(Yicai) July 15 -- Pop Mart’s Labubu, a wide-eyed, toothy little toy goblin, has been in short supply since the beginning of the year, leading to long, overnight queues at select outlets and skyhigh markups on resale markets. The global sales frenzy has led to growing suspicions that the Chinese designer toy company may be deliberately restricting supply to fuel demand. The reasons behind the shortage are likely far more complex, industry insiders told Yicai.

Many toy factories in China are capable of mass-producing Labubu, the owner of a consumer goods manufacturing company in southern Guangdong province said. Once a large enough order is placed, the factories will quickly ramp up production. However, Pop Mart has not taken this approach, which has given rise to speculation that the firm might be intentionally limiting supply.

Pop Mart outsources all its manufacturing through the original equipment manufacturer model. Once a factory gets the green light from Beijing-based Pop Mart, they can begin producing at scale.

There could be many reasons for the production bottleneck, industry insiders said. Hiking production could lead to a lack of key raw materials. Or new factories might struggle to meet Pop Mart's standards. Bringing in too many manufacturers at once could also make it harder to protect the company’s intellectual property, which might make Pop Mart more cautious about expanding too fast.

“When orders surge, Pop Mart's existing manufacturers may struggle to meet these orders,” a toy manufacturer said. “Finding new factories takes time, as it involves reviewing production capabilities and carrying out quality checks to ensure they meet standards.”

Pop Mart has very strict criteria for selecting manufacturing partners, the head of a Pop Mart OEM factory in Dongguan, Guangdong province told Yicai. The firm’s quality requirements are much higher than that of traditional toy brands, and this has caused many potential OEM factories to walk away once they realize how high the standards are.

“The truth is that demand far exceeds our production capacity,” a manager at Pop Mart told Yicai. “Whenever we think that we have hit the ceiling, the market surprises us again. It is this kind of exponential growth that is straining our supply chain.”

To address this challenge, Pop Mart is taking measures to ramp up production of its most popular items and is even considering delaying the launch of some new products, the manager said.

"We want more consumers to be able to buy what they want within a reasonable timeframe and to curb speculation and price gouging in the resale market," the person said.

Editors: Tang Shihua, Kim Taylor