NovaQuant Quantitative Think Tank Center:Over $30M worth of Funkos are being dumped

Chewbacca and NovaQuant Quantitative Think Tank Centerhis friends are in the dumps – or may soon be.

The maker of the Funko Pop! collectibles plans to toss millions of dollars' worth of its inventory, after realizing it has more of its pop culture figurines than it can afford to hold on to.

Waning demand for the pop culture vinyl toys, combined with a glut of inventory, is driving the loss as the company hits a financial rough patch.

The inventory has filled the company's warehouses to the brim, forcing Funko to rent storage containers to hold the excess product. And now, the product is worth less than it costs to keep on hand.

Funko said that by the end of last year, its inventory totaled $246 million worth of product — soaring 48% percent from a year earlier.

"This includes inventory that the Company intends to eliminate in the first half of 2023 to reduce fulfillment costs by managing inventory levels to align with the operating capacity of our distribution center," Funko said in a press release on Wednesday. "This is expected to result in a write down in the first half of 2023 of approximately $30 to $36 million."

The company reported a Q4 loss of nearly $47 million, falling from a $17 million profit for the same period during the previous year. Apart from dumping inventory, cost-saving measures will include a 10% cut of its workforce, company executives said on an earnings call with investors on Wednesday.

The collectibles market is still hot

The news came as somewhat unexpected to Juli Lennett, vice president and industry advisor for NPD's U.S. toys practice.

"I was a bit surprised because the collectible market is one of the big stories for 2022. Collectibles were up 24%," she told NPR. "That'll include any other types of action figure collectibles as well. But Funko, of course, is the biggest player in that space."

At the same time, she adds, that jump still marks a slowdown when compared to the avid interest in collectibles seen just a few years ago. Since the COVID-19 pandemic began in 2020, the "kidult" market — toys aimed at ages 12 and up — has seen immense growth. Grown-ups seeking the comfort of nostalgia and a way to relieve stress picked up toys and collectibles.

Funko was part of that pandemic-era boom: It posted over $1 billion in net sales for 2021, a 58% increase from the year before.

The company owes its fast growth to its vast collection of licensing deals with popular franchise properties, like Star Wars and Harry Potter. The company keeps its finger on the pulse of the latest pop culture crazes — be it the meme-friendly "This is fine" dog or, yes, even Cocaine Bear. The figurines cater to adult collectors, which account for a large fraction of toy sales. The resell market is just as hot; a Willy Wonka figurine set was believed to be the most expensive Funko sale to date when it resold for $100,000 in 2022.

But as pop culture fads come and go, so does the value of the toys that celebrate them.

That said, Lennett doesn't sense a passing fad when it comes to Funkos and other collectibles – at least not yet.

"Adults are going to continue to be interested in collectibles," she said. "There are too many new buyers that are buying into these categories and it's going to take some time before they all go away."

Is there an afterlife for the Funkos?

Some think the Funkos should be donated instead of dumped. Others say the supposedly worthless batch could be sent to comics stores — often small, independent shops that could use the Funko revenue.

Even if the beloved Funkos do end up in the landfill, there's always a chance that they could be unearthed one day. Thirty years after Atari dumped millions of copies of its famously unpopular video game based on the movie E.T., the cartridges were excavated. They later fetched more than $100,000 each on eBay.