Party City plots Halloween comeback against rival Spirit Halloween

This Halloween season holds some retail property twists as chains across the United States try to conjure up more sales of costumes and other spooky paraphernalia.

Party City, out of bankruptcy for about a year, is looking to scare up crucial Halloween revenue not only against annual autumn rival Spirit Halloween's record-breaking fleet of more than 1,500 pop-up stores. It's also taking on discounters such as Walmart, Target and Big Lots, e-commerce giant Amazon, and even home improvement giants Home Depot and Lowe's.

In the annual Halloween retail battle, pop-up shops start emerging in August and Spirit Halloween's stores become ubiquitous. In the past Woodcliff Lake, New Jersey-based Party City has opened its own temporary stores, called Halloween City, to ring up revenue for that spooky Oct. 31 holiday, augmenting the chain already selling related merchandise at its namesake locations and online.

But this year, Party City has changed its playbook: It hasn't made any announcements about rolling out standalone Halloween City pop-ups. Last year, there were about 30 Halloween City locations, down from 149 in 2022. Party City declined to comment on whether there will be any at all this year. But it appears the chain is depending on its newly revamped stores — now packed with animatronics, costumes and home decor — as its brick-and-mortar offering. Big orange "Halloween" signs are posted on Party City storefronts.

"Party City is practically turning every store in the U.S. and Canada into a Halloween City, the temporary store concept it operated for years during the Halloween season," Rudy Milian, president and CEO of retail consultant Woodcliff Realty Advisors, said in an email to CoStar News. "It makes sense for Party City this year not to spend additional capital to lease more pop-up storefronts on a temporary basis to devote to the Halloween season given that the retailer already operates more than 750 company-owned and franchise stores around the world where it is selling Halloween merchandise along with all other party goods."

But at the same time, Spirit Halloween is opening a record 1,525 brick-and-mortar stores this season, and plans to add more than 400 locations to its 1,100-store footprint by the end of September — a fleet roughly double Party City's store portfolio. Nearly 3,000 fans from across the country, and even some traveling internationally, showed up for the Aug. 1 opening of Spirit Halloween's flagship store in Egg Harbor Township, New Jersey, according to the company.

It remains to be seen if Party City's new strategy, and gamble, works. For the U.S. retail world, the stakes are high and getting higher regarding Halloween. The holiday now represents a growing market, with an estimated $12 billion in sales last year.

That's why players beyond Party City and Spirit Halloween want a bigger piece of the action, including retailing giants. Even Canada has a small chain of seasonal Halloween pop-ups, called Halloween Alley.

This year the Halloween assortment at Lowe's includes Peanuts-themed decorations and a life-size animated character Wednesday from "The Addams Family," among other animatronic figures.

"As we look ahead to (the third quarter) and the fall season, we have a strong product lineup ready for the fall, starting with Halloween," Bill Boltz, Lowe's executive vice president of merchandising, said on an earnings call in August. "It's bigger than ever before with everything from new animatronics to inflatables."

Home Depot's Halloween offerings include a giant 12-foot skeleton, named "Skelly," a viral sensation that sells for $299. It's already out of stock, according to the retailer's website.

Even financially struggling Columbus, Ohio-based Big Lots, which has closed several hundred stores, is pursuing Halloween sales. In August it said it had purchased "a well-known national party-supply retailer's Halloween overstock," originally valued at $11 million.

The hundreds of Halloween items included indoor and outdoor decor; costumes for adults, children and pets; pumpkin-carving kits; trick-or-treat essentials; and apparel.

"This new closeout deal significantly increases our total offering for Halloween, making this our biggest Halloween ever," Big Lots President and CEO Bruce Thorn said in a statement.

The National Retail Federation hasn't released its outlook for this year's Halloween yet. But last year, the trade group forecast a record $12.2 billion in spending, exceeding the prior year’s record of $10.6 billion.

Seasonal pop-up shops like Spirit Halloween — and in the past, Halloween City — take short leases, about three months, on vacant retail space, allowing landlords to generate at least some revenue from those empty properties. For Spirit Halloween, owned by Spencer Gifts, this year that includes moving into former Harmon Face Values, Bed Bath & Beyond, Buy Buy Baby, Christmas Tree Shops, Rite Aid, HomeGoods and Sports Authority locations.

Party City's apparent decision not to open Halloween City locations allows it to avoid those rent costs and take advantage of the store fleet it has been working so hard to modernize and revamp after coming out of Chapter 11 in October last year, according to retail analysts. Party City's fleet was sized down as part of the reorganization.

"Party City completed its financial restructuring last fall and is likely focusing on stabilizing its core business operations after emerging from bankruptcy," Amanda Lai, a director at retail consulting firm McMillanDoolittle, said in an email to CoStar News

"Amid ongoing economic uncertainty and a focus on rightsizing the business, Party City is likely cautious about investing in temporary locations that might not guarantee a return on investment. ... Earlier this year, the company unveiled a new store format that emphasizes its balloon and birthday offerings and also announced it would accelerate the conversion of existing stores to this new format, reflecting a focus on increasing the profitability of its core stores rather than expanding with new permanent and temporary store openings."

Yet Halloween City stores have been big contributors to Party City's revenue. The company's retail net sales in 2022 were nearly $1.8 billion, an increase of about $5.6 million, or 0.3%, compared to 2021, according to a regulatory filing.

"The increase was primarily driven by our temporary Halloween stores (principally Halloween City), partially offset by our Party City stores," the retailer's filing said. "Sales at our temporary Halloween store totaled $51.6 million and were $15.9 million, or 44%, higher than 2021 due to an increase in temporary store locations (149 stores in 2022 vs. 90 stores in 2021)."

With or without pop-ups, Party City, which appointed Barry Litwin as its new CEO on Aug. 12, is ramping up its efforts for the holiday season. For example, it held a Halloween Academy for employees a few weeks ago.

"Today, our field leaders heard about what we can do to grow our success, unlocked stories of personal excellence, focused on accountability, participated in breakout sessions, spent quality time within their regional teams to grow together and strategize and more," the retailer posted on LinkedIn. "Tomorrow is the culmination of our academy, and then it's back to their home territories to make this Halloween our best one yet."

Party City had been testing new store prototypes even before it sought bankruptcy protection. In February, it said it was accelerating the introduction of that new interior design across its fleet. The store floors have now moved away from traditional aisles to create mini-shops.

"This new format also allows for testing of new product assortments, especially focused on categories related to kids celebrations; such as trending favors, toys, and more," Party City said. "Additionally, the updated queue experience allows for engaging, bold merchandising statements, with opportunities to continually adjust what is featured."

Party City officially kicked off the Halloween season at all its brick-and-mortar locations on Aug. 15 when it held a friends-and-family event, with shoppers getting 31% off their purchases.

"Halloween is our biggest season by far," Party City said on its website. "From August through November, Party City is first and foremost a Halloween store bursting with all styles and sizes of Halloween costumes and the accessories to go with them."

At the retail's remodeled store on that day in East Hanover, New Jersey, Party City's Art the Clown and Little Pale Girl animatronics from the "Terrifier" horror movie franchise along featuring Leatherface from "The Texas Chainsaw Massacre" were among the items on display. The aisles were chock-full of decorations, skeletons, costumes, masks and other goods. A saleswoman said more Halloween merchandise would be arriving shortly. This year the retailer is also offering a giant inflatable "Beetlejuice" carousel.

Spirit Halloween says shoppers haunt its store because of the immersive and interactive experience it provides, with animatronic figures playing a big part in its pop-ups' decor. To accommodate the crowds, the chain earlier this year said it planned to hire 50,000 seasonal sales associates and store managers, up from 40,000 last year.

Spirit Halloween is incorporating a " Carnevil” theme this year, with an in-store fun house and booths.

"The Halloween fandom continues to grow, and our incredible team works year-round to create an unparalleled and unique in-store experience that will engage customers all season long," Steven Silverstein, Spirit Halloween CEO, said in a statement. "Visiting a Spirit Halloween store is more than just a shopping trip — it's entertainment, it's tradition, it's creating moments and memories with family and friends that bring the magic of Halloween to life, and we are thrilled to welcome fans back to the show."