Bubble Matt can’t get warm

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Text/Wang Huiying Editor/Zhou Xiaoqi

Source: Wired Insight

Bubble Mart, the ice is hard to solve.

Recently, Bubble Mart disclosed its unaudited performance for the third quarter of 2022. Data shows that this quarter fell by 5%-10% year-on-year compared with the third quarter of 2021, of which mainland China revenue fell by 10%-15% year-on-year.

Looking at the time line, Bubble Mart’s life in the domestic market is getting harder and harder. The company’s first-half financial report showed that despite a year-on-year increase in revenue, net profit declined for the first time.

This also means that the profitability of Bubble Mart is weakening, and the halo of “the first share of fashion play” is also fading.

The only good news is that since the beginning of this year, overseas business has been a rare growth business for Bubble Mart, and it has become a bargaining chip to boost the confidence of the outside world. In the third quarter, Bubble Mart’s revenue from Hong Kong, Macau, Taiwan and overseas increased by 115%-120% year-on-year.

However, overseas revenue is still a small part, and the growth in driving overall performance is still limited and full of uncertainty. Unsurprisingly, the lackluster performance also made the capital market lose confidence in it.

Since the release of the performance forecast in mid-July, Bubble Mart’s stock price has fallen by more than 30%, setting a new record low. In terms of market value, more than 60 billion Hong Kong dollars have also evaporated from the highest point at the beginning of this year.

Previously, Furui issued a report saying that due to the high base in the same period last year and the weak macro environment, which will affect non-essential consumption, the overall sales of the group are expected to drop by 9% in the third quarter, and the trend is expected to be the third quarter of this year. The fourth quarter and the first half of next year will be maintained.

In fact, pessimistic market sentiment has already spread. When Bubble Mart landed in the capital market in 2020, its market value of 100 billion was questioned. Today, behind the shattering of the myth of high growth, Bubble Mart is gradually being abandoned by young people.

To a certain extent, the market value of Bubble Mart was “bought” by young people. The emergence of the Blind Box series has made Bubble Mart a favorite among young consumers, and even a “social currency”. At that time, the frenzy of the market hit the second-hand market, and a limited baby can be sold for tens of thousands or hundreds of thousands of yuan.

The consumer market is changing rapidly, and consumer loyalty after calm down is limited. Bubble Mart made the trendy play market popular, and a large number of players ran into the market, but Bubble Mart gradually fell out of favor. The stores are no longer bustling, the second-hand market is empty, and many enthusiasts have retreated.

From the star company that created the myth of high growth to the current decline in performance and the burst of the 100 billion bubble, Bubble Mart is anxious. From the development of big babies, to theme parks, to overseas business, Bubble Mart has been looking for the second curve, but it is very difficult to create the second curve. When the main business has not improved, Bubble Mart has invested heavily Other businesses, or will increase its cost pressure.

This winter, it is difficult for Bubble Mart to warm up after all.

The “bubble” doesn’t blow

Bubble Mart’s “bubble” couldn’t blow.

Last week, Bubble Mart, a fashion play company, announced its operating conditions in the third quarter of this year. Although no specific financial data was released, the announcement showed that Bubble Mart’s overall revenue in the third quarter declined slightly year-on-year.

As the main market of Bubble Mart, revenue in mainland China fell by 10%-15% year-on-year. Specific to each channel, there are varying degrees of decline.

In the third quarter of this year, retail stores fell by 0%-5% year-on-year; robot stores fell by 25%-30% year-on-year; box extractors fell by 25%-30% year-on-year; e-commerce platforms and other online platforms fell by 10%-15% year-on-year , including Tmall flagship store down 35%-40% year-on-year, and Jingdong flagship store down 20%-25% year-on-year.

The only growth channel is wholesale and other channels, which increased by 5%-10% year-on-year. In contrast, such growth is far less than the sharp decline in other channels, which directly led to a decline in the overall business in mainland China.

Bubble Mart’s development this year has been challenging.

According to the financial report, Bubble Mart’s revenue in the first half of the year was 2.359 billion yuan, a year-on-year increase of 33.1%; net profit recorded 332 million yuan, a year-on-year decrease of 7.2%. Although the revenue in the first half of the year is still growing year-on-year, in terms of growth rate, it is more than a little bit worse than the growth rate of more than 200% in the peak period.

In terms of channels, in the first half of this year, its offline revenue was 1.1 billion yuan, a year-on-year increase of 21.8%; online channel revenue was 978 million yuan, a year-on-year increase of 46.8%. In the official explanation of Bubble Mart, the operation was suspended due to the epidemic, which was the main reason for the decline in revenue growth.

Indeed, the epidemic in the first half of the year gave Bubble Mart a heavy blow.

According to official statistics, in the first half of the year, the number of retail stores closed for 1 week to 3 months reached 133. Among them, the first-tier cities are the hardest hit areas. Most of the 93 new stores added by Bubble Mart in the past year were contributed by the second-tier and other cities.

It should be noted that not only offline channels are affected by the epidemic, but online sales are also in poor condition. The relevant management of Bubble Mart said that some traffic “transferred from Tmall to Douyin”, which brought challenges to Bubble Mart’s differentiated operations on different online platforms.

With the slowdown in revenue growth, the pressure on Bubble Mart’s gross profit margin has become more and more obvious. According to the financial report, the gross profit margin in the first half of 2022 was 58.1%, a year-on-year decrease of 4.9%. The relevant personnel of Bubble Mart explained in the earnings conference call that mainly due to the increase in raw materials, the processing cost of each process in the OEM factory has risen.

Extending the time line, this is the third consecutive first-half decline in Bubble Mart’s gross profit margin. According to the management’s statement, the gross profit margin target for this year is also to stop the decline.

More importantly, the first half of this year is the first reporting period in which Bubble Mart’s net profit has declined since its listing in 2020. In this regard, Bubble Mart explained that the decline in net profit was mainly affected by two aspects. On the one hand, gross profit margins declined; on the other hand, sales and administrative expenses, which were mainly based on employee benefits, increased.

It is worth mentioning that in the fashion play market, inventory is also an important measure of the brand. The financial report shows that in the first half of this year, Bubble Mart’s inventory was 957 million yuan, and the inventory turnover days were 160 days. In 2019, its inventory turnover days were only 46 days.

In other words, Bubble Mart is getting harder and harder to sell.

Looking back on the past two years, when Bubble Mart was listed, it happened to catch up with the best two years of new consumption. The bigger the blow, the miracle of the consumer market has been created.

But today is different from the past, new consumption as a whole is cold, the market has returned to rationality, and blind boxes, as “non-essential consumption”, are naturally abandoned by many consumers.

Consumers who quit the pit, Bubble Mart who fell out of favor

The Chinese version of the documentary “72 Hours of Documentary” once recorded the popularity of the trendy play market. In April 2019, at the International Trendy Toys Exhibition held at the Shanghai World Expo Exhibition and Convention Center, some people lined up all night to grab the limited edition, and some people ran at the speed of a 100-meter sprint after the door was opened.

Bubble Mart, who was in the hot period, was the organizer of that event.

Xiaohui, a post-95s generation, used to be an avid collector of Bubble Mart. In the past, Xiaohui did not hesitate to consume Bubble Mart’s end boxes and changing babies. Beginning in 2020, Xiaohui’s house has been filled with a wall of Bubble Mart.

However, since this year, Xiaohui’s enthusiasm for Bubble Mart has decreased significantly. “I bought too many before, and now I don’t have any good-looking ones. It’s better to save money.” Xiaohui said bluntly to Wired Insight.

There are still many consumers like Xiaohui, and fans who used to be a fan of Bubble Mart are now “retreat”.

In fact, Chaowan is not a just-needed product at all, and it is often easy to be abandoned if there are not enough fresh explosions to attract.

Reflected in the data, the repurchase rate of Bubble Mart’s members is also declining. The financial report shows that the repurchase rate of members in the first half of the year fell to 47.9%. In 2019, the repurchase rate of its members was 58%, and it became 56.5% in 2021.

More importantly, the quality problems caused by poor quality control have also discouraged many consumers.

Wang Xue revealed to Wired Insight that she once bought the DIMO Qunar Blind Box series at the Bubble Mart store, and found black scratches as soon as she was drawn, so she immediately contacted the clerk for after-sales. The clerk said, “The popular series can only be replaced with samples, or waited for the warehouse to resend, and the same series or the same model cannot be re-extracted offline.”

Wang Xue believes that since quality control cannot be guaranteed, there should be after-sales services that satisfy consumers, such as re-drawing new blind boxes of this series. After all, samples and warehouse reissues cannot guarantee the quality.

On Xiaohongshu, search for notes about “Bubble Mart’s retreat”, up to 10,000. On the black cat complaint, there are nearly 10,000 complaints about Bubble Mart.

It is worth mentioning that due to the unknown properties of the Bubble Mart blind box, it was also quite popular in the second-hand market before. Generally speaking, if you can’t buy popular models, or can’t draw your favorite styles, consumers tend to flow into the second-hand market.

According to Leopard Change, the 1,000% big baby of the Bubble Mart MEGA Collection Series, which was priced at 4,999 yuan at the time, sold for a sky-high price of 89,999 yuan in Xianyu.

Nowadays, the sentiment of many consumers to “retreat” has also spread to the second-hand market, and Bubble Mart is not so “fragrant”.

In the second-hand market, the premium space of Bubble Mart is also very limited, and it can even be bought at a lower price than the market price.

According to Phoenix Network Technology, a consumer once spent tens of thousands of yuan just to buy the Bubble Mart SKULLPANDA OOTD series. When he wanted to change hands, the original price of SKULLPANDA OOTD denim was 899 yuan, but no one was interested in Xianyu’s 500 yuan, and finally had to drop it to 400 yuan before selling it.

In addition, except for a few rare co-branded models, Bubble Mart products are all in decline. The unopened SPACE MOLLY 1000%, which has been fired to 10,000 yuan, is currently priced at around 5,000 yuan, which is almost the same as the release price of 4,999 yuan.

The market for joint models is so bad, and the ordinary models are even cheaper. Previously, according to a visit by Wired Insight, at the Panjiayuan Antique Night Market in Beijing, the second-hand market price of unpacked ordinary Bubble Mart was 100 yuan, and the average price was lower than the market price; only hidden and popular models were available. The average selling price is more than 100 yuan, but it is also lower than the second-hand market price in the hot period.

In fact, many consumers initially took a fancy to the premium space in the second-hand market of Bubble Mart. Now the price of the second-hand market has plummeted, and more and more players may retreat.

iiMedia Research also pointed out that the development of China’s blind box industry will be challenged by the risk of losing users. Data shows that more than 30% of the interviewed netizens believe that the blind box is too gimmicky and the product itself lacks practicality, and more than 20% of the users think the price is unreasonable.

At the same time, in January this year, the policy level also regulated the sales form of blind boxes. At that time, the China Consumers Association named the controversy over the sale of Bubble Mart and KFC’s co-branded blind boxes. There was a problem of inducing consumers to overspend, obtaining limited-edition blind boxes, and aggravating food waste.

In the past, as a representative of new consumption, Bubble Mart was “bought” by the post-90s and post-00s. When the novelty of consumers fades, it seems reasonable for Bubble Mart to fall out of favor.

Does the capital market still have confidence in it?

Stepping on the outlet of the middle-blind box, the market value of 100 billion, the first share of trendy play, used to be the label of Bubble Mart.

Since its establishment in 2010, Bubble Mart has experienced 8 rounds of financing. Behind this, there are many star capital blessings, including Sequoia China, Huaxing Capital, and Black Ant Capital.

On December 11, 2020, Bubble Mart landed on the Hong Kong Stock Exchange and opened up 100% at HK$77.1/share, with a total market value of HK$106.5 billion. At the time, such achievements undoubtedly brought huge returns to investors.

Previously, Bubble Mart has been caught in the controversy of high valuation more than once. If the enthusiasm of capital and the market was still there at that time, at present, with the epidemic superimposed on the new consumption track, capital is losing confidence in it.

In July this year, Goldman Sachs changed Bubble Mart’s rating from “buy” to “neutral” and lowered its net profit forecast for 2022-24 by 24%-37% to reflect the higher visibility of revenue and profit fluctuations. Low, the target price was cut by 47% from HK$45 to HK$24.

Looking back on the stock price of Bubble Mart this year, it has been in a state of volatility and decline. The biggest drop came after Bubble Mart issued a profit warning for the first half of 2022 on July 15. At that time, Bubble Mart’s stock price fell for 4 consecutive trading days.

Since the release of the performance forecast in mid-July, the Bubble Mart range has fallen by more than 30%, reaching a minimum of HK$9.95 per share, setting a new record low. In terms of market value, as of now, the market value of Bubble Mart is 14.79 billion Hong Kong dollars, a drop of 78% compared with the highest market value of 65.89 billion Hong Kong dollars in 2022, evaporating more than 60 billion Hong Kong dollars.

The stock price has plummeted and the market value has fallen. Capital has become tired of Bubble Mart’s story. In order to restore confidence in the capital market, Bubble Mart has been looking for new stories.

At this time, the overseas market became Bubble Mart’s life-saving straw.

When interpreting the performance in 2021, Wang Ning, founder of Bubble Mart, said that he hoped that overseas income can reach 50% of the overall income in the future. This is the direction of Bubble Mart’s efforts. In recent years, the growth overseas has been faster than that in China, and it is hoped that the preset goal can be achieved one day.

Since the beginning of this year, Bubble Mart has accelerated its globalization. In July, Bubble Mart opened local flagship stores in Hongda, South Korea and Harajuku, Japan, and opened its first store in Melbourne, Australia in August. Bubble Mart predicts that by next year, it will speed up its expansion in Europe and the United States, and its revenue contribution from the Asian and European and American markets is expected to be the same in the next year.

Reflected in the data, in the first half of the year, Bubble Mart’s overseas market revenue was 157 million yuan, a year-on-year increase of 161.7%, and the revenue ratio increased from 3.4% in the first half of 2021 to 6.6%. In the third quarter of this time, the overseas market was also the only good news for Bubble Mart, and the overall overseas revenue increased by 115%-120%.

Previously, Wang Ning, founder of Bubble Mart, predicted at the press conference that for a single quarter, it is expected that the contribution of overseas business revenue in the fourth quarter will exceed 10%.

Even if this forecast came true, it would be a far cry from the target of 50% of overall revenue. At least for now, the proportion of overseas markets is still a minority. More importantly, going overseas has long been a consensus among enterprises. How to bypass the competition with domestic brands, localize and accept the market test is also a problem.

With the popularity of blind box gameplay, there are more and more new entrants. MINISO and 52TOYS have all come to disrupt the situation. Although Bubble Mart has accumulated a certain number of users, it must face the problem of low consumer loyalty.

Upgrading new products has become a new curve for Bubble Mart. In June last year, Bubble Mart launched the MEGA collection series, mainly promoting 400% (28 cm) and 1000% (70 cm) big babies, aiming to create the “first collectible for young people” in China, combining blind box toys. Transition to the art collection level.

Putting aside the design and quality of the high-end big baby, the customized and co-branded models based on the BE@RBRICK building block bear have taken the lead in occupying the minds of users. Whether consumers can pay for Bubble Mart is still unknown.

At the same time, Bubble Mart is still trying to create another “Disney”. At the beginning of this year, Bubble Mart and Beijing Chaoyang Park began to cooperate to build a theme park. In the conference call of the first half of the performance forecast, it was stated that the project has entered the design stage, with an overall investment of 270-300 million yuan.

This requires a lot of investment. In the case of declining performance, the layout of Bubble Mart is also regarded as a dangerous move by the outside world.

Going overseas to open stores, diversify products, and open theme parks, Bubble Mart wants to do more and more things. However, in the short term, it seems unrealistic to want to recover the decline through a new curve.

However, founder Wang Ning is still confident in the anti-cyclicality of Chaowan. He said that although consumers may have reduced consumer demand for various reasons, Chaowan is still very anti-cyclical. “Everyone says that toys, you need toys when you are happy, and you need toys when you are not happy.”

Business confidence is one thing, capital’s reaction is another. When the wind blows, it’s easy for Bubble Mart to reach a market value of 100 billion; when the wind stops, Bubble Mart’s stock price keeps falling, and Bubble Mart has to find a way to survive the cold winter.

(The header picture of this article is from the Bubble Mart WeChat public account. At the request of the interviewee, Xiaohui and Wang Xue are pseudonyms in this article.)

(Disclaimer: This article only represents the author’s point of view and does not represent the position of Sina.com.)

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