3 Lessons for Brands from Funko's $36 Million Merch Dump

On March 1, toy brand Funko—rarely the sort of company that makes national headlines—made national headlines with a single paragraph buried in its fourth quarter earnings report. After delivering what was already bad news (a quarterly net loss of nearly $47 million), the company announced that it would be “managing inventory levels to align with the operating capacity of our distribution center.” Translated from business jargon, that meant up to $36 million worth of Funko’s unsold Pop collectible figures were going to be thrown out (into a landfill, according to most reports). Funko did not immediately respond to Adweek’s request for comment. New Rules to Make Your Ads More Engaging for Today’s Always-On Sports Fans For the uninitiated, Funko Pops are those 4-inch-tall figures with big eyes and oversized heads modeled after a sweeping range of celebrities, athletes, and characters from TV, movies and video games. Batman and Mickey Mouse, Sonic the Hedgehog and his sidekick Tails, Elvis Presley and LeBron James—even Martin Luther King and former Supreme Court Justice Ruth Bader Ginsburg—Funko has spoofed and immortalized them all in vinyl. According to one estimate, the company makes no fewer than 8,366 different dolls. Right now, however, Funko probably wishes it had made fewer. A lot fewer. A perfect storm of overproduction and slackening demand has left Funko with more of these cute little figures than it can ever hope to sell. In fact, the cost of storing these legions now exceeds their retail value. And so the dolls are going to the dump—or, some hope, to the recycler. Heavily dependent on licensing deals, the collectible figure segment is a world unto itself. But the sticky spot that Funko now finds itself in does have some lessons for most any brand. Adweek put in a call with communications consultant Mike Drake, who spent more than 20 years of his career in the toy business, to glean some insights. 1. Don’t overestimate your customer When a brand wins a loyal following, it’s an easy assumption that fans will snap up just about anything with the brand’s name on it. But Funko’s experience demonstrates that even superfans will take their spending only so far. Much like a devotee of Apple probably won’t buy every single device it makes, or a maniac for In-N-Out burger isn’t likely to eat there three times a day, a Pops fan who buys all four Beatles figures won’t necessarily pony up for the entire Game of Thrones line, too. Funko executives, Drake said, “were going under the assumption [that] people are completists: If they buy this, they’re going to buy that. That’s not the case. It’s like saying, ‘This person likes to read magazines. So shortly, they’ll buy everything on this newsstand.’" 2. The market changes without warning It might seem obvious, but a market that demands a product today may suddenly not want it tomorrow. Consider what happened to Peloton during the pandemic. With gyms closed and millions of American stuck at home, the pricey, web-connected fitness bike was a hot commodity. Peloton’s fourth quarter 2020 sales surged by 172%, prompting the company to crank up production. But no sooner had all those bikes flooded the market than demand evaporated. In a sense, a similar thing has happened to Funko. It, too, enjoyed a pandemic boom, with net sales in Q4 of 2021 up by 48% over the year prior. Overall, the “kidult” market (grownups who like to collect toys, basically) grew during Covid-19's incumbency—by as much as 19% for the 12 months ended in September 2021, according to data from NPD Group. And while this market remains a vigorous one, NPR has reported that enthusiasm for Pop figures is now “waning,” and Funko has too many dolls on too many shelves. “They oversaturated the market,” Drake said. “Funko Pops are like M&Ms at this point. I can literally buy them at 7-Eleven. They’re at bodegas. They are everywhere." The Former Creatives Behind M&M’s Mascots Believe the Characters Are Adding Fun to Cancel Culture 3. Discounting can be dangerous Controversial as the practice is, there’s a reason why super-luxe apparel brands quietly shred their unsold merchandise: Appearing on a discount rack can damage the brand’s perceived value. (As Vogue Business succinctly put it: “Destroying unsold product … ensures brand value is retained.”) With standard-issue Pop dolls retailing for around $10, nobody’s arguing that Funko is a luxury brand—but too much discounting can hurt a brand’s image nevertheless. Toward the end of 2022, collectors began buzzing (and not in a good way) over word that Pop figures were selling at fire-sale prices—Amazon, specifically, had dropped prices by 52%. Not long after, Woot (which is owned by Amazon) had slashed prices by up to 71%. That meant a Star Wars Boba Fett two-pack, regularly $69.99, suddenly became $19.99. At press time, discount chain Five Below listed a Space Jam Bugs Bunny—which Walmart charges $23.99 for—for $5.95. “If you walk into your local Target today, you will see that the majority of Pops are on sale,” said Drake, adding that while consumers usually like seeing their favorite brands on sale, “if it’s something that you’re hoping will have value, you start to become worried.” And now that the company has disclosed that it won’t be able to sell thousands of these little dolls at any price? The message to those who bought them at full price, Drake said, is essentially: “This is worthless.”

Branding

3 Lessons Brands Can Learn from Funko's $36 Million Merchandise Dump

Several misjudgments preceded the little action figures' doom

Robert Klara

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Robert Klara