Party America

Early in 1996, one of the top recruiting firms in the country called Marty to talk about the CEO position for Party America. Today, Marty jokes about it because when the call was over, the first thing he did was get in his car and drive to a party store. At that time the party industry had not matured, so there were not party stores in all the big box centers as there are today, and Marty had never been in one before.

To help create a new company image, Marty redesigned the company logo, and then did a complete redesign of the stores’ interiors, making Party America a must-have store in the new power centers.

What he found was a fragmented retail industry. The big chains were still regional players, with one exception, and the exception had more franchises than company stores.

Party America had a powerful board of directors who wanted to expand the concept from coast to coast.
In 1996, Party America had only thirty-some stores most of which were in California with a few stores in Colorado.

Huge Losses
Marty was asked by the board to build and lead the company to greatness by becoming the large national chain they envisioned. What no one knew at the time was that the current management team had been failing and the company was in far worse condition than anyone knew. Shortly after Marty was on the job and started digging into the financial’s, he discovered that the company was going to post a loss of several million dollars in the coming weeks. Marty knew that this would be the beginning of the end for such a small and fragile company, and that the investors would lose everything.

While walking a grocery store one night, Marty thought the candy dispensers would make fantastic displays for the latex balloons. Within a week, Marty designed his own version. These gave Marty the wow effect he wanted, kept the products neat and organized, and made shopping easy and fun for the customer. Within a short period of time, balloons accounted for 10% of sales, with the highest product margins.

It was a Monday morning that he got a call from his bank. They told him that the inventory numbers were too low, he was out of compliance and they, the bank, were shutting down his borrowing line. In the world of retail, that was equivalent to cutting off someone’s paycheck. The first thing that entered Marty’s mind was how he would make payroll the following week, followed by the realization that he would lose all of his employees when they realized what happened.

Without hesitation, Marty set up several meetings which he had all of his employees attend. He explained the problem to every worker, including senior management, managers, and all of the retail clerks, stock room personnel and cashiers. He asked them a simple question, “Do you like this company and do you want to fight to save it? If you do, I will stay and lead the charge. If you don’t then we will let the company go and we’ll all find new jobs.” He emerged with unanimous support from all of the employees. And so the fight to save Party America began.

Chapter 11
Within days, Marty moved the company into Chapter 11 protection. He hired the best bankruptcy firm on the west coast to help with this process, even though they were in Los Angeles and the corporate office was in San Francisco. The day the company filed Chapter 11 Marty called all of his largest vendors to tell them what he was doing. The vendors told him that the company would not survive and demanded that all their goods be bought on CIA, or cash in advance, which is worse than COD. With CIA the company pays up front, and if the vendor is out of stock on an item that you paid for, well, somehow you never get credited back.

The first thing that became apparent was the amount of money everyone was billing the company for bankruptcy services. These included law firms, accountants, consultants and a variety of other people who make a living hammering companies in Chapter 11. They were billing faster than Party America could generate money, which is fairly typical in this type of a situation.

As Marty says, “The first two months were pretty rough. I was learning a new game, not one that I was happy to learn, but one that I needed to know well if we were to survive.”

Marty’s strength as an organizer, along with his training at California Closets, made Party America stores famous for their neatness and organization, even with their high number of SKU’s. Note the characteristic neatness of this wall of streamers displayed in a rainbow of colors. Each item is moved forward on the peg so that it lines up neatly, creating an optimal shopping experience. The merchandise might as well have been in the military.

Well, he learned it and proved all of the naysayers wrong by bringing Party America out of Chapter 11 in just six months, a record for a retail company to accomplish. And while doing so, he lost only one employee, and was able to hire some of his best talent while in Chapter 11, an unusual feat.

Marty tells a compelling story about the darkest days of Chapter 11. One day one of his stockroom managers got into some trouble with the law and needed to borrow a few thousand dollars. He asked if Party America would help. Since every dollar was very precious, Marty asked his senior management team at their weekly meeting what they should do. Of his five direct reports, four voted not to help him, and one voted yes. Marty overruled the four. He countered that we asked everyone to stick with us, which means we have to stick with them as well. Since the employee was considered a very good one, Party America made the loan to him. Marty’s logic was simple, “A company has one asset – people. Without people you have nothing; all other assets can be quickly replaced by writing a check. If a company is a true team then you help each other. It is no different than the way our military works. They never leave a man behind, period.” Over the next six months, Marty replaced those four who voted not to help with a “people first” focused team. This is the basis for why Party America has been the success story it’s been. The company, as well as Marty, has been written up in numerous articles, and has received many awards and acclamations.

Finding An Investor
Bringing the company out of Chapter 11 had one big obstacle at the end. It needed an investor. Party America was small and in the business of selling party supplies, not exactly a sexy concept. It was exacerbated by being based in the bay area at the height of the dot com boom. Money was tight. After talking to several private equity firms, Marty selected an unusual partner, Gordon Brothers.

GB is well known in the retail world as the premier liquidator of retail concepts. However, Gordon Brother was trying something new. They were going to invest in retail concepts and they created a new fund just to accomplish this goal. Party America became their first investment. (Read the article for more details and comments from the CEO of Gordon Brothers.)

At the beginning, the relationship between GB and Party America seemed like a match made in heaven. At the end it truly was made in heaven. Marty selected Gordon Brothers based on the people who owned and ran the company. Gordon Brothers banked their first investment on Party America because of Marty. And together they created a tremendous success story based on trust, mutual respect, and very little cash.

When Party America emerged from Chapter 11 it had only 24 stores, and it was the smallest party chain in the industry. During the early years Marty completely changed the company’s assortment, rebuilt the management team, installed new systems and created a new store design that became the company’s trademark. That’s when the growth began.

Growing The Company One Store At A Time
Growth was slow at first with one new store at a time. Each new store was financed from the cash register. But the new stores were a breath of fresh air to the industry and the mall developers. Marty took the concept upscale, adding carpeting with a fun design, large and colorful balloon bars at the front of the stores to accommodate the volume of balloons, a bright new color scheme and a zigzag lighting pattern that our stores became known for.

Party America’s trademark balloon bars were positioned at the front of the stores. Note the round shape and the circus-like top which Marty designed. The zigzag lights grew out of a design problem Marty had with an electrical contractor.

But the real show stopper were the bathrooms. Marty understood that what was important to his customer was the experience they had while shopping your store. Many companies talk about it, but few do anything about it. Marty observed moms with children shopping the stores. The children had a short span between bathroom breaks. Bathrooms became a big part of Party America. New bathrooms were built with easy access for the customer and they were kept impeccably clean. Then, they were decorated to the nines according to the current season. Then there was a contest between the stores as to who could create the best bathroom with an annual award going to the best. Of all the awards a store could win during the year, the bathroom award became the most coveted. You might say that Party America’s culture was in the toilet!

Marty summed it up with a simple observation. “One day I was walking one of our stores with Tony Oliver, Vice President of Store Operations, when we saw a customer exit the bathroom with a big smile on her face. She walked over to another woman who she had been shopping with and dragged her into the bathroom to show her how neat it was. Tony and I both observed this, knowing that we had arrived as a retailer when a customer drags their friend into your store’s bathroom to show it off.”

The bathroom idea is another one of Marty’s famous one per centers. He explains his concept simply. “In this day and age no company can do anything 100% better than their competitor, and if they could, their competitor would copy the idea, improve on it and leap frog you. However, what you can do and what is very hard to copy, is to find 100 things that you can do just 1% better than your competitor. Gear your one per centers toward people; the employees and the customers, and you will win the game. Everyone talks about taking care of customers, but so few companies actually do it.”

Growth Through Acquisition
After building new stores across the western portion of the United States, and posting year after year increases in sales and profit, Marty decided it was really time to grow the company. He bought one of his competitors, Paper Warehouse, a company based in Minneapolis that was twice the size of Party America. And to make sure the challenge was big enough, he did this in the forth quarter right before Halloween, his company’s biggest season.

After the tremendous success of merging that company into Party America, exactly one year later Marty bought Party Concepts, another competitor which was based in Wisconsin with over 160 stores. This takeover was very hostile much more difficult than the first, but in the end Marty prevailed. Party America grew from just over 50 stores to 300 stores nationwide, in just 18 months. The stores were both company owned and franchised. Party America was now the second largest party chain in the country.

Time To Exit
After 11 years of consecutive growth in sales and profit, Marty and Gordon Brother were able to exit by selling Party America to Party City, their main competitor.

In 2006, Marty is inducted into the
industry’s Hall of Fame as it’s first
honoree. (Read full article>>)

It was a home run for Marty and Gordon Brothers, although it was the case of the larger company buying the better company, but at the end of the day it was a business decision.

Marty left the party industry late in 2007, having enhanced and consolidated a fragmented industry, but not before being inducted into the Industry’s Hall of Fame as its first honoree, recognized for his substantial achievements.

“A little partying never hurt a business. At least that’s what Marty Allen has found in transforming a small company on a downward spiral into the second largest party retailer in the United States.

Alameda based Party America has clocked 180.5 percent growth over the past three years. Not counting the fifty million in sales in its franchises.

This puts Party America at number 32 of the 100 fastest growing companies in northern California and also makes it the third consecutive year on the list.”

By Kristen Bole
San Francisco Business Times


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