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December 23, 2024
Party City To Close All US Stores: What Went Wrong?
Following rather distressing news of its initial bankruptcy in January 2023, Party City recently announced an exit from the U.S. marketplace entirely, as CNN reported.
While the 2023 bankruptcy allowed the company to cut about $1 billion in debt while keeping most of its then-800 stores in operation, CEO Barry Litwin indicated that Party City’s “very best efforts have not been enough to overcome” its financial challenges, per FOX Business.
Party City Files for Bankruptcy a Second Time, Having Exhausted All Options
A separate CNN report indicated that Party City had filed for bankruptcy once more, this time on Dec. 21, 2024. While the initial filing had eliminated around $1 billion in debt, the company still held approximately $800 million more — this second declaration of bankruptcy comes in response to this outstanding amount owing, among other factors.
“It’s really important for you to know that we’ve done everything possible that we could to try to avoid this outcome,” Litwin told corporate employees during a Dec. 20 meeting. “Unfortunately, it’s necessary to commence a winddown process immediately.”
Despite the somber news, Party City also encouraged fans of the brand to enjoy one last shopping spree at its stores.
“It has been a true pleasure to be a part of your most special moments over the years. And, in the coming weeks, we hope you stop by to say goodbye and pick up your favorite items, whether you’re organizing a big celebration now or planning ahead for milestone moments to come,” the company stated.
While the party goods retailer plans a going-out-of-business sale, it allegedly plans to retain 95% of current employees until stores finally shutter on Feb. 28, 2025. However, in the meeting on Friday, Litwin told corporate employees that it would be their final day of employment, according to CNN. They were also told they would not receive severance and that their benefits would end when the company went out of business.
Emotions were running high among employees in the lead-up to the closure and bankruptcy announcements. Further, the compoany’s product development team was called back early from a trip to meet with vendors over ostensible safety concerns, with Party City having failed to pay certain suppliers in recent days.
Competition From Spirit Halloween, Big Box Retailers Could Have Sealed Party City’s Fate
Ultimately, Party City may have simply lost favor with a trending demographic shift, one that has seen the fate of competitors — namely, the increasingly popular Spirit Halloween, not to mention larger big-box retailers — soar while its own bottom line sagged.
The post-pandemic era has, in some ways, separated a clear pack of market winners from losers. While Party City and Big Lots face extinction in the American market, other chains such as Walmart have enjoyed runaway earnings.
Finally, a notable and sustained helium shortage did impact Party City’s operations, with rising costs making the popular party favor less appealing to cash-strapped customers.
Canadian Party City To Remain Open
Additionally, the party goods retailer’s locations in Canada will remain open and largely unaffected by this move. As CBC pointed out, the Canadian iteration of Party City is owned by the national retailer Canadian Tire, and according to the company, there are no plans for major change in the immediate future.
“The operations of Party City in Canada are entirely separate from Party City Holdco in the U.S.,” a Canadian Tire spokesperson wrote. “Party City Canada remains open for business online and in store, and will continue to provide Canadians with everything they need to celebrate all their life moments.”
Discussion Questions
What lessons can be learned from Party City’s (and Big Lots’) failure to enjoy continued success in today’s market?
Would Spirit Halloween (and now, Spirit Christmas) be able to find footing throughout the year if it expands from its purely pop-up and seasonal business?
Which retail sector is next to face a customer migration away from traditional outlets to more innovative newcomers?
Poll
Loading …BrainTrust
Melissa Minkow
Director, Retail Strategy, CI&T
Dick Seesel
Principal, Retailing In Focus LLC
Richard Hernandez
Merchant Director
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What a shame. Here’s another victim of the pandemic, which altered so many consumers’ choices. I wish this story had a happier ending.
The Party isn’t city’ing anymore. Sad. But typical of our age’s conservative, risk-averse, and tech-averse legacy retailers.
My last job as a practitioner was CIO of a party supply chain that Party City ultimately ate. Frankly, the business didn’t scale very well, which is why Party City had so many franchisees. When Goldman (I think) rolled Amscan (paper goods supplier), a private label costume company and Party City together, I thought they’d have a chance. But no party supply store could survive a 2 year pandemic. None. The helium shortage was experienced by everyone, so that, to me, is a non-issue. The issue is no parties. Followed by people having shifted to big box stores. The pop-up Halloween supply business was already maxed out and that didn’t help, but overall……the pandemic took a marginal business and killed it.
I will say that I have never missed that business for a minute. Not for a minute. It’s so messy.
I feel badly for the franchisees.
My 30 second necropsy: too little reason to exist; there was nothing proprietary or otherwise special about the core product, so the value had to be added in catering or facilitating or some kind of service; I’m guessing that ultimately became unstainable.
On a related note, one of the Detroit papers several years back did a case study of how a typical Detroit block deteriorated over the years: I distinctly remember that “party supply” stores was one of the types of businesses that emerged in failing retail strips. While we can debate cause-and-effect, it’s hardly a positive correlation.
Specialty retail is really difficult in today’s world where big box has such a competitive offering. You have to offer something that doesn’t exist anywhere else when it comes to specialty. There wasn’t a differentiated enough reason to go to PC over a Target, Walmart, Etsy or Dollar Store unfortunately.
Specialty retail and category killers were once the rage not too long ago. Now they struggle to stay relevant. The pandemic didn’t help , but there is no differentiation from their assortment vs. a big box. Sad to see.
For different reasons, Party City and Big Lots both had business models that had run their course.
The following factors contributed to Party City’s slow demise.
In the past few years, Party City’s goods have been widely available at retailers such as Target, Walmart, and even, more conveniently, on Amazon. Stores for Halloween, as well as other holidays, started popping up in vacant spaces in strip malls.
Public awareness about reducing paper and plastic use is another factor. Our society promotes guilt mongering to the point where many people are afraid to invite guests over with these items, in fear of being judged.
It would be remiss of me not to mention after the pandemic, there seemed to be less inventory, fewer colors, fewer varieties, and even empty shelves in many stores. Customers visit the stores less frequently when that happens.
This year, many stores lacked Thanksgiving-themed party supplies. That is unforgivable.
As always, franchisees will be hit hardest, which is unfortunate for them.
The failure is down to two factors: increased competition and a more constrained consumer. The former is more significant. Much of this has come from an increasing number of occasion-based pop-up stores, such as Spirit Halloween. The other competitive dynamic has been the increased effort around party and occasions from other retailers like Target, Walmart, Amazon, and now Temu. Against this onslaught, Party City did too little to differentiate and it lost out.
Party City is not the first or last “category killer” meeting its end at the hands of Walmart, Amazon and the like. The niche was probably too seasonal, too.
Adapt or die.
Party City stuck to old ways while competitors like Spirit Halloween embraced flexibility and seasonal relevance.
Spirit Halloween (now Spirit Christmas) can certainly expand year-round if they focus on niche products and bring the same creativity to everyday celebrations. As for the next sector to struggle, I think traditional department stores are in danger. They’re losing customers to online retailers and modern brands with unique in-store experiences.
Party City’s fate shows how important it is to adapt or risk becoming irrelevant to shoppers who have better options. Survival in retail now depends on staying ahead, not catching up.
Party City and Big Lots’ announcements are representative of larger lessons that can be learned as the retail industry continues to evolve at a rapid pace. In a competitive landscape, retailers must adapt to meet consumer expectations for a quality retail experience. Party City’s failure to embrace eCommerce and omnichannel strategies to accommodate modern purchasing habits, for instance, ultimately contributed to their decline.
Additionally, in a competitive landscape, it’s crucial to stand out from the crowd. Party City and Bog Lots failed to establish strong brand identities or offer unique products that set them apart from big-box stores and online retailers.
Brands looking to succeed in 2025 need to heed the warnings of these retailers’ failures and make sure they’re adapting in real time to meet customer expectations. This includes adopting newer AI tech solutions and continuously refining the omnichannel experience to remove pain points, such as poor search experiences and a lack of payment options upon checkout.