It has become increasingly difficult for the chain to compete for early Halloween purchases against a specialist that creates excitement around its opening, and a generalist where regular shoppers are readily exposed to new seasonal ranges.
By Neil Saunders
At the group level, a disappointing set of numbers from Party City brings to an end a good run of solid growth. The overall revenue decline of 1.3% is particularly disappointing, especially as it comes off the back of a fairly weak performance in the prior year. Retail sales growth of 3.2% is relatively healthy, but this is mostly driven by online and new store openings. Underlying performance, as indicated by the decline in brand comparable sales, is less satisfactory.
Although the quarter ended Sept. 30, this period is still one in which consumers started to make purchases for Halloween and other fall celebrations. Our data show nothing to suggest that consumers bought later this year; if anything, they bought earlier. So it is reasonable to conclude that Party City was not able to maximize seasonal success. One reason for this is an increased level of competition.
Overloaded and outnumbered
Much of this has come from an increasing number of popup stores such as Spirit Halloween. Consumers are now conscious of these, and the number of shoppers using them increased again this year. They are appealing both because of the fun atmosphere and the extensive range of dedicated Halloween products. For some families, they have become a go-to destination. While Party City’s traditional stores also have a strong Halloween offering, they struggle to compete with a specialist retailer.
This is one reason why Party City operates its own Halloween City popup shops. These perform reasonably, but numerically they are outnumbered by Spirit Halloween, which now has a visible presence across the country. We also believe the general ambiance and proposition isn’t as good as that of Spirit Halloween. Halloween City shops also have the added problem of cannibalizing some sales from existing Party City stores.
The other competitive dynamic has been the increased effort around Halloween from other retailers. Target, in particular, has stepped up its game in this respect with new fixtures, signage, and a much more compelling range of products. This is squarely aimed at the family demographic, which also shops at Party City.
‘Tis the season for toys
None of this means that Party City does not have a role to play in Halloween. However, it has become increasingly difficult for the chain to compete for early purchases against a specialist that creates excitement around its opening, and a generalist where regular shoppers are readily exposed to new seasonal ranges.
Against these dynamics, the Party City website has been a helpful tool and it performed better than stores over this period. However, many of the sales are cannibalistic to those that would have been made in shops. Customers are also less prone to impulse buying online, which suppresses transaction values.
Looking ahead, the Toy City popup stores should help Party City as it moves into the holiday season. However, while Toys R Us has left a gap in the market, we are cautious about how much Party City can capitalize on this if only because so many other retailers are now crowding into the toys space.
We also believe that some of the dynamics that applied to Halloween will apply to the holidays. Retailers like Target are making a much more concerted effort around holiday decorations as well as party supplies and sundries. This may well blunt some of Party City’s growth as it moves into the next few quarters.
Neil Saunders is managing director of research firm GlobalData Retail.