You can tell from the Star Wars posters on the walls of their home and the shelves full of Disney princess and Masters of the Universe merchandise that Derrick Baca and Liz DeSilva really are the super geeks they claim to be.
The couple runs Loungefly, a collectible fashion and accessories brand owned by pop culture giant Funko – and business is booming.
On Thursday, the company reported sales of Loungefly products rose 132% to $29.6 million in the second quarter. Although Loungefly accounted for only 12.5% of Funko’s total sales, it is a fast-growing brand that has thrived even during the pandemic, thanks in part to Baca and DeSilva.
“I honestly think they can get to be as big as Funko one day,” said Funko CEO Brian Mariotti. “We’re just growing by leaps and bounds.”
Funko’s second-quarter net sales increased 141% to $236.1 million, from $98.1 million a year earlier. Thanks to robust sales growth, the company posted net income of $20.9 million, or 34 cents per share. During the same period last year, it lost $15 million, or 30 cents per share. After adjustments, Funko earned 40 cents per share in the past period.
Funko’s stock closed at $20.12 on Thursday, bringing its market cap to $980 million. Shares are up more than 93% since January.
The pandemic forced Funko to invest more heavily in its direct-to-consumer business. From April to June, these sales increased 190% and now make up 11% of all Funko sales. This online strategy has been beneficial to Funko’s core line of collectible pop figures — whose second-quarter sales grew 137% to $185.4 million — as well as Loungefly.
Change at the top
Mariotti has been at the helm since buying Funko from founder Mike Becker in 2005. That will change on January 3 when he steps down as CEO and takes on the role of chief creative officer. Andrew Perlmutter, Funko’s president, will become CEO and Mariotti will remain on Funko’s board.
As CEO, Mariotti took over smaller companies to build new retail opportunities, namely a Funko Games division, which makes board games, and Loungefly, which designs accessories, and now clothing.
Mariotti said he tried to buy Loungefly for about three years before finally making a deal.
“I just saw this great little company release the coolest backpacks and the coolest purses,” he said.
Founded in 1998, the brand was bought by Funko in 2017. Two years later, Baca and DeSilva joined them. The first is Loungefly’s vice president of sales, merchandising and business development, and DeSilva is creative vice president.
Premium backpacks, purses, purses and fanny packs were his specialty, but have recently expanded into clothing and enamel pins. Most recognizable are Loungefly’s mini backpacks, which often feature bold patterns based on popular entertainment franchises or shaped to look like iconic characters.
“Loungefly has been a huge success under Funko’s ownership,” said Stephanie Wissink, director of Jefferies. “They have struck the right balance between driving growth through capital investment, mentoring, access to more licenses and talent, while allowing the brand to flourish authentically. It’s the same brand as when it was acquired, it’s just bigger and more accessible.”
It also proved that Funko can successfully use acquisitions to grow, Wissink said.
“The success speaks not only to the company’s ability to identify quality assets, but also to its ability to adopt new categories that still hark back to the same core ethos – fan culture.”
Some of the credit goes to Baca and DeSilva, who said they saw an opportunity to take the brand to the next level. With decades of licensing and merchandising experience, the pair made several major changes once they got on board.
Better quality, higher prices
Previously, they said retailers such as Hot Topic, Box Lunch and the Disney Parks dictated what Loungefly created based on what they wanted to sell. Baca and DeSilva took back control. They created a core line of Loungefly products and then partnered with retailers to design exclusive products.
They also partnered with more mom-and-pop retailers and bolstered Loungefly’s online offering. At the same time, the duo prioritized social media and teamed up with their fans to build a community.
Baca and DeSilva also improved the quality, adding size-inclusive straps and intricate details like embossed metal rivets. This allowed the company to raise prices.
The number of distributors and third-party Amazon sellers was also reduced. The move allowed the brand to monitor its price standards.
“We’re doing well online and with a lot of our moms and dads having websites because consumers know what they’re going to get when you get a Loungefly,” Baca said during a video conference call from the home he shares with DeSilva. “You have a level of confidence with the quality, especially as we’ve increased it along the way.”
That came in handy for Loungefly during the pandemic, when its customers were unable to venture into physical locations to purchase bags, wallets and purses. Instead, they bought products online.
“[Mom-and-pops] was a very small percentage of our business, and we’ve grown that exponentially,” Baca said. “Actually, it’s a big part of the reason you saw 82% growth [in the first] quarter.”
DeSilva works with a team of artists and designers to create unique, fashionable accessories that ‘tell a story’.
For example, a new line of mini backpacks features villains peering into the world of Disney’s iconic heroes: Hades soars above Hercules and fights a hyrda, the Evil Queen overlooks a magic mirror with Snow White, and Ursula grins behind a magical orb representing Ariel. .
DeSilva said she and Baca like to look beyond the style guides that licensors like Disney, Warner Bros. and Universal offer them and capitalize on moments that fans interact with most. This includes making bags with Stitch from “Lilo and Stitch” in a hula outfit or Pascal, the pet chameleon from “Tangled”, in a pink dress that Rapunzel made for him.
Loungefly plans to expand its licenses to Major League Baseball, the National Football League, several 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 grown tenfold in less than four years.
“You know, you can’t walk around with your doll,” he said when asked how Loungefly fits into Funko’s portfolio, “but you can definitely walk around with your backpack or purse or your wallet. It’s such a wonderful way to celebrate the things you love. And when you walk around people know what your fandom is.”
Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.