Loungefly’s geeky backpacks are huge enterprise for Funko

Guests attend the FunKon Loungefly Fashion Night at Funko Hollywood on August 02, 2021 in Los Angeles, California.

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You can tell from the Star Wars posters on the walls of their home and the shelves full of Disney Princesses and Masters of the Universe merchandise that Derrick Baca and Liz DeSilva are really the super nerds they claim to be.

The couple run Loungefly, a collectible fashion and accessories brand owned by pop culture giant Funko – and business is doing well.

On Thursday, the company reported that sales of Loungefly branded products rose 132% to $ 29.6 million in the second quarter. While Loungefly only made up 12.5% ​​of Funko’s total sales, it’s a fast-growing brand that is thriving even during the pandemic, thanks in part to Baca and DeSilva.

“I honestly believe that one day they could get as big as Funko,” said Funko CEO Brian Mariotti. “We’re only growing by leaps and bounds.”

Funko net sales increased 141% to $ 236.1 million in the second quarter, compared to $ 98.1 million a year earlier. The robust sales growth helped the company net income of $ 20.9 million, or 34 cents per share. In the same period last year, it lost $ 15 million, or 30 cents per share. Adjusted, Funko earned 40 cents per share in the last period.

Funko shares closed at $ 20.12 on Thursday for a market cap of $ 980 million. Stocks are up more than 93% since January.

Because of the pandemic, Funko was forced to invest more heavily in its direct-to-consumer business. From April through June, those sales rose 190% and now account for 11% of all Funko sales. Funko’s core range of pop collectible figures benefited from this online strategy – sales of which rose 137% to $ 185.4 million in the second quarter – as well as Loungefly.

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Mariotti has been at the helm since purchasing Funko in 2005 from founder Mike Becker. That will change on January 3rd when he steps down as CEO and takes on the role of Chief Creative Officer. Andrew Perlmutter, President of Funko, will become CEO and Mariotti will remain on Funko’s board of directors.

As CEO, Mariotti acquired smaller businesses to open up new retail opportunities, namely a Funko Games division that makes board games and Loungefly that designs accessories and now apparel.

Mariotti said he tried buying Loungefly for about three years before finally hitting a deal.

“I just saw this amazing little company come out with the coolest backpacks and the coolest wallets,” he said.

Founded in 1998, the brand was bought by Funko in 2017. Baca and DeSilva joined them two years later. The former is Vice President of Sales, Merchandising and Business Development at Loungefly, and DeSilva is Creative Vice President.

(LR) VP of Biz Dev + Merchandising at Funko Derrick Baca and VP of Creative at Funko Liz DeSilva attend the FunKon Loungefly Fashion Night at Funko Hollywood on August 02, 2021 in Los Angeles, California.

Stefanie Keenan | Getty Images Entertainment | Getty Images

Premium backpacks, wallets, purses, and fanny packs were its specialty, but recently it has expanded to include apparel and enamel pins. Best known are Loungefly’s mini backpacks, which often feature eye-catching patterns based on popular entertainment franchises or look like iconic characters.

Loungefly was a huge success among Funko’s owners, ”said Stephanie Wissink, Jefferies General Manager. “They struck the right balance between driving growth through capital investments, consulting, access to more licenses and talent while the brand authentically thrives. It’s the same brand as when it was acquired, it’s just bigger and more accessible. “

It also proved that, according to Wissink, Funko can successfully use acquisitions to grow.

“The success speaks not only of the company’s ability to identify quality resources, but also of its ability to develop new categories that still draw on the same core ethos – the fan culture.”

Part of the praise goes to Baca and DeSilva for saying they saw an opportunity to improve the brand. With decades of experience in licensing and merchandising, the two made several major changes when they joined the company.

Better quality, higher prices

In the past, retailers like Hot Topic, Box Lunch, and the Disney Parks dictated what Loungefly would create based on what they wanted to sell. Baca and DeSilva took back control. They created a core line of Loungefly products and then worked with retailers to design exclusive products.

They also worked with more mom and pop dealers and strengthened Loungefly’s online offering. At the same time, the duo prioritized social media and got involved with their fans to build a community.

Baca and DeSilva also improved quality by adding sizing straps and intricate details like embossed metal rivets. This enabled the company to raise prices.

The number of distributors and external Amazon sellers has also been reduced. The move allowed the brand to monitor its pricing standards.

“We’re online and good with a lot of our moms and pops who have websites because the consumer knows what they’re getting when they get a loungefly,” Baca said in a home video conference he shared with DeSilva. “They have a level of confidence in quality, especially since we’ve increased it over time.”

That served Loungefly well during the pandemic when its customers couldn’t venture into stationary locations to purchase bags, wallets, and purses. Instead, they bought products online.

“[Mom-and-pops] were a very small percentage of our business and we’ve grown exponentially, “said Baca [in the first] Quarter.”

A look at the FunKon Loungefly Fashion Night at Funko Hollywood on August 02, 2021 in Los Angeles, California.

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DeSilva works with a team of artists and designers to create unique fashion accessories that “tell a story”.

‘Geeky Gucci’

A new range of mini backpacks, for example, shows villains looking into the world of Disney’s iconic heroes – Hades hovers over Hercules fighting a Hyrda, the evil queen looks over a magical mirror with Snow White and Ursula grins behind a magical ball, the Ariel shows.

DeSilva said that she and Baca love to look beyond the style guides licensors like Disney, Warner Bros. and Universal give them and capture moments that fans connect with the most. These include bags that show Stitch from “Lilo and Stitch” in a hula outfit or Pascal, the pet chameleon from “Tangled”, who wears a pink dress that Rapunzel made for him.

Loungefly plans to expand its licensing to Major League Baseball, the National Football League, various anime properties, and old favorites like My Little Pony and She-Ra.

Mariotti said the brand, which he playfully calls “Geeky Gucci” and “the Chanel of pop culture,” has increased tenfold in less than four years.

“You know, you can’t walk around with your Pop,” he said when asked how Loungefly fits into Funko’s portfolio, “but you can fucking walk around with your backpack or your handbag or your wallet. It’s such a wonderful way to celebrate the things you love. And when you walk around, people will know what your fandom is. “

Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.

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