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FuncoLand was an American video game retailer based in Eden Prairie, Minnesota, that specialized in selling new and used video game software. It is considered the first major video game retailer to allow consumers to sell and trade used video games. The chain's parent company Funco Inc. was established in the home of David R. Pomije in 1988, initially as a leaser of video games to video stores, and then as a mail-order business specializing in used video games. Upon the success of this venture, Pomije moved Funco to a Minneapolis warehouse, and began opening FuncoLand retail outlets nationwide.

Key Information

Following Funco's initial public offering in 1992, the company experienced rapid growth spurred by the increasing momentum of the video game industry and the retailer's unique business model, which fended off any direct competitors. FuncoLand stores, which were often located in strip malls, featured sampling areas that allowed consumers to test a video game before its purchase, a practice that Pomije compared to the automobile industry. The retailer's considerable inventory of older titles no longer carried by larger national chain stores sometimes led competing retailers to refer customers to FuncoLand for such purchases. Marketing for FuncoLand included the self-published monthly magazine Game Informer, as well as a mail-order catalog and e-commerce platform.

Funco endured a downturn in the mid-1990s caused by an industry-wide slump, and in 1995, the company was subject to a shareholder suit accusing it of artificially inflating its stock price by overstating the capacity of its information systems to control the business; the suit was settled out of court in 1999. The fifth generation of video game consoles brought about the company's recovery, and the release of the Dreamcast granted a single-day sales record. Over the course of its lifespan, FuncoLand operated in 406 locations, and was twice listed by Fortune as one of America's fastest-growing businesses.

In April 2000, two of Funco's rivals – Electronics Boutique and Babbage's Etc. parent company Barnes & Noble – engaged in a bidding war for the company's purchase, concluding with Barnes & Noble's winning bid of $161.5 million. Funco was acquired by Barnes & Noble in June 2000, and was merged with Babbage's to form GameStop in December 2000.

History

[edit]

In 1985, David R. Pomije established the mail-order company Protectronics,[4] which initially sold Commodore 64 computers, but then transitioned to an eclectic array of consumer goods after the Commodore market dried.[5][6] While the venture was initially successful, extravagant personal spending and lack of financial, operational and inventory control resulted in a Chapter 7 liquidation around March 1988.[6][7] Pomije's leftover inventory included 1,100 Nintendo games, which he leased to video stores.[6][8] To update the inventory, he began buying used games from mail-order businesses across the country. After a couple of encounters with particularly rude dealers, he was inspired to establish another mail-order company named Funco, and began advertising his offer to buy and sell used video games in industry magazines.[6] During the Christmas 1989 season, he needed to install four telephone lines in his house to accommodate his growing business,[6] and recruited his wife, father and uncle as staff members.[5] The number of teenagers and young adults driving to Pomije's house to do business there was so great that one of his neighbors was suspicious and called the police.[9]

In February 1990, Pomije moved Funco to a warehouse in the Minneapolis suburb of New Hope.[9] In August 1990, he set up a small informal retail shop next to his office, which would be the first FuncoLand location.[6][7] The following month, he began running an advertisement campaign in a daily Minneapolis newspaper, which attracted customers coming in from as far as Wisconsin and the Dakotas. Around this time, a Japanese company – which operated 330 stores in Japan similar to FuncoLand – inquired about a partnership with them. To gauge the company's interest, Pomije charged $10,000 just to read his business plan, but ultimately decided against a partnership.[9] In late 1990, after sales reached $50,000, Funco opened two FuncoLand stores in Eden Prairie and Roseville to prepare for the coming Christmas season.[6][9][10] They also became a sponsor for Christmas-season broadcasts of Gophers ice hockey games on KITN-TV.[5]

By December 1991, Funco had established 10 stores in the Minneapolis market. Pomije attributed the company's success to executives he lured from B. Dalton and Häagen-Dazs who had expertise in expanding into new markets.[9] While these key hires – which include executive vice president Stanley Bodine, MIS director Michael Hinnenkamp and financial controller Robert Hiben – cost Funco a total of $519,779 in 1992, Pomije was willing to absorb the loss to ensure the presence of adequate information systems and financial controls that were absent in his previous business failure.[6][11] By October 22, 1992, there were 29 FuncoLand locations between the Minneapolis, Chicago and Dallas areas, 190 employees within the company and a projection of $22 million in sales for the 1993 fiscal year. Pomije projected a total of 110 stores nationwide, 250 employees and sales of $63 million by March 1994.[8][9]

On April 6, 1995, Funco announced that Bodine had been promoted to president and chief operating officer, replacing Pomije, who would remain as chairman and chief executive. Hiben was also named chief financial officer, while Hinnenkamp resigned from the company to pursue other career opportunities.[12] In fiscal 1998, Funco launched an e-commerce service named the FuncoLand Superstore; after posting sales of $300,000 in its inaugural year, it quadrupled this figure the following year, making $1,572,000 in sales.[13][14] In April 1999, Funco became one of the first companies to offer items for bidding at Amazon's short-lived Auctions service.[15] On April 15, 1999, Navarre Corporation announced that it had reached an agreement with Funco to distribute consumer software to the company's e-commerce customers.[16]

Acquisition and merger

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On April 3, 2000, Funco rival Electronics Boutique Holdings Corp. agreed to purchase them for $110 million, paying $17.50 in cash for each of Funco's shares. The news of the acquisition was not surprising to analysts, as rumors of an imminent sale had been circulating since the previous summer; according to Bob Evans of the Craig-Hallum Capital Group, "Funco's stock has been depressed for some time, and they never seemed to get a high PE multiple, so we always thought one of the exit strategies would be the sale of the company". Electronics Boutique CEO Joseph Firestone remarked that his company had been "stalking" them for two years, and waited until the stock price was right. Following the announcement, Funco's stock price rose by more than 42% to $16.875 per share.[17][18][19][20] On April 5, they received an unsolicited $135 million buyout offer from Barnes & Noble subsidiary Babbage's Etc., who offered to pay in either cash or a combination of cash and Barnes & Noble stock. The following day, Funco's stock price rose even further to $20.50 per share.[21][22][23][24] On April 12, Funco gave Electronics Boutique five days to raise its offer before they would accept Barnes & Noble's offer.[25] In response, Electronics Boutique matched Barnes & Noble's offer.[26][27][28][29] On April 26, Barnes & Noble raised its bid to $161.5 million, or $24.75 a share, leaving Electronics Boutique with another five days to respond to the bid.[30][31][32] On May 3, Electronics Boutique announced the withdrawal of its bid,[33][34] and Funco accepted Barnes & Noble's buyout the following day. Electronic Boutique's original definitive agreement with Funco included a breakup fee of $3.5 million, the cost of which was covered by Barnes & Noble.[35][36] Pomije grossed an estimated $35 million for his stock and options, and left the company to focus on developing the secondhand golf equipment retailer Second Swing, in which he was a majority shareholder.[18][37]

Barnes & Noble's acquisition of Funco was completed on June 14, 2000,[38] and Babbage's became a wholly owned subsidiary of Funco thereafter.[39] In November 2000, Funco's Eden Prairie headquarters were phased out, with some functions being moved to the Babbage's headquarters in Dallas; Bodine had also departed the company.[37] Funco and Babbage's were merged to form GameStop in December, and an initial public offering for the new company was completed on February 12, 2002.[39] Many of the stores owned by GameStop continued to operate under the FuncoLand, Babbage's and Software Etc. names until 2003, by which time all stores in major markets were rebranded under the GameStop banner.[40]

Business operations

[edit]

FuncoLand specialized in selling new and used video games and equipment; it was considered the first major retailer to allow consumers to sell and trade used video games. The used games were often sold for 50% less than new copies, and customers could sell used video games for either money or store credit that could be used to purchase other games.[7] The value of a trade-in varied between 10 cents and $55;[8][41] Funco changed the offered prices for games twice a month, much like the stock market does for commodities.[8] During 1990, the names, prices and supplies of games were charted by hand on a whiteboard in the New Hope warehouse; Pomije converted this method to a computerized format in 1991.[5]

FuncoLand stores ranged from 1,000 to 3,000 square feet in size, with the average store being approximately 1,650 square feet.[42] The stores typically employed three to five workers apiece and were often located in strip malls, usually near major regional malls and national chain stores such as Toys "R" Us, Target and Best Buy.[7][41] Each store cost around $55,000 to build and stock,[6] and they carried an average of 1,700 items, 10% of which consisted of accessories.[8] The company's total inventory included around 500 million video game cartridges, some of which were rare collector's items no longer sold by their manufacturers.[8][43] Pomije remarked that competitors such as Toys "R" Us would sometimes refer customers to FuncoLand if they requested older games no longer carried by the larger chains.[5]

The stores were equipped with several television monitors displaying operating video games, as well as sampling areas that allowed consumers to test games within the store.[42] New games carried a 90-day warranty,[8] which also applied to hardware and accessories.[7] FuncoLand additionally sold cleaning kits for removing oxidation and dust from game cartridges; a game's warranty could be extended from 90 days to a year if purchased with a cleaning kit.[5] Pomije compared the chain's policy of trading used games and testing new ones to the practices of the automobile industry, saying "You wouldn't buy a new car without driving it around the block".[8] Company officials preferred to use the term "previously played" in reference to used games, as "used", according to Hiben, carried a connotation of wearing out.[41]

Funco's marketing focused primarily on television advertising, with support from newspaper ads and inserts, in-store promotions and direct mail. The company also took advantage of special promotions of major titles in conjunction with game manufacturers; in 1993, promotions of Mortal Kombat, Madden NFL '94 and NBA Jam successfully introduced many consumers to FuncoLand's concept.[44] In 1992, Funco began publishing Game Informer,[7] a monthly magazine that included reviews of new games, which reached a circulation of over 195,000 by March 1999. The magazine was published by Sunrise Publications, Inc., a wholly owned subsidiary of Funco. The company also distributed a mail-order catalog every other month to approximately 60,000 customers who generally lived in geographic areas not served by FuncoLand stores, allowing them to purchase video games and equipment from the company's headquarters. Funco's e-commerce platform, the FuncoLand Superstore, included schedules for newly arriving games and reviews of new and classic games.[14] Trademarked slogans that were deemed important to the company's marketing efforts include "Experience the Fun at FuncoLand", "Your Source for Interactive Entertainment", "Bring Home the Fun", "America's Place To Shop For Video Games", and "More Video Games at Half the Price".[45]

FuncoLand employed around 1,500 full-time and part-time employees by November 21, 1999.[4] The chain would recruit temporary part-time employees during seasonal peak periods.[45] All store locations were leased, typically for an initial three-year term and with varying options for renewal. In addition to its retail outlets, Funco leased a 50,000 square foot distribution center and office facility in Eden Prairie, where its corporate headquarters was located.[46]

Corporate affairs

[edit]

Competition

[edit]

As the leading purveyor of used video games by 1993, FuncoLand's initial competition was limited primarily to independent shops and smaller regional chains;[47] on the advent of 1993, the company was reported to have no competitors within the Minneapolis and Chicago areas, and one competing firm within Dallas.[48] Funco's head start in establishing its concept and the difficulty in emulating it allowed the company to enter major metropolitan markets before the arrival of any serious competition.[47] Over time, the video game retailing business grew to include mass merchandisers such as Target, Walmart and Kmart, computer software retailers such as Babbage's Etc. and Electronics Boutique, toy retailers including Toys "R" Us and KB Toys, consumer electronics retailers such as Best Buy and Circuit City, department store chains, and other entertainment product retailers. Because a number of these chains – particularly the computer software retailers – featured trade-in opportunities for previously played products, Funco never ruled out the possibility of these retailers (many of whom were larger than FuncoLand) moving more aggressively into the used game market and becoming direct competitors. Aside from continuing to compete with smaller companies such as It's About Games and MicroPlay, Funco also competed with video rental shops such as Blockbuster LLC and Hollywood Video, which rented or sold used video games.[49]

Store expansion

[edit]
Barring a slump in the mid-1990s, FuncoLand's growth was rapid, accumulating over 400 stores from its 1988 establishment to its 2000 acquisition[1][11][50][51]

From fiscal 1991 to fiscal 1993, FuncoLand grew from three retail stores to 56 locations;[52] In its 1993 annual report, Funco attributed this rapid growth to the increasing momentum of the video game industry and the retailer's unique niche and model.[53] The company's first store outside the Minneapolis–Saint Paul area was opened in Dallas in April 1992.[52] On July 13, 1992, it opened the first Chicago-area location in Bloomingdale.[8] On September 22 and 25, 1992, it opened the first south suburban Chicago-area locations in Orland Park and Matteson respectively.[8] FuncoLand opened its first Milwaukee-area store in January 1993.[53]

On May 11, 1993, the first FuncoLand location in McHenry County, Illinois opened in Crystal Lake, bringing its total number of locations to 62.[54] By June 1994, the retailer expanded into the East Coast with locations in the New York, Delaware Valley and Washington–Baltimore areas, making for a total of 117 stores.[43] Locations in Boston, Houston and Kansas City were also established during fiscal 1995.[55] The chain opened 72 additional stores throughout fiscal 1995,[56] and the company stated that it planned to open 120 new stores over the next two years.[57] However, an industry-wide slump and a nosedive in the company's stock price resulted in the cancellation of these planned openings, leaving the total number of stores at the end of 1995 at 182.[56]

The company experienced renewed prosperity during 1996 and successfully expanded into the West Coast by opening nine stores in the San Francisco Bay Area, inspiring it to increase the pace of opening new stores by planning to open 40 within 1997.[58][59] Funco's West Coast expansion continued into fiscal 1998, in which it opened its first Greater Sacramento location on June 28, 1997,[60] as well as eight locations in Seattle.[50] During the same period, the first Greater Cincinnati locations were opened in October 1997,[61] and additional markets were established in Columbus, St. Louis, Indianapolis and Louisville.[50] FuncoLand's 300th location was opened in Nashville on November 28, 1998.[62] Other markets opened in fiscal 1999 include Los Angeles, Hampton Roads, Richmond, Austin, San Antonio, Memphis, and Pittsburgh.[51]

FuncoLand's final store count at the time of its acquisition was reported at 406.[1] Within the chain's lifespan, Fortune had twice listed it as one of the fastest-growing businesses in America, once in 1994 and again in 1998.[41][62]

Financial performance

[edit]

After establishing Funco as a mail-order company from his house, Pomije made $35,000 by March 1989. Sales from then to March 1990 were $375,000.[8] In September 1990, a month after Pomije set up a retail outlet next to the company's warehouse, a successful advertising campaign in a daily Minneapolis newspaper resulted in $25,000 in sales for Funco within two days.[9] During the Christmas 1990 season, the budding retail chain, which now included two additional stores, made sales of over $260,000.[6]

On July 2, 1992, Funco reported that it filed a registration statement with the U.S. Securities and Exchange Commission for an initial public offering of one million shares of its common stock at $5 a share, with plans to use the proceeds from the sold shares to repay short-term debt and finance the opening of other FuncoLand locations.[63] Its initial public offering, which was underwritten by Miller, Johnson & Kuehn Inc., was announced on August 12, 1992.[64] From its initial public offering onward, its stock price rose and peaked at $17.75 a share around February 11, 1993 before steadily dropping to $8 a share by April 23. Miller, Johnson & Kuehn analyst Steven Hosier acknowledged that Funco's stock was becoming pricey, and attributed the stock's most recent weakness to Sega of America's April 14 announcement of a joint venture with Time Warner and Tele-Communications Inc.; their unveiling of the Sega Channel, an interactive cable channel that would allow subscribers to download and sample new Sega games, was interpreted by investors as an impending obsolescence of the retail outlet concept.[65]

On December 15, 1994, Funco announced that it would increase promotional spending and aggressive price cuts in response to heavy competition caused by a price war between Circuit City and Best Buy, which influenced retailers such as Musicland and Target to lower the price of new releases. Funco reported that as a result of this measure, its third-quarter earnings would fall below analysts' expectations. The next day, its stock plummeted by 46.5% down to $5.75 a share. Regardless, they anticipated record sales for the fourth quarter, and stated that it had met its store-opening objectives for the year.[66][57] On April 6, 1995, the company reported that its fourth-quarter sales dropped 24% from the same period the previous year. As a result, its stock price dropped 16.2% to its then-lowest point of $3.871⁄2 per share the following day. They stated that its fourth-quarter results were adversely impacted by comparison against the previous year's strong fourth-quarter video game release of NBA Jam, as well as an industry-wide slump caused by consumers deferring purchases in anticipation of upcoming next-generation video game consoles. The chain declared an intent to focus on increasing sales in existing markets and improving expense controls and margins during the industry's recovery.[12] In a bid to offset market forces, Pomije cut his $180,000 salary in half, Bodine took a 40% cut, and salary increases for other senior officials were frozen. Additionally, the headquarters staff was reduced by 20% to 100 employees, and work schedules were tightened to avoid overstaffing. As a result, general and administrative expenses decreased by 1.5% to $1.8 million.[56] For the 1996 fiscal year, Funco posted a 1.3% increase in revenue, which they attributed to its management's margin improvement initiatives as well as stronger fourth-quarter sales compared to the previous year.[67]

After trading at $2.621⁄2 per share on January 11, 1996, the company's stock price climbed to $14.121⁄2 per share by January 17, 1997. Pomije and industry analysts attributed its revenue growth to the revitalization of the video game industry brought about by the popularity of the Nintendo 64, PlayStation and Sega Saturn consoles and related products.[68][58] Upon the September 1999 United States launch of the Dreamcast console, the retailer set a single-day sales record, and high demand for the console boosted their second-quarter earnings for the 2000 fiscal year to $52.7 million, 49.2% higher than the previous second-quarter's earnings. The company's net income of $716,000 was nearly double analysts' estimates.[4][69] On December 21, 1999, they reported that a "significant softening" of December sales would result in third-quarter sales and earnings falling below analysts' expectations. They attributed this projected decline to a shortage of high-demand products such as the Game Boy Color handheld console and the video game Pokémon Yellow, as well as a lack of major title releases for the Nintendo 64 and PlayStation compared to the previous year and price-discounting on consoles by competitors. Funco warned that the sales and earnings slowdown would linger until the following fall, when the highly anticipated PlayStation 2 would be released.[70][71]

Year ending Net sales Gross profit Operating income Net income Total assets Shareholders' equity Net income per share Stores
US$
April 2, 1989[11] 38,842 N/a N/a 6,622 37,424 6,722 N/a 0
April 1, 1990[11] 299,116 N/a N/a 3,528 137,667 10,250 N/a 0
March 31, 1991[11][72] 2,518,985 1,172,294 92,374 84,579 404,942 94,829 0.03 3
April 5, 1992[11][72] 7,069,503 3,342,989 29,721 20,527 1,974,808 202,180 0.01 11
April 4, 1993[11][72] 20,533,944 8,792,599 -464,257 -519,779 7,553,432 4,483,873 -0.12 56
April 3, 1994[73][74] 50,490,000 21,047,000 1,256,000 880,000 24,707,000 18,653,000 0.15 110
April 2, 1995[74][75] 80,365,000 31,285,000 -1,328,000 -1,275,000 23,160,000 17,800,000 -0.22 182
March 31, 1996[75] 81,382,000 33,692,000 547,000 205,000 25,668,000 18,071,000 0.03 173
March 30, 1997[75] 120,555,000 44,436,000 7,583,000 5,350,000 31,745,000 24,318,000 0.86 188
March 29, 1998[76] 163,316,000 56,688,000 13,430,000 8,270,000 45,626,000 33,525,000 1.26 250
March 28, 1999[3] 206,673,000 67,980,000 15,601,000 9,710,000 55,140,000 38,836,000 1.53 312
April 2, 2000[2] 252,700,000 N/a N/a 6,700,000 N/a N/a 1.08 N/a

Litigation

[edit]

On August 17, 1995, a putative class action shareholder suit against Funco, entitled Christopher Cannon v. Funco, Inc. and David R. Pomije, was filed in the United States District Court for the District of Minnesota. Cannon, purporting to represent a class of all purchasers of Funco's common stock during the period of May 18, 1994 through December 15, 1994, alleged that the company artificially inflated its stock price by overstating the capacity of its information systems to control the business. On October 18, 1996, the court dismissed the state common law claims with prejudice and dismissed the federal securities claim without prejudice. On January 6, 1997, Cannon filed an amended complaint repeating his previous allegations while asserting various claims under the Securities Exchange Act of 1934, seeking an unspecified amount of damages plus costs and attorney's fees.[56][77] After Funco and Pomije filed a motion to dismiss the complaint in its entirety, the involved parties negotiated and reached an agreement in principle to settle the suit out of court.[78] A settlement for $900,000 minus $202,000 in attorney's fees was approved by the court on April 30, 1999.[4][46]

References

[edit]
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FuncoLand

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from Grokipedia
FuncoLand was an American retail chain specializing in the buying, selling, , and trading of new and used video games, consoles, and related accessories. Founded in 1988 by David R. Pomije in , the company initially operated as a mail-order service advertised in gaming magazines like Electronic Gaming Monthly, capitalizing on the burgeoning demand for affordable (NES) titles amid the video game market's recovery from the 1983 crash. By late 1990, FuncoLand had transitioned to brick-and-mortar retail, opening its first stores and achieving $200,000 in sales that year while focusing on used games to differentiate from competitors selling only new products. The chain experienced rapid expansion in the , going public with an (IPO) in July 1992 that raised $5 million, and growing to 188 stores across 12 U.S. markets by 1997, with annual sales reaching $120.6 million. FuncoLand navigated industry challenges, including a 1994-1995 price war with superstores and delayed game releases that led to a $1.3 million loss, by emphasizing its used-game inventory and customer trade-ins, which built a loyal base among budget-conscious gamers. At its peak in 2000, the retailer operated more than 400 locations nationwide, solidifying its role as a pioneer in the secondary market. In May 2000, Barnes & Noble agreed to acquire Funco, Inc., FuncoLand's parent company, for $161.5 million in cash, outbidding a prior offer from Electronics Boutique Holdings. The deal closed in June 2000, making Babbage's Etc., another Barnes & Noble subsidiary, a wholly owned entity under Funco. By December 2000, FuncoLand merged operations with Babbage's to create GameStop Corporation, which rebranded most stores under the GameStop name by 2005, effectively ending the FuncoLand brand.

History

Founding and early development

FuncoLand was founded in March 1988 by David R. Pomije in , a suburb of . The company began as a mail-order business operated from Pomije's home, specializing in the buying and selling of used video games to meet the growing demand in the recovering following the 1983 market crash. This model capitalized on consumers seeking affordable access to titles for emerging consoles like the , with inventory sourced directly from individuals through mail-in trade-ins and purchases. Early operations faced challenges in building a reliable and customer base, as Pomije relied on personal networks and small-scale advertising to acquire games from gamers unloading duplicates or outdated cartridges. To attract buyers, FuncoLand distributed catalogs and placed ads in popular gaming magazines such as , highlighting discounted used titles and encouraging mail-order transactions. These efforts gradually expanded reach, with the business achieving initial profitability by leveraging the high margins on used games due to low acquisition costs from consumer trade-ins. By the early 1990s, FuncoLand transitioned to brick-and-mortar retail to enhance and , opening its first two physical stores in the area in late 1990. These outlets, branded as FuncoLand, generated $200,000 in sales by year's end, marking a key milestone in shifting from mail-order exclusivity to a hybrid model that built on the used-game niche.

Growth and national expansion

FuncoLand's transition from a mail-order operation to a national retail chain accelerated in the early , with the opening of its first physical stores in late 1990, reaching two locations by year-end and generating $200,000 in sales. By 1992, the company had expanded to 10 stores concentrated in the area. This early buildup laid the foundation for broader proliferation, as Funco targeted high-growth suburban markets to capture the burgeoning demand for used video games. By early 1993, the store count exceeded 50 locations. The company's store count surged rapidly through the mid-1990s, exceeding 100 locations by 1994 and climbing to 182 stores by the end of fiscal after adding 72 new outlets that year. Growth moderated slightly in , with seven stores added but 16 closed amid industry challenges, resulting in 173 total locations, but rebounded to 188 by March 1997 with plans for 40 additional openings later that year. By 2000, FuncoLand operated approximately 400 stores nationwide. This expansion was fueled by an in July 1992 on the under the FUNN, which raised $5 million at $5 per share to support national rollout, followed by a secondary offering in June 1993 that generated $13 million at $11 per share. Strategic decisions emphasized cost-efficient site selection, including clusters of stores in strip malls within suburban areas to leverage and proximity to dense populations with strong mail-order potential. Key initiatives included multi-store launches in and in 1992, a planned cluster of 30 outlets in suburban New York in 1993, and entry into East Coast markets like New York, the Delaware Valley, and Washington-Baltimore by mid-1994. Expansion extended to the West Coast in 1997, broadening FuncoLand's footprint across 12 major U.S. markets. FuncoLand adeptly aligned its growth with cycles, timing many store openings to coincide with major console releases such as the Sony PlayStation and in 1996, which revitalized demand for new and used titles. The 1997 launch of the further propelled expansion, driving a 48% sales increase to $120.6 million that fiscal year and enabling aggressive openings in emerging regions like the of , , and . To sustain this scaling, FuncoLand centralized its distribution infrastructure, transitioning from manual inventory tracking in its New Hope, Minnesota warehouse—where game details were once charted on whiteboards—to computerized management information systems (MIS) bolstered by hires including a former B. Dalton executive. These enhancements optimized inventory flow for used games acquired via trade-ins and supported efficient operations across the growing network.

Acquisition and merger

In June 2000, acquired Funco Inc., the parent company of FuncoLand, for $161.5 million in cash, at a price of $24.75 per share. This transaction ended FuncoLand's independent operations and integrated its network of over 400 stores specializing in new and used s into 's portfolio. The acquisition was driven by synergies in entertainment retail, as it complemented 's existing ownership of Babbage's Etc., another chain acquired in 1999, allowing for expanded market coverage in the growing sector. Negotiations for the deal were led by Funco's chairman and CEO David R. Pomije, who had founded the company in 1988, alongside executives from , including CEO , amid a competitive process that also involved rival Electronics Holdings. The strategic rationale centered on consolidating in the retail industry, which faced increasing threats from emerging e-commerce platforms like Amazon and intensifying competition from chains such as Electronics . By combining FuncoLand's expertise in used games with Babbage's focus on new titles, the acquisition aimed to create a more robust entity capable of leveraging in purchasing, distribution, and store operations. In December 2000, shortly after the acquisition, Funco Inc. merged its operations with Babbage's Etc. to form Corporation, with Funco serving as the surviving entity and changing its name accordingly. This internal merger unified the two chains under a single brand, creating the largest specialty retailer in the United States at the time with approximately 900 stores. Immediately following the merger, select stores began rebranding to to standardize the retail presence, while many FuncoLand locations temporarily retained their original name during the transition to integrate inventory systems and staff training. The move positioned for an in 2002, further solidifying its independence from while building on the combined strengths of the acquired entities.

Business operations

Products and services

FuncoLand's core products consisted of new and used video games for major consoles including the (NES), (SNES), and PlayStation, as well as PC software titles. The company emphasized used games, which formed the bulk of its inventory, appealing to budget-conscious gamers by offering titles at significantly lower prices than new releases, such as rare NES cartridges like for as little as 29 cents in promotional flyers. A pioneering feature was FuncoLand's trade-in program, which allowed customers to exchange old games for store credit toward new purchases, with valuations determined by the item's condition and market demand. This system encouraged repeat visits and helped build customer loyalty by providing an accessible way to upgrade collections without full out-of-pocket costs. In addition to games, FuncoLand offered services like game rentals at select locations, initially launching with around 1,100 NES titles to let customers test games before buying. The retailer also sold accessories and limited hardware, such as controllers, to complement its software focus and support console gaming setups. Inventory management relied heavily on sourcing used games directly from trade-ins, which enabled high profit margins—often through markups on low-acquisition-cost items—while attracting price-sensitive consumers during the console boom. As industry trends evolved, FuncoLand adapted its offerings to prioritize popular genres like RPGs and sports titles, adjusting stock for surges in demand driven by hit titles.

Store format and customer engagement

FuncoLand stores were typically modest in scale, averaging around 1,600 square feet and primarily situated in strip malls near high-traffic retail areas to capitalize on local gaming demand. These locations allowed for efficient operations while providing accessible foot traffic for customers seeking purchases. The store layout featured segregated sections for new and used games, with prominent displays for the latter, which constituted the bulk of inventory and sales—often over 90% in early years—enabling customers to browse extensive selections of pre-owned titles at approximately half the original price. Demo stations were a key element, offering "try before you buy" opportunities where customers could sample games on systems like the , enhancing the interactive shopping experience. Customer engagement centered on fostering a around gaming, with staff leveraging their deep knowledge of titles to provide personalized recommendations and assist in trade-ins, where the company purchased around 3,000 used games daily. Hands-on kiosks at demo stations encouraged direct interaction, allowing teens and young adults to test software before committing to a purchase, which built excitement and loyalty. To further connect with patrons, FuncoLand distributed quarterly catalogs reaching 250,000 households and published magazine, which grew to over 100,000 subscribers by 1994, serving as both a promotional tool and a resource for gaming insights. Branding emphasized a youthful, approachable vibe tailored to gaming enthusiasts, with store aesthetics incorporating vibrant displays of merchandise and promotional materials to create an inviting atmosphere distinct from traditional electronics retailers. Operational policies for used games focused on functionality, with all items tested prior to sale and backed by a warranty, though returns were limited to store credit or delayed refund checks rather than immediate cash, reflecting the retailer's emphasis on inventory turnover. Over time, particularly in the late 1990s, FuncoLand adapted by integrating mail-order services with in-store pickup options via catalogs, laying the groundwork for broader accessibility as the company expanded its new game offerings to 47% of sales by 1997.

Corporate affairs

Leadership and headquarters

FuncoLand was founded in 1988 by David R. Pomije, who served as its chairman and until the company's acquisition in 2000. Pomije's vision centered on capitalizing on the emerging market for used video games, initially through a mail-order operation before expanding into brick-and-mortar retail stores that emphasized buy-sell-trade models for games and accessories. Under his leadership, FuncoLand grew from a basement-based venture in to a national chain with hundreds of locations. Key executives supporting Pomije included Stanley A. Bodine, who joined in and was promoted to president and chief operating officer in 1995, bringing expertise in operations from his prior role at Haagen-Dazs. Robert M. Hiben served as from 1992 to 2000, overseeing financial strategy during the company's public listing and rapid expansion, including the and subsequent growth initiatives. These leaders were instrumental in navigating the 1994 industry slump and positioning FuncoLand for its 1992 public listing on under the ticker FUNCO. FuncoLand's corporate headquarters was located at 10120 West 76th Street in , a suburb of , beginning in the mid-1990s. The facility, approximately 50,000 square feet, housed both corporate offices and a that supported inventory management, product fulfillment, and administrative functions for the growing network of stores. This central Minnesota base facilitated efficient logistics for nationwide operations while maintaining proximity to key markets in the Midwest. As a private startup incorporated in 1988, FuncoLand evolved into a following its in July 1992, which raised $5 million at $5 per share to fund store expansion. A secondary offering in June 1993 raised an additional $13 million at $11 per share, enhancing and governance standards under regulations. The , elected annually by shareholders as outlined in proxy statements, provided oversight during this transition, with Pomije retaining significant influence as the largest shareholder holding 71% of stock by early 1993. Following Barnes & Noble's $161.5 million acquisition of FuncoLand in June 2000, leadership transitioned as the company integrated with Babbage's Etc. to form in December 2000. Pomije stepped down from his roles post-acquisition, pursuing private investments and consulting opportunities. Barnes & Noble's oversight emphasized synergies in retail operations, with adopting a unified executive structure under its new branding while retaining elements of FuncoLand's used-game expertise.

Competition

FuncoLand's primary competitors in the video game retail sector during the included specialty retailers such as Electronics Boutique (later ) and Babbage's, which focused on new and software, as well as big-box stores like Toys "R" Us and that offered new games alongside toys and general merchandise. Local independent shops also competed in the used game market, often serving community-based needs but lacking the scale of national chains. For new games, FuncoLand faced intense price from and Toys "R" Us, which engaged in aggressive pricing strategies that pressured FuncoLand's profit margins, particularly in 1995. FuncoLand differentiated itself through its emphasis on used games and trade-ins, a model that allowed customers to sell unwanted titles and purchase pre-owned games at approximately half the price of new ones, fostering niche loyalty among budget-conscious gamers where big-box retailers like and Toys "R" Us did not compete effectively. This strategy, pioneered as the first large-scale multi-store operation for such trades, built by enabling affordable access to older titles and creating a cycle of repeat visits, contrasting with competitors' focus on new releases. In the 1990s market dynamics, FuncoLand navigated the console wars between , , and , with significant growth tied to the 1996 launches of the , PlayStation, and , followed by a sales boost from the 1999 release. The rise of posed emerging challenges, though FuncoLand adopted online sales early, increasing from $450,000 in 1997 to $1.6 million in , helping it compete with precursors to modern online sellers. FuncoLand's used-game model influenced industry consolidations, highlighted by a bidding war in 2000 where Electronics Boutique offered up to $135 million but was outbid by Barnes & Noble's $161.5 million acquisition of Funco in June 2000, followed by the December 2000 merger of Funco with Babbage's to form . This series of mergers in the late and early 2000s, involving entities like Babbage's, Software Etc., and , reflected a broader trend toward consolidation in retail to counter big-box and online threats. Regionally, FuncoLand maintained a stronger presence in the Midwest, originating in Minneapolis in 1989 and expanding to cities like , , and Fort Worth by 1992, while Electronics Boutique dominated coastal markets. This geographic variation shaped competitive positioning, with FuncoLand leveraging its Midwest base for used-game loyalty amid less direct rivalry from on the coasts.

Financial performance

Funco, Inc. went public in July 1992 with an on the under the FUNCO, pricing shares at $5 each and raising approximately $5 million to fund national expansion of its store network. A secondary offering followed in June 1993 at $11 per share, generating an additional $13 million for further growth initiatives. Post-IPO, the company's stock experienced volatility, peaking at $18 per share in early 1993 before declining amid industry shifts, such as Sega's hardware announcements, and settling around $8 by April 1993. Revenue grew substantially from modest beginnings, reaching $20.5 million in fiscal 1993 (ended April) and accelerating to $80.4 million in fiscal 1995, driven by store openings and increasing demand for used video games. By fiscal 1997, sales climbed 48% to $120.6 million, reflecting broader market expansion and a shift where new game sales constituted 47% of total revenue, up from a used-game-dominated model earlier in the decade. This trajectory continued into the late 1990s, with fiscal 1999 revenue at $553.1 million and fiscal 2000 peaking at $756.7 million, supported by over 400 stores and operations. Profitability remained challenged in the mid-1990s, with net losses of $520,000 in fiscal 1993 and $1.3 million (22 cents per share) in fiscal 1995, attributed to aggressive expansion costs and competition from discounters. Fiscal 1997 marked improvement, achieving record of $5.34 million, bolstered by higher-margin used-game sales that formed the core of operations. However, by fiscal 1999, the company reported a net loss of $3.462 million, escalating to $11.961 million in fiscal 2000 amid intensified price wars and integration challenges following partial ownership changes. Gross profit margins hovered around 23.8% in fiscal 1999 and rose slightly to 24.5% in fiscal 2000, primarily propelled by used-game transactions, which offered higher returns compared to new-game sales (typically 20-30% margins industry-wide). Key financial events included post-IPO debt management, where early borrowings from ventures like Protechtronics were restructured to support retail focus, avoiding excessive leverage during expansion. Quarterly reports were heavily influenced by seasons and major console launches, with fourth-quarter performance often accounting for nearly half of annual sales; for instance, a strong in late 1999 contributed to exceeding analyst estimates with quarterly of $716,000. declines, such as a 46.5% drop in December 1994 tied to softer , underscored sensitivity to seasonal trends and competitive pressures. Leading to its acquisition, Funco's valuation was shaped by its established used-game niche and store footprint, culminating in a $161.5 million purchase by in June 2000, which reflected a strategic premium amid consolidating retail dynamics despite recent losses. This deal positioned Funco for merger with Babbage's Etc. to form later that year, with the price approximating 6-7 times trailing earnings multiples common in the sector at the time.

Shareholder litigation

In 1995, shortly after its , Funco, Inc. faced a class-action filed by shareholders alleging that executives had artificially inflated the price through misleading statements about growth projections. The suit, initiated on August 17, 1995, in the United States District Court for the District of , was led by plaintiff Christopher Cannon and named CEO David R. Pomije as a , claiming violations of federal securities laws. The allegations centered on overstated expansion plans and failure to disclose significant inventory risks in SEC filings from late 1994 to mid-1995, which plaintiffs argued misled investors about the company's financial health and future performance during a period of industry slowdown. These claims suggested that executives issued overly optimistic projections to boost post-IPO stock value, leading to losses when the stock declined as actual results fell short. The legal proceedings involved prominent law firms representing both sides, including discovery phases where documents and depositions were exchanged to examine the company's reporting practices. Mediation efforts began in 1997 to resolve the dispute without a full trial, reflecting the complexities of securities class actions at the time. The case was settled in 1999, with no admission of wrongdoing by Funco or its executives. The litigation caused temporary dips in Funco's stock price during key periods of the proceedings but did not result in any long-term operational disruptions or changes to the company's business strategy.

Regulatory and industry disputes

FuncoLand demonstrated strong adherence to the Entertainment Software Rating Board (ESRB) guidelines for age-appropriate sales, participating in the ESRB's "Commitment to Parents" program, which pledged retailers to avoid selling Mature (M)-rated games to minors under 17. In a 2001 report by the National Institute on Media and the Family, FuncoLand was highlighted alongside Target as one of only two major retail chains consistently enforcing policies that prohibited sales of M-rated video games to individuals under 18, earning praise for its role in educating parents about ratings. This compliance contrasted with broader industry undercover surveys by the Federal Trade Commission (FTC), which found that minors could purchase M-rated games at 85% of surveyed stores, including 81% of those enrolled in the ESRB program; however, FuncoLand's specific enforcement practices were not flagged for violations in these evaluations. FuncoLand contributed to broader initiatives against software piracy through its membership in the Interactive Digital Software Association (later the ), supporting efforts to strengthen protections for video games, though its specific role focused primarily on retail compliance rather than direct policy influence. Following its acquisition by in May 2000 for $161.5 million, the merger faced no significant antitrust scrutiny and was cleared without issues, allowing seamless integration with Babbage's to form the foundation of . No reported conflicts arose with key suppliers like or over distribution terms or return policies during FuncoLand's independent operations or post-acquisition transition.

Criminal incident

On December 1, 2002, two FuncoLand employees, store manager Erik Rewoldt (aged 26) and assistant manager Jeffrey Eresman (aged 21), were shot and killed during an armed robbery at the company's store in Succasunna, Roxbury Township, New Jersey. The incident occurred around 11:30 a.m., with the perpetrators stealing video games and cash. Three individuals—Omar Shaheer Thomas, Craig Thomas Jr., and a juvenile—were arrested and charged with the murders. Omar Thomas was convicted in 2005 of two counts of felony murder, robbery, and weapons offenses, receiving a life sentence without parole. Craig Thomas Jr. pleaded guilty to manslaughter in 2008 and was sentenced to time served plus probation. The case drew significant local attention and highlighted security concerns at retail video game stores.

References

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