San Antonio Express-News (Sunday)
The Halloween pop-up store that didn’t pop provides a lesson in holiday retail
You’ve seen the Halloween stores that pop up in late August and early September. Spirit Halloween is the most visible national brand among stores geared toward that holiday.
Is it a good business? It may be for Spirit. But a San Antonio family that tried it mostly learned hard lessons in 21st century retail economics.
Michael Girdley’s family has run Alamo Fireworks — a network of pop-up fireworks stores in Texas — for seven decades. So in 2009, pop-up Halloween stores seemed like a perfect fit for their expertise.
Alamo Fireworks opens seasonally, making all sales in the few weeks before New Year’s and the Fourth of July. It orders low-cost materials in bulk, mostly manufactured in China. It sells them over a few weeks of the year, from lowcost locations, staffed by temporary workers, at a hefty markup. It stores the unsold inventory until the next seasonal opening.
In these specific ways, Alamo Fireworks operates similarly to a pop-up Halloween store. The fact that October is outside the New Year’s and July Fourth fireworks selling seasons offered the delightful possibility of a seasonal hedge. A fireworks ban in any year is always possible, so building a similar but unrelated business seemed like a great plan. Having multiple decades of experience running pop-up stores made the Halloween store business tremendously sensible.
In 2009, its first year in business with one store in San Antonio called Voodoo Halloween, it turned a solid profit in the “hundreds of thousands,” Girdley said.
“You make money in retail, you think you’re a genius,” he quipped.
Based on that early success, Alamo Fireworks went bigger over the next two years and built up to eight stores by the third year.
The headwinds were becoming apparent, however, by year two.
Girdley, whose passion is teaching and sharing lessons from business and life on social media, including business coaching and a newsletter, has a very clear-eyed view of what drove them to leave the business after year three.
As he told me recently, three related headwinds doomed this venture.
Retail headwinds
Girdley got the first hint of future problems in 2010.
“Hearing a guy leave the store on his phone,” Girdley recalled, “and tell his wife, ‘Oh yeah, they have my costume I wanted, but I found it on Amazon for $3 cheaper. I ordered it, and it will be delivered tomorrow.’”
Uh-oh. When you’re competing on price with Amazon — as so many retailers are now — the business is going to be a hard slog. Voodoo Halloween served as a bricks-and-mortar idea generator only to lose the sale to lower-cost online comfrom petitors. This is the reality for most retailers these days.
One advantage of fireworks is that for the most part they can’t be bought online and delivered by Amazon, so they mostly haven’t been undercut in this way.
Around the time that Girdley’s Voodoo Halloween turned a profit in 2009, the biggest in-store retailers seemed to notice the same opportunity.
“When we first started, the big box retailers would only dedicate half an aisle,” he said. “Three years later, they dedicated many aisles during the holiday season to Halloween.”
Lacking the wholesale buying power of Target and Walmart, while competing for the same customers, doomed the small retailer Voodoo.
As Girdley observed, “There were years where we would get a quote for a costume from the wholesaler, and we would discover that we got quoted at $9, while Walmart was selling it at $7 at retail. It almost made sense for us to buy at Walmart and resell it. Which is crazy.”
He realized that if you’re not as big as Spirit, Target or Walmart when negotiating with a wholesaler, you’re going to lose.
The third problem, which yielded consequences similar to those of the second one, was that customers had high brand loyalty to intellectual property Disney, Marvel and DC Comics. Owners of official “Iron Man” or “Frozen” costumes strongly preferred to work with wholesalers catering to the largest retailers. So a small independent shop trying to acquire the official SpiderMan costume would be subject to the pricing power of the wholesaler.
In Girdley’s estimation, wholesalers with the distribution rights to official Disney and Marvel products priced competitively for the largest retailers, while dictating the price terms to smaller retailers like Voodoo — because they could. Profits disappeared.
The death of retail
Embedded in this story about the near impossibility of small retailers competing with the likes of Target and Walmart is a particular irony of the pop-up Halloween store. An operator like Spirit Halloween, Party City or Halloween Express depends on the availability of empty retail stores, available cheaply for a few months’ lease. The same destructive forces of capitalism that shutter retail stores gives rise to affordable rent for Spirit. It’s like the mushrooms of the forest floor, flourishing when the giants fall.
Spirit, which is owned by retailer Spencer Gifts, appears to be thriving at its large, national scale. It reportedly grosses more than $1 billion in revenue in a few weeks and shuts down shortly after Halloween. It spends half the year scouring for affordable retail space and then does it all again the next year.
As for Voodoo Halloween, the family sold its business after three years to one of its operators. It got out without losing money overall, which Girdley considers fortunate.
Selling small-scale retail, caught between the giants of online retailer Amazon and brick-and-mortar mega retailers like Walmart sounds like the scariest business imaginable.
Michael Taylor is a San Antonio Express-News columnist, author of “The Financial Rules for New College Graduates” and host of the podcast “No Hill for a Climber.” michael@michaelthesmartmoney.com | twitter.com/michael_taylor