Party America: Still Partying

By Joseph Dobrian, Contributing Editor

Party America’s President & CEO says his company’s recent successes are at least partly attributable to his decision to strengthen its Halloween segment.

In seven years at the helm of Party America, president and CEO Marty Allen has seen the operation through Chapter 11, the closing of 21 stores, the opening of 11 others, and a return to debt-free profitability. This past summer, Alameda, California-based Party America acquired another bankrupt operation, St. Louis Park, Minnesota-based Paper Warehouse, and its subsidiary, Paper Warehouse Franchising. All signs point to profitability there as well. What’s the secret? According to Allen, it’s twofold: simple strategy and flawless execution.

Gordon Brothers Group is a Boston-based firm best known as the recipient of a retailer’s final phone call: it’s the company brought in to liquidate a failed operation. Gordon Brothers saw hope in the shambles of Party America, and outbid several other liquidators. Then, instead of selling off its goods, they hired Allen, who’d made his reputation in the mid-1990s with a turnaround of Williams-Sonoma’s California Closets division – and turned him loose.

Part of Allen’s recovery strategy was to strengthen Party America’s commitment to Halloween, and the results have been dramatic.

“We now have 37 Party America stores, in California and Colorado primarily, and we’ve added 26 company stores from Kansas City, Mo., Oklahoma City, and Tucson, Ariz., and 70 franchise stores which as of now call themselves Paper Warehouse but will soon be called Party America,” Allen reports.

Allen believes that a cautious approach has worked for Party America. In the late 1990s, when practically every retailer in America was trying to sell on the web, Allen hung back, on the principle that it’s better to watch and learn from competitors’ mistakes.

“And this past September, we finally launched our website,” he says. “We thought about doing it four years ago, but then we saw all the dot-coms blow up, and I didn’t see how you could make a profit that way. But we finally spent a whopping $4,000 to build a web-site, where we sell a limited selection of Halloween costumes, and we’re getting phenomenal response. The numbers get greater each day.”

Allen says he expects web sales to equal those of two conventional stores.

“Our Halloween mix on the web almost mirrors what we sell in stores,” he explains. “The website has fewer costumes. We have several hundred costumes in the stores, and maybe 100 on the web, because we don’t put any of the ‘onesy-twosy’ items there. On the web, we focus on the licensed products, which continue to drive the market: Matrix, Neo, Trinity, Spiderman, Hello Kitty, and Batman. We also sell the very common non-licensed costumes, like cheerleaders, witches, and pirates. We’re still learning how to use the web, where lots of retailers – including Paper Warehouse – have lost money.

“What are we doing differently? We have contained the assortment to high-ticket, more profitable items; we’re fulfilling in-house, which Paper Warehouse didn’t do. You have to have very efficient systems to make money on the web, and phenomenal customer service.”

In-store, Party America carries some 2,000 Halloween SKUs. In a typical store of 8,000 to 10,000 square feet, you’ll find 250 to 300 linear feet of Halloween products including costumes and decorations, from a seven-foot skeleton to centerpieces, paper goods, toy rats and balloons.

“America’s going more to entertaining than to partying, and to address that, we’re trying to fill the niche between the paper plate and the Crate & Barrel plate,” Allen says. “In effect, we want to be the disposable Crate & Barrel. We sell coordinated paper plates, acrylic plates, and more accessories to complement home entertaining, such as better napkins and tablecloths that are more seasonally driven.

“Our stores are set up for Halloween the first week of September,” says Allen. “We condense the summer/luau merchandise and set up the Halloween in about a week. We hire lots of temps, and lots of permanent employees working long hours. We try to use permanent people as much as possible because they’re more skilled.

“The flow of merchandise is critical. We’ve experimented in many ways and we’ve found that if you can put key accessories close to the costumes, you get better sales. Therefore, we never run costumes on both sides of an aisle. Instead we put accessories and decorations on the other side. That way customers don’t bump into each other trying stuff on. We separate the boy stuff and the girl stuff, making it easier for the consumer to shop.”

Halloween Tricks

The merchandise mix is probably the trickiest part of any Halloween operation, Allen warns. Licensing is king in the costume business, he says, and is likely to remain so – which means that he depends on his subordinates to know the market better than the competition.

“Our merchants choose the licensed characters by watching trends, talking to vendors, and using their judgment a year in advance,” he says. “Your staples are good every year; the crap shoot will always be, ‘Did we pick the right license?’ This year Hello Kitty was hot. Super heroes always do well.”

For the coming year, it appears that the main challenge facing Party America is the reconditioning and the return to profitability of its recent acquisition.

“When I took over Party America,” he recalls, “I put it into Chapter 11 and got it out in six months. We identified the areas that were drains to the company, cut the losing stores almost the day we went into Chapter 11, then changed the merchandise mix, adding products the customers wanted.

“Paper Warehouse was already in bankruptcy, and we’ve brought it out, but making the merchandise mix uniform will take a little longer.”

Allen also intends to impart to Paper Warehouse his insistence on leanness and efficiency.

“My corporate headquarters has 38 people running a $150 million company, and we might add five people,” he notes. “The stores run lean too, but efficiently. We have tremendous systems, scheduling and planning.

“The bottom line is that we do 100 things one percent better than our competitors, and that is what gives us the edge.”

Retailer Profile: Marty Allen

Title: CEO & President of Party America

Background: Corporate turnaround specialist. Before joining Party America, Allen took charge of the California Closets division of Williams-Sonoma.

Q: What’s the biggest challenge facing the Halloween business?

A: Managing all of the SKUs, especially ensuring that you have the right merchandise in the last days, when so many of the sales occur. You don’t want to be out of a hot item, but you don’t want anything left over because this is one of the few businesses that lives and dies on seasons. But Halloween is also one of the few seasons where you can pack up merchandise for next year. For other seasons, you can’t. Halloween is tricky because people wait longer each year to make purchases. They always do buy, but it’s always later. In effect, you’re playing chicken with the consumer.

Q: What do you like best about Halloween?

A: Seeing people coming in to have fun. We like to sell product when people are in a good mood.

Q: What’s your best business idea or accomplishment so far?

A: The fact that we’ve evolved the merchandise mix and controlled the inventory to make Halloween a profitable season.

Q: Where do you get your inspiration?

A: From my interests outside the Halloween business. Woodworking and photography are my two big hobbies. Also, I love just walking around inside retail stores in my spare time, learning what they do better, taking an idea here and there.

Q: What’s in the future of the business?

A: For now, we probably won’t add any more linear feet to the assortment. Instead, we’ll refine what we have; we’ll do more importing, thus bringing better pricing to the consumer. We’ll expand our website dramatically this coming year, and we’ll start the expansion early. We were late in 2003 because of the acquisition and other projects.