China's Disney. "But those initiatives don't come cheap. "Animation duction requires a strong storytelling team that can consistently der compelling narratives," said Echo Gong, an independent Shanghai-based retail consumption consultant

She added that managing a theme park also demands an entirely different skillset and far greater investment than simply selling toys. — CNBC's Evelyn Cheng contributed to this story.