As FunKon, a three-day event at Funko’s flagship 40,000-square foot Hollywood store kicks off, the company could not be in ruder health.
“We had our best two domestic quarters in the company’s history in the fourth quarter of 2020 and first quarter of 2021,” Funko’s CEO, Brian Mariotti, explained to me. “During a pandemic, we’re growing.
The convention, which offers Funko fans everything from product reveals to content and celebrity appearances, also serves as a launchpad for a new philanthropic program, Pops! With Purpose. FunKon will also be virtual so fans who were unable to attend in person can take part.
I sat down for a chat with Mariotti to discuss FunKon, why Wall Street misjudged the company’s pandemic profitability, and whether the company will take a leaf out of Lego’s book and look at a move into the theme park market
Simon Thompson: This is the first FunKon that is in person. There have been virtual events. What does the future of events like this look like
Brian Mariotti: I think what we learned during the pandemic is that we’ve got a little better with each virtual con we have had. We learned something from it. I think as we’re coming out of the pandemic, and you can make an argument whether we’re coming out of it or not, the world is now going to be virtual meets physical. Let’s say 2022 is an entirely normal year. We’re still going to do both events. I think we’ve learned so much about how to engage a much larger audience. Let’s look at San Diego Comic-Con, the hottest ticket in pop culture, but most people don’t get tickets; it sells out too quickly. What about the rest of the world that doesn’t get a chance to go to San Diego? We’re now figuring out how to engage with them and how to include them virtually. Even with San Diego Comic-Con, that event is closed this year, so we have the stores to use for a physical event, and then we have all the virtual stuff going on. Next year, we’ll use the stores, we’ll use the event, and we’ll use virtual, all together, as a more powerful presentation. I think our fans love it.
Thompson: How do your retail partners feel about the evolution?
Mariotti: I think our retailers also love it. About six or seven years ago, we started sharing Comic-Con exclusive products with our retail partners. They love it. We’re creating events that Walmart’s not used to having, Target’s not used to having, Amazon’s not used to having, so the more we can do that where the fans and the retailers are engaged. It’s just working on so many different levels, and it’s kind of a silver lining to a horrible 18 months. They see the new way of doing things.
Thompson: Funko has never been a company that has been afraid to evolve and think outside the box, from IPs to product lines and brand extension. Has the pandemic changed Funko’s plans at all? Have the key drivers remained the same?
Mariotti: I think for us, it’s still about new formats that bring more people into the Funko world. Sometimes licenses bring more people into the world. Fortnite is a great example. Before we had Fortnite, we didn’t do really well with boys aged six to 14, which is Fortnite’s sweet spot. We brought Fortnite in, and we got a lot of new fans. We bought a board game company, we got families in who might not collect, but they love playing board games together or with their friends. We acquired Loungefly, and we continue to add to our very strong female demographic, and then we started doing unisex formats that are working exceptionally well. We’re always trying to figure out how we connect more fans to the things they love, and that sometimes means adjacent categories, new licenses, and formats that might be overlooked. Another example is Gold. It’s directly aimed at the sneakerhead community that loves rap music and collecting Nikes, entering into that urban culture. It’s designed that way and marketed that way. We’re just trying always to broaden the base. When it comes to the massive fan bases that were underserved, I think our focus for the last two years has been sports, music, and anime. Focusing a lot of our licensing and product attention on those three specific genres has worked phenomenally for us
Thompson: Extending the brand, expanding the brand, broadening the canvas is the plan. How do you not overextend the brand and shoot yourself in the foot?
Mariotti: I think one of the reasons why many of our products have a very healthy secondary market is that we’ve always been disciplined enough. When we retire a product, we never bring it back. We don’t overproduce it. We’re obsessed with sell-through data, not sell-in data. We’re looking at what we give to the retailer and then monitoring their data week to week saying, ‘Oh, my God, this is selling great,’ or, ‘Boy, this is not selling like we thought it was. Don’t make anymore.’ It keeps the brands healthy. The last thing you want to do when you have 40 feet at Walmart, and 35 feet at Target is to have dead products sitting on the shelves. You have to clearance them out. The idea that keeping products scarce, not overproducing, and having your products be desirable and sought after, is better than trying to extract all the dollars you possibly can from every individual SKU. I think that business philosophy has been around since I bought the company 17 years ago. Think about it from a brand perspective: You don’t want to see the product people want so bad at a Comic-Con clearanced out somewhere else because you overproduced it. I think that as we grow as a company, we’re getting better at that. I think that’s how you keep the brand fresh and relevant and create a sense of urgency for your products amongst your fans.
Thompson: How has the content people have been consuming over the last year, and how they have consumed it, changed Funko’s game plan?
Mariotti: It’s a great question. Some people from the outside, whether that be Wall Street or analysts or people trying to understand our company, thought we were beholden to big huge tentpole movies. It’s never been the case. They’re a very important part of our business. Still, with 18 months of almost no new content on that scale other than The Mandalorian, which we did phenomenal with, we have this vast array of evergreen content that continues to excite people. Old DC comics, old Marvel comics, Harry Potter, old Star Wars movies, The Golden Girls, Seinfeld, a lot of stuff that hasn’t had new content in years. We leaned on that. We have over 1,100 unique licenses, and we always knew that was an essential part of our business; we always talked about it. It just seemed like Wall Street was preoccupied with saying, ‘Oh, my goodness, this company is going to fold because there are no new movies.’ That’s not the case. We had our best two domestic quarters in the company’s history in the fourth quarter of 2020 and the first quarter of 2021. During a pandemic, we’re growing. It’s cemented what we’ve been telling everybody. It’s challenging to be a publicly traded company; you have to explain your strategies a lot, people second guess it, and it was a wonderful proof point to say, ‘Hey, look, we’ve got something for everybody.’ We love new content, and we’re going to monetize it like nobody’s business, but that’s not what the company does. We’ve always been like 50 to 60 percent evergreen revenues anyway, so we just amped that up a little bit during the pandemic.
Thompson: Possibly one of the best comparisons to Funko is Lego. The Lego brand has gone even further into movies and even theme parks. Could we see Funko move into theme park attractions or even a park?
Mariotti: I love your outlook. Bigger and better. This store in Hollywood is probably as close as I’m going to get to it. When I told my board, ‘Hey, I want to design 44,000 square feet of retail,’ they were like, ‘Are you kidding me?” I did it on a smaller scale of about 15,000 square feet at our flagship store in Seattle, and it worked phenomenally well. This Hollywood store was a much bigger thing. For me, and I know people are so down on physical retail, but I’m like, ‘Physical retail is always going to be around but can you do it in a way that’s disruptive?’ In this world of Instagram meets a peek into people’s passions. It just made a ton of sense. For us, I think it’s more about how do we create amazing experiences within our brands and our formats that get fans excited. For me, I don’t know if it’ll ever be a theme park. To me, this store is the Disneyland of retail. I think that’s exciting. I’ve got three or four new concepts in my head that are variations of this that I think we’ll see explored over the next couple of years, and I love that. I like to walk into a place, be transformed, and watch other people walk through the space and see how excited they get. Eighty-five percent of our products are still being sold to adults. This retail experience is probably as close as I’m getting to a theme park, but I like that I like where you’re going. That’d be fun.
Thompson: You already have Funko Cares in place, but you are launching a new charity initiative, Pops! With Purpose. What’s behind that decision?
Mariotti: I think we have a very switched-on group of Funko employees who care a lot about many things, and I think it’s up to us to give back. We’ve always tried to be charitable as a company, but Pops! With Purpose is unique. I read an article about a young woman in Washington state running for Native American women who have been murdered and abused. She runs with a red palm print on her face to draw attention to this cause. I was like, ‘Oh, my God, she’s a hero. She’s standing up for people that have been killed, abused, and are just disappearing, and nothing’s happening. She’s bringing awareness to this. She’s so strong.’ That planted the seed. This Supreme Court ruling on how college athletes now control their destiny in terms of marketing also made me think. I asked myself, ‘How do we get a marketing deal with her? How do we make a Pop of her? Then how do we give all the proceeds to her cause?’ She gets to keep the money for herself in terms of the licensing deal, but then the Pop itself gets to fuel her cause, and we win both ways. That’s what I think I want our company to do. What is inspiring you? What causes do you want to get behind as a company? Let’s go out and make a difference. Even if it’s the smallest difference, at least you’re trying, right? We want people to bring inspirational ideas and causes to us, and we’ll try to figure out how we can execute this and help these people. Anybody can write a check, and I think that’s important, but it’s also a fun way to bring even more awareness, and the product causes a ripple effect.
FunKon runs from Wednesday, August 4, 2021, through Friday, August 6, 2021.