CSU's The Audit

In 1983, Spirit Halloween stores began popping up with a very unique business model — rent out a large, vacant store front; fill it with Halloween costumes and temporary employees for about eight to 10 weeks; and then as of Nov. 1 — poof! They vanish like a ghost.

Colorado State University College of Business Associate Professor Zac Rogers researches the financial impact of supply chain sustainability, emerging logistics technologies, as well as purchasing and logistics issues. Rogers recently spoke with The Audit about how the Spirit store model has influenced how we do business and whether its latest endeavor to enter the Christmas market will be a success.

Transcript

(Lightly edited for clarity)

Host Stacy Nick: Hi, Zac. Thanks for being here.

Zac Rogers: Hi! Thanks for having me.

Host: Let's start by talking about how Spirit Halloween stores operate. I think everybody knows that they seem to pop up overnight. They stay open for a short amount of time. I think the Fort Collins one opened about late August this year. And then as of the day after Halloween, they're done. They just close up and disappear. Now, clearly, this is a business model that has worked for them. Last year, Americans spent more than $12 billion on Halloween, and $1.1 billion of that was spent at Spirit stores. Why does this model seem to work so well for them?

Rogers: The reason the model works is because it's incredibly targeted. You have some companies that try to do too many things, be all things to all people. Spirit is not that. Spirit is not Cheesecake Factory, where you walk in, and they give you an encyclopedia. They're In-N-Out. They have three things. You know what they are. They're going to be good. If you don't want it, don't go there. That's the Spirit Halloween ethos.

Because they do that, they can be incredibly focused and really build economies of scale on their supply chain. The only permanent building they have is in Charlotte, North Carolina. They have a big distribution center that holds all of their costumes there all year, and then everything else moves out.

They're also very opportunistic about the places where they put retail stores, and they work on those stores 12 months out of the year. You just said they're going to pull out in November. A week later, they'll have people on the ground looking at where things are going to close, what it’s like at the old mall where things are failing. Fortunately for them, we have been going through a period where there's a lot of options, which has really opened up the places they can be. It used to be Spirit Halloween might be in an old Kmart. Now they're there everywhere. They're in strip malls. They're in actual malls.

It's all part of the ongoing “retail apocalypse” that's been going on for the last seven years, where we've had literally tens of thousands of retail stores close. A lot of that is due to folks moving to e-commerce. Pre-pandemic e-commerce was about 7% of all retail. Today it's about 16%. So, if you think about that, 9% of retail we don't really need anymore, and so that creates a lot of openings for a company like Spirit who can come in, do something very targeted, and achieve great economies of scale because they're not trying to do too many things.

The other piece you mentioned that I think is interesting is how early they started this year. They were here in August, which does seem early for Halloween, but there's a couple of reasons for that. One is inventories came in early this year. A few things happened in 2024. The main thing was that people were trying to avoid the port strike on the East Coast. Even if Spirit doesn't use the East Coast much because a lot of their stuff is going to come in from Asia, so it's going to come into the West Coast. They were trying to avoid a potential traffic jam on the West Coast because everyone else moved over to the West Coast.

If you look at the West Coast ports, I believe, for the second week of October, the height of bringing stuff in for the holiday season, it's up 70% year over year from last year and 75% for next week. Part of that was an unforeseen surge due to hurricanes. But essentially, Spirit got everything in early, all this stuff was here in the summer. At some point it becomes more efficient to move it out of the central warehousing and, if the stores are ready for it, go in there.

The other part of it is that during the pandemic we really had supply chain traffic jams everywhere. Because of that, retailers stopped thinking that the holiday season starts on Black Friday. They don't think that anymore. Amazon has two Prime Days now because they're trying to spread things out.

Host: It feels like more than that.

Rogers: Yeah, but it is only two. They just come close together, one in July and one in October. All these retailers now, instead of focusing on Black Friday or Cyber Monday, it's not Black Friday, it's Black Fall. They push to have folks start buying holiday stuff in mid-October, which has traditionally been Halloween territory. It's like a reverse “Nightmare Before Christmas.” Christmas is horning in on Halloween. For instance, the second Amazon Prime Day was in the middle of October. I know that there were Christmas presents bought at my house in the middle of October.

How does Spirit deal with that? It moves the Halloween season up and now it's butting up right against back-to-school season. And there were big werewolves at Costco and 12-foot skeletons at Home Depot in August, too. It's not just Spirit that's in on it. They're just the easiest ones to see because it's a whole new store. Spirit, Target, Walmart. All these people know holiday shopping has to start in mid-October. That means if we're going to squeeze that $12 billion out of people, we need to then move Halloween shopping up to August.

Host: Something you mentioned earlier that I love is that phrase “retail apocalypse.” Spirit is known for, pardon the pun, haunting large vacant former Toys “R” Us or Bed, Bath and Beyonds. Basically, they're benefiting from the death of retail. Is this actually helpful for the economy? Are they making use of the space and contributing to the community's economy or are they taking advantage of it?

Rogers: I would say they're taking advantage in the sense of an opportunity. I don't believe that they're preying on the economy in any way because the thing is, those stores will get filled in even if it's not Spirit Halloween. Honestly, the more attractive open stores are Dollar Generals now or Dollar Trees. Dollar General stores are the fastest growing stores in the country and have been for the last six years. I think in 2023 they added over 1,000 stores. That’s because a lot of retail is gone and so now it can be replaced with something else.

Partly what those stores are filled with are a lot of secondary-market things, things that maybe were supposed to sell at Target or Walmart and didn’t so now they have pallets of these unsold lunch boxes. They go to Dollar General. Actually, I think in some ways we've right-sized retail. We used to have more square feet of retail per-person in the U.S. than anywhere else in the world. We had more physical stores than we needed, and now we've moved things online. What that does is it allows in some ways more inclusive stores into these spots.

If you think about what a Dollar General is versus like an Aeropostale or American Eagle or any of the places I got a shirt from in high school, it's more inclusive. It has more types of products, and more people are going to be able to shop there. So, there's actually a social good in some ways to these things opening up because businesses aren’t paying much for these contracts to be in these places, and it's replacing maybe what was an expensive store with something that's a little more affordable and brings things to people that they wouldn't have had otherwise. Every kid deserves to be a ninja turtle on Halloween if they want to.

What I think Spirit Halloween does is they see an opening in the market, and they bring opportunities to people to have Halloween. They make it closer to people's houses. I mean, I'm going to go to Spirit Halloween at some time in the next couple of weeks. I'll let you in on my Halloween costume. We're supposed to be the scariest thing we can dress up as, so I'm going to be a polar bear with a scuba suit. I'm the consequences of climate change. That's the kind of humor you get from professors. Anyway, so I'll probably go to Spirit to see if they’ve got a polar bear costume because it's very convenient.

Yes, there is this idea that they come in and out, like a plague of locusts. But what would be the alternative? They're moving into these buildings because they can't be filled. The alternative is to have something that's boarded up, that’s not generating tax revenue, not creating jobs, and is kind of an eyesore. Yes, it's cheap and it's transactional, but that's what their quality niche is. I mean, why does Taco Bell exist? Because you want something fast and relatively affordable. Is it good for me? Am I going to look like Ryan Reynolds if I start eating Taco Bell? Probably not. But sometimes you want a Mexican pizza. Spirit Halloween is the Mexican pizza of retail. It has a time and a place, and I don't think that they're necessarily being predatory in any way.

Host: Not everyone is a fan of this model. Spirit was recently skewered in a “Saturday Night Live” skit. Spirit responded with a meme of a fake costume for an "irrelevant 50-year-old TV show.” What do you think about these criticisms that you see of this model? Is it fair? Where is Spirit really doing things well?

Rogers: I am sure that Spirit felt like they had to respond, but if there was somebody I wasn't going to get into a fight with, it would be “Saturday Night Live.” I think there might be a little more creative writing firepower on that side.

I understand the criticisms of Spirit because from the outside it can look wasteful or maybe predatory in some ways. But the thing is that what Spirit's doing is reacting to realities in the consumer marketplace. Halloween is a wasteful holiday. We're getting costumes we're going to wear once and eating candy and putting up decorations. If you ranked holidays in terms of sustainability, Halloween would not be high on the list. But neither is Christmas, or Thanksgiving. We eat a whole bunch of food. We have a ton of leftovers. Fourth of July, what do we do? We just shoot rockets up in the air. There's not a lot of holidays I could think of that don't have some waste involved.

Certainly, there's ways to be more sustainable, but I don't know that that's what they're competing on. Really, they're just responding to what the market wants, and they figured out an interesting niche. There are other places that have tried to do this kind of thing. If you look at, say, Party City, they're sort of year-round. But their best time is copying what Spirit does in late September and October and becoming that kind of store. So, there's niches everywhere and it's an easy target.

Partly the reason I think that that was such a popular sketch — I watched that video a couple of times before I came here today — is because everyone has been to a Halloween store at some point, and they understand how it works. I remember being a 5-year-old and me and my brothers would be at like a Walmart, and running to the back, grabbing the swords that were out for Halloween and play fighting back there and wearing masks and having fun. I think partly, yes, SNL is making fun of it. But I also think some of it is the nostalgia and the fun of going to a Halloween store. If you look closely, can you see beyond the facade? Sure.

I was looking at some pictures of Spirit Halloween today getting ready for this interview, and there are some taken in a Babies “R” Us. There are all these scary costumes with a picture of a baby right behind it that they never even took off the wall. I mean, it's kind of janky, I guess. But I think that's kind of the charm, and I think they lean into that part of it. It's like Chuck E. Cheese. Do the robots work great? No. But that's part of the fun of a Chuck E. Cheese.

Host: How does the model impact the overall supply chain in other businesses? It sounds like a logistical nightmare. They kind of parachute into these 1,400 vacant storefronts each year with a ton of merchandise, not all of which gets sold. I mean, not every costume is a hit. What do they do with the unsold merchandise? What’s the impact?

Rogers: A lot of things will get rolled over. They do something called hoteling, which is where they hold on to it till next year. A vampire costume is still going to be fine next year. There are some things that are very topical and will go away, but I saw somebody dressed up as Tiger King last year. That's from like four years ago, and they probably got it discounted because Spirit was trying to get rid of it.

Certainly, if you look at something like fast fashion, there are some key differences. One of those would be if you look at, say, Zara, Zara turns things over very quickly. Zara turns over everything in their stores every four to six weeks. That requires a lot of quick transportation. Spirit is building up inventory slowly and then moving everything out at once.

The deployment and the operations of setting up the storage, that is difficult. But it is not necessarily any more difficult than a regular supply chain for say, Thanksgiving turkeys. If you go down to the Safeway Distribution Center off I-70 in Denver, it supplies all the Safeways in Colorado, including a bunch in Wyoming and Kansas. They have a big room that they keep below zero degrees, and they start filling it up with turkeys in February for Thanksgiving.

In some ways, when you have something so seasonal like Spirit or Thanksgiving turkeys, you can build your inventory up more slowly. With a regular standard retail supply chain, you must be very “just-in-time,” things come in and leave very quickly. Spirit and really any kind of holiday stuff has a little more leeway to build things up than others do. The deployment certainly is very tough, but the store does seem to come out of one truck. You pop it up, maybe they get one or two deliveries and then you're off to the races.

Host: The hot costumes seem to be very topical. I'm thinking about like the Raygun Australian breakdancer horror show that we got to watch and how many green tracksuits are being purchased right now.

Rogers: A fascinating case would be Kamala Harris masks right now. Usually during an election, one of the things people look at, because Halloween always happens a week before, is which candidate has more masks purchased. Many times, that's actually been an indicator of who's going to win the election. Obama sold more masks than Romney and McCain; Trump sold more masks than (Hilary) Clinton. (Bill) Clinton sold more masks than Dole.

Presidential masks, those big rubber masks like they wore in “Point Break,” are always popular. I'm sure that Spirit Halloween is sitting on a couple crates, probably more than a couple of crates, of Joe Biden masks that they can't move anymore because of the switch to Kamala Harris in July.

I'd be fascinated to know if they were able to repurpose or offload any President Biden masks. It would also be interesting to see if they were able to get in a bunch of Vice President Harris masks ahead of time — and how quickly, because masks are tough to manufacture because you have to get the mold in.

Host: With it being so profitable, why haven't we seen more businesses adopting this kind of model? Besides Spirit, I feel like there's no one else doing this.

Rogers: There's a lot of competition here and in some ways, Spirit was established at the right time. They started in '83, then sold to Spencer's in 1999 when mall stores would have still had some money to throw around. They have what’s called a first-mover advantage, where they’ve come in and built up big economies of scale. They have the cash on hand to lease all of these stores. They've got the huge warehouse in North Carolina and the distribution network set up to move things out when they need to.

It would be difficult for a new store to open in this space. You'd be small, and if you're competing for the same space against Spirit, you're going to get outspent. There's not that much room really, because yes, there’s Spirit, but think about all the Halloween stuff sold by Amazon, Walmart, Costco, Target, your big traditional retailers, even Dollar Store. There's not a lot of space. Even if you came in on the low-cost end, that's what Goodwill and Salvation Army and your local thrift store does. There's a lot of pressure for Halloween and Spirit to carve out this niche, and I don't know that that niche could exist anywhere else.

Host: We've been talking a lot about Halloween and also another holiday, Christmas. And I just saw that Spirit Halloween is now expanding to Christmas. This year they'll be taking the same model and adding Spirit Christmas storefronts. They're doing kind of a soft launch. They've been able to make it in the Halloween world, but now they're going up against the big boys, the legacy brick and mortars, not to mention online stores. How do you think they're going to fare there?

Rogers: Yeah, these are the major leagues now; everybody does Christmas. In 2024, they're launching 10 stores around New York, New Jersey and Connecticut. It'll be interesting to see how they do because it's not as obvious what you would buy there for Christmas. Halloween's like, OK, I need a costume. A costume is kind of a kitschy thing that you're not going to get at a bunch of places.

For Christmas, maybe you could sell things like wreaths, trees, ornaments, very specific stuff like that. There’s probably a market for that. I would say, though, that you're not going to go to Spirit Halloween to get somebody's Christmas present. That you’re more likely to get at a regular store or Amazon.

Halloween works well because everything is disposable. A lot of it is single use. It's like the SNL skit saying that you can buy a “single-use fog machine.” There's no equivalent to a Christmas single-use fog machine. You have trees, but you know, you either have a tree that you're going to go cut down somewhere or a fake tree that you've had since your mom gave it to you in college. You have ornaments and stuff like that but those aren’t as consumable.

Christmas is a less consumable holiday for things that aren't gifts. Certainly, with Christmas gifts we buy more than we need, give people more than they need, spend more than we have. We've been saying that since Charlie Brown. It's less obvious to me what this is going to be at Spirit, but I haven't been to a Spirit Christmas store. Maybe they have a great idea, and they nail Halloween.

I will say they're not the same brand that they are on Christmas as they are on Halloween. It's not the scary Grim Reaper guy; it's Santa winking at you. I've seen their logo. I don't know that people will immediately know that this is Spirit Halloween but for Christmas.

There's so much competition retail-wise around that time of the year. I mean, there's whole industries that don't make money until October. That's why Black Friday is called Black Friday. That's when companies go from being in the red to the black. I wish them well, maybe it'll work. I'm sure people will go in and look around and see if there's anything there. This year will be the test to see if it works, and if we see them in Colorado in 2026, we'll know it was a good idea. But right now, I'd say that the jury's out. They have the infrastructure to do it, but do they have the product in the right market?

Host: So. time will tell.

Rogers: I think they might honestly be better off with Spirit Valentine's Day stores. More candy and cards. I mean, they’re part of Spencer's Gifts, right? So, they already have cheesy romance items to sell.

Host: Like “I'm with stupid” T-shirts.

Rogers: Exactly. Yeah, where they're both pointing at each other. There's a market opportunity there. We can talk about it after we turn the mics off if you want to go in on that.

Host: Sounds good. Yeah. Spencer's, don't steal our idea here. We're trademarking this.

Well, Zac, thank you so much for talking with me today. I really appreciate it.

Rogers: Yeah, it was a lot of fun.

Outro: That was CSU Associate Professor Zac Rogers talking about Spirit Halloween's unique business model. I'm your host Stacy Nick, and you're listening to CSU's The Audit.