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The problem with the designs is the same problem westerners have with stylistic art in general: they don't understand that the key to cuteness is minimalism, i.e. removing unecessary detail. There's a reason traditionally "cute" Japanese artwork have extremely subdued noses and lips while emphasizing eyes and animal ears.
They could have salvaged the Pikachu design if they didn't feel like they had to include visible sclera, lips, teeth, overly detailed snouts and other unnecessary detail.
