A prominent Australian hedge fund, Arnott Capital, predicts a sharp decline in the popularity of the Labubu dolls and intends to benefit from this downturn by shorting the stock of their manufacturer, Pop Mart. The Hong Kong-listed company has experienced a meteoric rise in market capitalisation, soaring from approximately $10 billion in 2020 to over $65 billion today, primarily driven by an insatiable demand for these collectibles.
The surge in demand has been fuelled by a wave of social media hype, bolstered by endorsements from celebrities such as David Beckham, Kim Kardashian, and K-pop sensations like Blackpink. These dolls are packaged in ‘blind boxes,’ adding an element of surprise that has captivated collectors. Retailing between $30 and $60, certain Labubus have fetched staggering prices on secondary markets— one sold for a record US$10,500 (around AUD 16,250) last week.
However, Arnott Capital suggests that the Labubu craze may be on the verge of fading. In a recent communication to investors, the firm pointed out that the “hype cycle” associated with such collectibles can lead to unpredictability in price movements. They noted a significant decline in the resale prices of Labubus since peaking in June, indicating a potential oversupply as demand diminishes.
Drawing parallels to past trends, Arnott Capital likens the current Labubu phenomenon to the Hello Kitty boom in the early 2010s, which saw Sanrio’s share price skyrocket before plummeting. The firm speculates that the dwindling demand could precipitate an oversupply situation, adversely impacting the market in 2024 and early 2025.
Arnott Capital emphasises the unique factors contributing to the dolls’ success, particularly the ‘blind box’ format, which they contend mimics a lottery-like allure. This has led to scalpers reselling dolls for profit and the emergence of websites where collectors use bots to snatch up stock.
In conclusion, while the Labubu dolls have enjoyed a momentous rise thanks to social media and strategic marketing, Arnott Capital advises caution. The historical context of similar trends suggests that the market could undergo significant corrections, posing risks for investors.