Just a Toy or Your Next Smart Investment?

Labubu toys, designed by Kasing Lung and sold by Pop Mart, are little plush monsters with mischievous smiles. They have achieved enormous popularity worldwide. While some may find the toy adorable and fun to collect, others, such as resellers and investors, have recognized something else: the potential for monetary gain, which does nothing but complicate matters, especially when these dolls are commanding hundreds to thousands of dollars on digital secondary marketplaces.

However, whether the craze is a viable investment or not, it’s important to note that society has seen fads in the past comparable to the height of the Labubu infatuation (think Beanie Babies and Cabbage Patch Kids). While some have profited from those past fads, many collector-investors have lost a lot of money that could have been better invested in the stock market. While the stock market has risks, top brokerage firms can help guide a portfolio that can better serve your future.

A History of Collectibles Crazes

The Labubu craze isn’t a new shift in consumer culture. Society has seen this type of hype for a toy before, and it can be referenced back to the ‘80s and ‘90s. For instance, amid the Beanie Baby and Cabbage Patch Kid crazes, the supply couldn’t handle demand, and individuals hoped to profit by buying rare or limited-edition collectible lines and reselling them on the secondary market.

The Cabbage Patch Kids Craze

In the late 1970s, Xavier Roberts designed the very first edition of Cabbage Patch Kids. The toy’s unique concept made it popular, distinguishing it from other toys. Every Cabbage Patch Kids doll had a distinct name that came with a birth certificate and adoption papers, establishing each doll’s one-of-a-kind status. The dolls’ attainment of fad status could not be predicted, although the toy did not become a consumer hit until the early 1980s.

To say market demand was overwhelmed by the limited supply would be an understatement. In addition to Cabbage Patch dolls reselling at inflated prices, the craze also turned violent. On several occasions, frenzied mobs vying for Cabbage Patch Kids dolls trampled fellow consumers.

The Beanie Baby Craze

It wasn’t long before another craze would stir the market into another frenzy. Ty Warner, the designer of the Beanie Baby, introduced the plush toy in 1993, and history would be made. Due to clever marketing, demand for the toy reached eye-popping heights. A combination of scarcity and limited edition designs laid the foundation for another consumer fad, which happened in 1995.

While the Beanie Baby craze didn’t get violent, it got expensive. Due to the scarcity of these plush toys and discontinued editions, consumers decided these toys had gained some sort of intrinsic value. They were no longer seen as innocent collectibles but as worthy investments. Not only did individuals resell these toys, but they did so at high volumes on new sophisticated platforms such as eBay, often at huge markups. In addition, people also bought them as long-term investments. The craze would crash five years later in the year 2000, leaving many who had heavily invested with monetary losses.

The Labubu Craze

In some ways, the Labubu craze is a combination of the Beanie Baby and Cabbage Patch Kids fads, with a new wrinkle to fuel consumer appeal. Lebubus are packaged in mystery boxes. As a result, buyers who are lucky enough to find a Labubu toy at retail price—which is an arguably modest cost of about $20—buy it blindly. Customers do not know the type of Labubu toy they are purchasing. The blind box isn’t a new marketing strategy; however, it is a controversial practice, where the ethics of the strategy are up for debate as it preys on consumers’ impulsiveness in a manner similar to gambling.

The Labubu craze and how they are packaged are only made worse by how they are purchased. While there have not been any consumer riots, there have been fights for Labubu toys in stores, forcing retailers to sell them online. However, that would inevitably create another issue for future e-commerce customers. Savvy resellers and investors would use bots to help them buy large quantities almost instantaneously. Forcing regular consumers to buy from a shrunken pool of sellers at likely inflated prices.

Further, social media influencers and celebrities promoting Labubus have enhanced the toys’ popularity, creating a pressurized funnel where the only way consumers can reasonably buy one is by overpaying. For instance, one of the most sought-after Labubu dolls recently sold for over $10,000.

The Risks of Investing in Collectibles

All investments pose some risk, regardless of their historic track record and how foolproof it may appear. While investing in collectibles may be a fun way to accumulate assets, remember to weigh the risks and consider the following:

• High Initial Investment: Not all collectibles have monetary value; some have social and personal value. While subjective, collectibles worthy of investment often have high price tags that can range from thousands to millions of dollars.
• Recurring Costs: Serious collectors often store and appraise their collections, which adds to their costs. So does insurance, which can entail a monthly premium, adding a lot to a collector’s annual expenses.
• Liquidity: Selling collectibles may sound easy, but finding a buyer willing to pay a premium can be difficult and will take a long time.
• Fraud: Collectors at all levels must be vigilant about fraud. Investors should conduct due diligence on the seller’s reputation, and once you’ve received a collectible, you may need to invest time and money to authenticate it. Many counterfeit Labubu dolls have made their way onto secondary marketplaces and are known as Lafufus.
• Volatile Market: The markets for various collectibles can differ dramatically from one to another and undergo a series of ups and downs regarding worth and value. Further, it’s important to remember that the value of a collectible may never reach your target.
• No Dividends or Passive Income: Collectibles by themselves typically do not generate dividends or passive income. While certain types of collectibles, such as fine art and sculptures, can be leased to a museum to create passive income, generally speaking, these types of collectibles are rare and often not obtainable by the average investor.

What Are Other Viable Investment Options?

Financial instruments such as stocks, ETFs, and mutual funds have historically produced solid returns for investors with a long-term outlook. Furthermore, these types of investments often provide better liquidity, regulation by government entities such as FINRA and the SEC, dividends, and more stable markets. In addition, stocks, ETFs, and mutual funds can be found on popular brokerage platforms such as Fidelity, Charles Schwab, and Interactive Brokers.

For instance, the image below showcases the S&P 500’s historical success and the long-term value it has provided to investors throughout the years. For example, if an investor invested $100 in 1957, they would have over $90,000 today. While there’s no guarantee of future success based on past results, the stock market has recovered from all downturns in the long run.

Investors who are adamant about getting involved with an alternative asset may want to consider cryptocurrency or real estate crowdfunding. While cryptocurrency and real estate crowdfunding often have some of the same drawbacks, such as significant initial investments, liquidity issues, non-regulating entities, and overall high risk, they may be better suited to investors seeking an alternative asset.

The Bottom Line

Labubu toys have taken pop culture and the average consumer by storm. Because of their immense popularity, they have gained the attention of collectors and investors alike. However, demand has been unable to keep up with supply, and Labubus is being sold at much higher prices than its retail list prices. Rare Labubu editions are being resold for thousands of dollars. 

While getting involved in the Labubu craze may be fun, it also entails potentially steep risks. Beginner investors may well be better off sticking with stocks, ETFs, and mutual funds. Other asset classes, such as real estate crowdfunding and cryptocurrency, are also viable options. However, regardless of the asset path, all investors must conduct their due diligence and decide which investments best suit their risk tolerance, financial goals, and time frame.