By Neil Saunders
Overall, Party City’s recent set of numbers is good, with solid growth on both the top and bottom lines. At just 0.1% the brand comparable uplift looks weak, but this anemic performance is a result of a shift in the timing of Easter. When this is factored in, brand comparables rose by a more respectable 1%.
We applaud the work that Party City has undertaken over the past half year to elevate store experiences.
Overall retail sales increased by a stronger 2.9%, boosted by the addition of square footage from store acquisitions made over the past year. Despite pressures that other retailers are facing in terms of physical stores, shops remain a relevant vehicle for Party City. Customers, especially those with children, enjoy visiting Party City stores, and the unparalleled assortment means the stores remain a destination for all types of party-related products across many occasions.
Producing stronger results
We applaud the work that Party City has undertaken over the past half year to elevate store experiences by expanding ranges, simplifying operating procedures, and improving customer service. Where enhancements have been made, stores are producing stronger results and customer satisfaction has improved. This is important as, although most Party City shops are outside of failing malls, some of the strip malls and centers they rely on for trade have seen shopper footfall wane. Creating a more compelling destination is an important part of pulling in shoppers to buck this trend.
As important as stores are, we are also encouraged by Party City’s efforts in e-commerce. The new pilot program to sell products on Amazon should boost the company’s existing online operations and allow it to expand its customer base. Despite fears that partnering with Amazon could cannibalize sales from existing stores, the move is sound for a number of reasons.
Foremost among these is the fact that Amazon is a growing destination for party products and especially costumes (which will form the bulk of Party City’s offer). Against this reality, Party City having a presence on Amazon simply makes sense. Secondly, while there is some overlap in customers who shop at Party City stores and on Amazon, there are a great many more who shop on Amazon but not at Party City. So the new arrangement should be helpful in allowing Party City to grow its share of shoppers. In any case, at this stage, the venture is a pilot, so Party City can adjust and flex the strategy depending on what makes commercial sense.
Catering to major occasions
Away from Amazon, Party City continues to face growing pressures from other retailers. Although many generalist players like Target and Walmart do not have the depth and specialism of Party City, they have become adept at catering to the major calendar occasions. Our data shows the number of consumers using such stores for their party needs has increased and shows no signs of slowing down. The low prices and convenience of the generalists are key drivers of their trade and are the dynamics with which Party City needs to compete.
Despite the more competitive environment, Party City is making the right moves. As it enters the critical final two quarters, its 50 Toy City popup stores and its various initiatives at core stores and online should serve it well.
Neil Saunders is managing director of research firm GlobalData Retail.