šŸŽ™ļø Boo! Spirit's Halloween Business

[4 minutes to read] Plus: How Spirit makes $650 million in two months

Weekend edition

Cheers, folks ā€” itā€™s been a year since the mid-October low in the S&P 500, marking the bottom of 2022ā€™s bear market.

Large-cap technology has since been the clear winner, with many big gainers up 90% or more. Nvidia takes the cake ā€” shares are up about 300% over the last 12 months.

Today, weā€™re putting on our Halloween costumes to discuss one companyā€™s $650 million-plus business focused on Halloween, and more, in just 4 minutes to read šŸŽƒ

ā€” Matthew

QUOTE OF THE DAY

"Invest for the long haul. Donā€™t get too greedy and donā€™t get too scared."

ā€” Shelby Davis

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INSIDE SPIRIT HALLOWEENā€™S BIG BUSINESS

From $100,000 to $650 million

Before the Christmas songs begin and before Americans spend billions of dollars on year-end holiday traditions, there is Halloween.

Trick-or-treating might seem like a nice boost for candy companies like Hershey. Yet itā€™s much more than that; the holiday is popular, and Americans spend big bucks to decorate. Per the U.S. National Retail Federation, consumers will spend a record $12.2 billion on Halloween in 2023, including costumes ($4.1 billion), candy ($3.6 billion), decorations ($3.4 billion, and greeting cards ($500 million).

Nobody stands to gain more from the holiday than Spirit Halloween, the seasonal retailer that has more than 1,450 pop-up shops and makes all its money in basically two months: September and October. The last two weeks of October are particularly strong as people stock up on Halloween decorations and costumes.

In 1983, Joe Marver opened his first Spirit Halloween store in California to generate extra cash for his womenā€™s clothing business. The costumes sold fast, real fast, and he knew he had something special almost immediately.

By the second year, he leased a temporary space in a mall, selling $100,000 in merchandise in a month.

Now, 40 years after its founding, Spirit Halloween plans a year in advance for the holiday, does at least $650 million in sales, and employs about 130 full-time designers.

From The Wall Street Journal

History

In the 19th century, Halloween wasnā€™t commercialized. It was a time for families and neighbors to gather for games, stories, and folk customs.

By World War II, Halloween went mainstream. Soldiers returned from the war, families grew larger, and Disney started selling costumes at five-and-dime stores. Suburbs prospered after the war, prompting children to walk from home to home in a costume for trick-or-treating.

By the 1980s, older Baby Boomers were starting families, continuing the trend. Costume sellers offered accessories and other decorative items, giving Americans more options to spend money on every fall.

Much of business and markets is about ingenuity, but itā€™s also very much about luck and timing. And Americaā€™s suburbanization timeline coincided with Marverā€™s first pop-up Halloween shop in the mid-1980s, just as the holiday kicked into gear.

How it all comes together

Spirit Halloween looks for vacant real estate in shopping centers with recognizable tenants such as Best Buy, Target, or Walmart. Given the decline of some big-box stores since the rise of online shopping, Spirit Halloween has had more location optionality.

The company signs short-term leases, typically around mid-July through mid-November, allowing for set-up time and clean-up post-Oct. 31. Landlords tend to like Spirit Halloween because it gives them a tenant they wouldnā€™t otherwise have, even if itā€™s a short-term rental.

Landlords prefer long-term leases of three to 10 years, but Spirit Halloween also brings extra traffic to the area, boosting sales at neighboring stores.

ā€œObviously, itā€™s not as good as a permanent lease,ā€ one real estate consultant commented, ā€œbut itā€™s better than nothing. Thereā€™s relatively little downside.ā€

From The Wall Street Journal

On Nov. 1, Spiritā€™s staff begins analyzing which locations performed well (i.e., sold the most costumes, inflatables, and candy). Workers also sketch out a roadmap for the next year. Often, Spirit pays above-market rental rates and moves into spaces once occupied by bankrupt retailers like Sears or Toys R Us.

Per the company, it looks for:

  • Location: Communities with a population of over 35,000 living within a five-mile radius, with at least 25,000 cars per day ā€” essentially describing the typical suburban town. Spirit wants high-traffic areas. Thatā€™s critical.

  • Retail: Stores between 5,000 and 50,000 square feet in strip malls or major malls with national retailers. They sell many items at a markup, meaning profit margins are higher than most of the apparel industry.

Spirit also hasnā€™t had to do much online. Amazon has surely eaten Halloween market share, although Spirit does most of its sales in person (about 90%!). Nearly every dollar it makes comes between Labor Day and Halloween.

The secret sauce

With around 1,500 locations in the fall, Spirit briefly has nearly as many stores as Target (~2,000) and more locations than Trader Joeā€™s and Whole Foods combined.

Staffing can be a logistical challenge, though Spirit hires over 10,000 temporary workers and offers them 25% discounts. The hourly workers must stock its roughly 5,000 costumes and hundreds of accessories.

CEO Steven Silverstein once told Forbes that its inventory management is its ā€œsecret sauce.ā€

ā€œYou have to be able to carry over a significant amount of inventory year to year,ā€ says Silverstein. ā€œIn traditional retail, you might not be repurposing anything. For us, consistent themes remain, and we're repurposing 30% to 40%. We're not just trying to get rid of it."

Dive deeper

For more, check out The Wall Street Journalā€™s video breakdown on Spirit Halloween.

See you next time!

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