Burdened by at least $1.7 billion in debt, New Jersey-headquartered Party City filed for bankruptcy protection this week.
Neil Saunders, MD at GlobalData, said a combination of a subdued trading environment and tough competition had unraveled the business, which had not been firm-footed enough to react fast enough to the market and regain a firm financial footing.
Founded in 1986, Party City quickly built into a successful chain, with around 750 stores across the country by 2015. But in recent years, with the Covid-19 pandemic seeing many people refrain from group gatherings, its sales began to dwindle.
“While debt has been a factor in Party City’s demise, it is not the only problem,” observed. Saunders. “A downswing in demand for party products has also put pressure on the business. Much of this is down to two factors: increased competition and a more constrained consumer.”
Competition from occasion-based pop-up stores such as Spirit Halloween had also taken a toll.
“These have become destinations for key occasions such as Halloween which have traditionally been very lucrative for Party City which now struggles to match the ambience and authority,” said Saunders.
“The other competitive dynamic has been the increased effort around party and occasions 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 traditionally shopped Party City.”
More financially constrained consumers have trimmed spending on occasions and events and are seeking value for money and low prices, he said. “Both have hit Party City hard and have resulted in an ever-widening imbalance between slow sales growth and high-cost growth.”
But Saunders still sees a role for Party City in the retail market, should the company manage to financially restructure and rethink its approach.
“This includes looking at how it reaches customers. Many stores are in sub-optimal locations which are poor at driving passing trade and its web presence is reasonable but far from compelling. Ranges could also do with a lot of reinvigoration.
“All of these things should have been addressed a long time ago. However, Party City has been neglectful which has ultimately resulted in today’s bankruptcy,” said Saunders.
