How collectibles brand Funko became a billion-dollar pop culture powerhouse
Back in January 2017 Funko
Since then, the Everett, WA-based company has gone public, salvaged from what was describe as the “worst first-day comeback for an IPO in 17 years”, landed licensing deals with some of the hottest TV, movie and gaming properties, landed lead roles in the parade Macy’s Day and branched out into new product categories like apparel, and NFT, and added new licensing partnerships in anime, sports, and music.
Oh, and along the way, they also hit that billion dollar goal. This month, they reported net sales of $1.029 billion for fiscal year 2021.
Funko is entering the next phase of its life as a billion-dollar company with growth projections of 20-25% this year, a four-part plan for continued growth, a number of protective moats that protect against encroachment from competitors, and a new CEO convinced that the best of Funko is yet to come.
“It’s an exciting time for the company,” said new CEO Andrew Perlmutter. “We think we know what’s big, and then we’re bigger.”
In the toy business, Funko is still relatively small compared to Hasbro
Brian Mariotti, who bought Funko in 2005 when he was a seven-year-old bobblehead doll maker, stepped down as CEO in January, taking on a new role as chief creative officer as part of a well-organized transition plan.
Mariotti is credited with leading the company to where almost every movie star and celebrity wants to see themselves as a Funko figure.
“Everybody wants to be a Pop! Vinyl figure,” said James Zahn, deputy editor of Toy Book, referring to Funko collectible figures known for their oversized heads and large, round eyes. “Actors, celebrities and musicians now see it as a huge feather in the cap,” Zahn said.
Hollywood stars and producers feel they haven’t made it unless their show or movie becomes a Funko collectible, a status achieved by shows ranging from Squid Game and Game of Thrones to Seinfeld and Golden Girls.
Perlmutter worked closely with Mariotti at Funko for nearly a decade, first as senior vice president of sales, and since 2017 as president.
He recalls that the prediction of $1 billion by 2021 was met with some skepticism when it was made.
“We are misunderstood by many different audiences, whether it’s the financial public or our perceived competitors in the toy industry,” Perlmutter said.
“We’re not a toy company, we’re a pop culture company,” he said.
It’s a company that has achieved the enviable position of being a platform as well-known and loved by collectors as the entertainment properties it licenses.
“When customers walk into stores, they say do you have Funkos or do you have Pops!. Or I’m looking for the Funko Pop! Darth Vader or the Funko Pop! Batman. That’s the magic for us — because our brand is what they’re looking for, but they’re looking for their favorite character within that brand,” Perlmutter said.
Although Funko may have been misunderstood by non-collectors, it grew by understanding what fans wanted in terms of collectibles and supporting those fans with live events, limited editions and opportunities. advance purchase, while also attracting mass-market retailers.
His figures are sold in specialty comic and game stores, as well as GameStop, Walmart, Target
Funko has increased its direct-to-consumer sales in recent years, to the point where they accounted for 11% of sales in 2021, up from virtually nothing just a few years ago.
It can use exclusive offers to direct sales to its own direct channel or to specific retailers, making it an attractive wholesale partner.
“We have a unique ability to drive foot traffic through proprietary products,” Perlmutter said. If, for example, he releases an exclusive product at Walmart, his fan base will flock to Walmart stores in droves. “But we also have the ability to drive foot traffic to us,” he said, allowing Funko to create a strong direct-to-consumer channel as well as a strong wholesale channel.
One of the main reasons for Funko’s longevity and success, Perlmutter said, is the demographics of its fanbase.
“We sell to an older audience. We don’t sell to kids who are ready to move on,” he said. “This audience buys our products with their own money for a special occasion. They are therefore not expecting a birthday, Christmas or a holiday. They buy it because they want to express their love for that fandom, whatever it is,” he said.
A second factor, he said, “is fandom.”
“Whether it’s Squid Game or Golden Girls or Transformers of GI Joe, Marvel, Star Wars, there’s always something new, and we’ve developed a platform in which to offer the fandom that allows our collectors to represent that that they love in a very gender-neutral way.”
While action figures tend to attract more male buyers, Funko’s Pop! Vinyl figures are a rare example that has as many, if not more, female buyers.
In 2017, Funko acquired collectible backpack and accessories company Loungefly and added apparel to its assortment to boost sales from $20 million in 2017 to $140 million last year.
Perlmutter, during his first earnings call as CEO on March 3, outlined what he called the four pillars of growth he’s banking on to drive continued revenue gains. These are: 1) continued innovation in the core collectibles category; 2) income diversification through new product categories; 3) further expansion of the direct-to-consumer platform; and 4) international expansion.
One of the strongest protective moats protecting Funko’s growth is the fact that they pretty much have their niche to themselves.
“Simply no one operates in the same space as Funko,” said Toy Book’s Zahn. If an entertainment property or even another toy company wants a Pop! version of a character, “they have to go to the source,” he said.
Another strength of Funko, according to Zahn, is that Perlmutter understands fans, as he is a collector and a fan himself. “A lot of the most successful people in the toy industry are just big kids themselves,” he said. “Andrew is notoriously a kid who grew up with Kenner Star Wars toys, and that certainly helped shape his journey,” Zahn said.
Fandom and staying on top of pop culture “is in our DNA” at Funko, Perlmutter said. “While maybe in a traditional office space people around the water cooler are talking about Sunday’s football game, we’re talking about Squid Game.”