Scary good: Spirit Halloween's successful business model takes aim at Christmas (ENCORE EPISODE)
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Speaker 2:In 1983, Spirit Halloween stores began popping up with a very unique business model. Rent out a large vacant storefront, fill it with Halloween costumes and temporary employees for about eight to ten weeks, and then as of November 1, poof, they vanish like a ghost into the mist. Today I'm talking with Colorado State University College of Business Associate Professor Zach Rogers. Rogers researches the financial impact of supply chain sustainability, emerging logistics technologies, as well as purchasing and logistics issues. We're gonna talk about how the spirit store model has impacted the supply chain and how it's influenced how we do business.
Speaker 2:Hi Zach, thanks for being here.
Speaker 3:Hi, thanks for having me.
Speaker 2:Let's start by talking about how spirit Halloween stores kind of operate. I think everybody knows that they they seem to kind of pop up overnight, they stay open for a short amount of time. I think the Fort Collins one I saw opened about late August this year.
Speaker 3:Right.
Speaker 2:And then as of you know the next day after Halloween they are like done. They just close-up and disappear. Now clearly this is a business model that has worked for them. I mean last year Americans spent more than 12,000,000,000 on Halloween and 1,100,000,000.0 of that was spent at spirit stores. Why does this model seem to work so well for them?
Speaker 3: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 and out.
Speaker 3:Look, we got three things, you know what they are. They're gonna be good. If you don't want it, don't come here. And that's sort of in the spirit Halloween ethos. And because they do that, they can be incredibly focused and really build economies of scale on their supply chain.
Speaker 3:The only permanent building they have is in Charlotte, North Carolina. They have a big distribution center, hold all their costumes there all year, and then everything else moves out and they're very opportunistic about the places where they put in retail stores. And they work on those stores twelve 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 saying, Okay, where are things going to close? What is like the old mall where things are failing?
Speaker 3:And 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. You know, it used to be okay, Spirit Halloween, that might be in an old Kmart somewhere. Now they're everywhere. They're in strip malls, they're in actual malls, and it's part of the ongoing retail apocalypse is the term that's been used for it, that's been going on for the last seven years, where we've had literally tens of thousands of retail stores closed. A lot of that is due to folks moving to e commerce.
Speaker 3:Pre pandemic e commerce was about 7% of all retail. Today, it's about 16%. So if you think about that, okay, well, percent 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 I think is interesting is how early they started this year.
Speaker 3:They were here in August. Seems early for Halloween.
Speaker 2:Yeah, it's a little earlier than usual, it felt like.
Speaker 3:And there's a couple reasons for that. One is, inventories came in early this year. So there's a few things that were happening in 2024. The main thing people were trying to avoid was the port strike on the East Coast. And even if Spirit doesn't use the East Coast much because a lot of their stuff is gonna come in from Asia, so it's gonna come in to the West Coast, They were trying to avoid a potential traffic jam at the West Coast because everyone else moved over to the West Coast.
Speaker 3:If you look at the West Coast ports, I believe for the October, because this right now we're in the height of bringing stuff in for the holiday season, October, it's up 70% year over year from last year and 75% for next week. Now, part of that was an unforeseen surge we couldn't have seen due to hurricanes and things like that. But essentially, Spirit got everything in early, like all this stuff was here early on this summer. And so at some point, it becomes more efficient. Well, maybe we'll move it out.
Speaker 3:It will get out of the central warehousing and if these stores are ready for us, we can go in there. The other piece of it is during the pandemic, we really had supply chain traffic jams everywhere. And so because of that retailers stopped thinking that the holiday season starts on Black Friday. They don't think that anymore. You know, Amazon has two Prime Days now, because they're trying to spread things out.
Speaker 2:It feels like more than that.
Speaker 3:But it is it is only two I know, they come close together. So you got one in July and one in one in October. And so what happened is all of these retailers now instead of focusing on Black Friday, Cyber Monday, it's not Black Friday, it's Black Fall. And so they push to have folks start buying holiday stuff in mid October, which has traditionally been Halloween territory. And so it's like a reverse nightmare before Christmas.
Speaker 3:Christmas is horning in on Halloween. And I mean, for for instance, second Prime Day was the October. I know that there was Christmas presents bought at my house in the October. So how does Spirit deal with that? Well, we'll move the Halloween season up and now it's what it's butting up right against back to school.
Speaker 3:So their strategies become alright, back to school is done. Let's move in now. So we will be the next sort of Halloween group. And you know, it's not just spirit. There was big werewolves at Costco in August and 12 foot skeletons.
Speaker 2:Right.
Speaker 3:And all kinds of stuff. So it's not just Spirit that's on it. They're the easiest ones to see because it's a whole new store. Spirit, Target, Walmart, all of these people know holiday shopping has to start in mid October. That means if we're going to squeeze that $12,000,000,000 out of people, we need to then move Halloween shopping up maybe to August.
Speaker 2:And something you mentioned earlier that I really I love the retail apocalypse. So, one of the things that I'm wondering is you know Spirit is known for pardon the pun but haunting large vacant former Toys R Us or Bed Bath and Beyond's. Basically, they're benefiting off of the death of retail. Is this actually helpful for the economy? Are they are they making use of the space and contributing to the community's economy or are they taking advantage of it?
Speaker 3:I would say they're taking advantage in 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, those are Dollar General's now or Dollar Trees. If you look, General's the fastest growing store in the country and has been for the last six years. I think in 2023, they added over a thousand stores.
Speaker 3:And what that is is, okay, lot of retail is gone. And so now we can replace it with something else. And partly what those stores are is it's a lot of secondary market things, so things that maybe were supposed to sell at Target and then didn't, or Walmart. And now, okay, well, we have two Palisades lunch boxes extra. Why don't we put them in a Dollar General?
Speaker 3:And actually, what I think is, in some ways, we've right sized retail. And here's what I mean by that. We used to have more square feet of retail per person in The US than anywhere else in the world of physical stores. We had more physical stores really than we needed and we've moved things now online. And what that does is it allows in some ways more inclusive stores into these spots.
Speaker 3:So 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 gonna be able to shop there. And so there's actually a social good in some ways to these things opening up because you're not 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. You know, every kid deserves to be a Ninja Turtle on Halloween if they want to and get candy.
Speaker 3:And really what I think Spirit Halloween does is they see an opening in the market and they bring opportunities to people to have Halloween. I mean, make it closer to people's house. I'm gonna go to Spirit Halloween at some time in the next couple weeks before Halloween starts. I'll let you know my Halloween costume now. You know, we're supposed to be the scariest thing we can dress up as, so I'm gonna be a polar bear with a scuba suit.
Speaker 3:I'm with consequences of climate change. That's the kind of humor you get from professors. But anyway, I'll probably go into spirit to see if they got a polar bear. Gosh, it was very convenient. And so, yes, there is this idea that, oh, they come in and they're out, they're kind of like a plague of locusts, but what would be the alternative?
Speaker 3:They're moving into these buildings because they can't be filled. And so the alternative is we have something that's boarded up, that we're not generating tax revenue, not creating jobs, kind of an eyesore. I don't know that that's necessarily a bad thing. Yes, it's cheap and it's transactional, but that's what their quality niche is. I mean, it's like, okay, what does Taco Bell exist?
Speaker 3:Because you want something fast and relatively affordable, and is it good for me? Am I gonna look like Ryan Reynolds if I start eating Taco Bell? Probably not, but you know what? Sometimes you want a Mexican pizza. And so, it's the same way.
Speaker 3:In many ways, Spirit Halloween is the Mexican pizza of retail where, look, it has a time and a place, and I don't think that they're necessarily being predatory in any way.
Speaker 2:You know, and 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 a quote irrelevant 50 old TV show. What do you think about these criticisms that you see with this model? Is it fair?
Speaker 2:Then where is Spirit really doing things well?
Speaker 3:Yeah, the first thing I would say, I am sure they felt like they had to respond, but if there was somebody I wasn't gonna 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. But 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 spirits doing is they're reacting to sort of realities in the consumer marketplace. Halloween is a wasteful holiday.
Speaker 3:We're getting costumes you're gonna wear once and eating candy and putting up decorations. I mean, it's it's not necessarily, you know, if you're ranked holidays in terms of sustainability, Halloween would not be high on the list. But, you know, neither is Christmas, neither is what is Thanksgiving? We eat a whole bunch of food, we have a ton of leftovers. Fourth of July, what do we do?
Speaker 3:We just shoot rockets up in the air. And so there's not a lot of holidays I could think of that don't have some waste involved. And what they're doing is just taking advantage of an opportunity and 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.
Speaker 3:You know, I mean there's other places that have tried to do this kind of thing. I mean if you look at say, Party City, they're sort of year round, but their best time really now 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. And partly the reason I think that that was such a popular sketch, I watched that video a couple times before I even came here today, is because everyone has been to a Halloween store at some point and they understand how it works. I mean, I remember being like a five year old and me and my brothers, this would be at like a Walmart or something, but running to the back, grabbing the swords that were out for Halloween and just, you know, mom and dad, go get whatever you need to do and we're just gonna fight back here and wear masks and have fun.
Speaker 3:And so 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 the Halloween store. But yes, if you look closely, can you see beyond the facade? Sure. I was looking at some pictures of Spirit Halloween's today getting ready for this and there's ones of like, yeah, they're in a Babies R Us and so there's all these scary costumes with a picture of a baby right behind it that they never even took off the wall. And so, I mean, it's kind of janky, I guess, but that but I think that's kind of the charm and I think they sort of they sort of lean into that part of it.
Speaker 3:You know, it's like like a Chuck E. Cheese. I mean, do the robots work great? No, but that's part of the fun of a Chuck E. Cheese.
Speaker 2:How does the model impact the overall supply chain in other businesses? I mean, what is the it sounds like a logistical nightmare. They they kind of parachute in to these like 1,400 bacon storefronts each year with a ton of merchandise, not all of which gets sold. I mean, I have to imagine that not every costume is a hit. So what do they do with the unsold merchandise?
Speaker 2:What's the impact?
Speaker 3:A lot of things will get rolled over. So they do something called hoteling, which is where we're gonna hold on to it till next year. And a lot of stuff, I mean, look, a vampire costume is still gonna be fine next year. There's some things maybe that are very topical and will go away, but you know, saw somebody dressed up as Tiger King last year, that's from like four years ago. And probably they got it discounted because Kaspira was trying to get rid of it.
Speaker 3:Certainly, you look at something like fast fashion, there are some key differences. One of those would be like if you look at, say, Zara. Zara turns things over very quickly. So Zara is turning everything over every four to six weeks in their stores. And so what that does, it requires a lot of quick transportation, where Spirit is building up inventory slowly and then moving everything out once.
Speaker 3:The deployment and the operations of setting up the stores, that is difficult. It is not necessarily any more difficult than a regular supply chain, though. I mean, you think about Thanksgiving turkey, so if you go down to the Safeway distribution center off I-seventy in Denver, it supplies all the Safeways in Colorado, a bunch of Wyoming, Kansas, some other places. They have a big room that they keep below zero, and they start filling it up with turkeys in February for Thanksgiving. And so, in some ways, when you have something so seasonal, like spirit or like Thanksgiving turkeys, you can build your inventory up more slowly.
Speaker 3:With a regular standard retail supply chain, you have to be very just in time. Things come in and they leave and you're very quick. Spirit and really any kind of holiday stuff has a little more leeway to build things up than others do. Now 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.
Speaker 2:The hot costumes seem to be very topical. So I'm thinking about, you know, the the Ray Gun Australian Break Dancer Horror Show that we got to watch. And I'm thinking about how many green tracksuits are being purchased right now.
Speaker 3:Well, you know what would be a fascinating case would be Kamala Harris masks. Oh, Because usually during an election, one of the things people look at, because Halloween always happens a week before the election, is which candidate gets more masks bought for them. And a lot of times, that's actually been an indicator of who's going to win the election.
Speaker 2:Really?
Speaker 3:So Obama sold more masks than Romney and McCain, Trump sold more masks than Clinton, Clinton sold more masks than Dole. And so because presidential masks are always popular, those big rubber masks like they were in Point Break. And I'm sure that Spirit Halloween is sitting on a big couple crates, probably more than a couple crates, of Joe Biden masks that they can't move anymore because of the switch to Kamala Harris in July. And so that would actually I'd be fascinated to know if they were able to repurpose any old masks, if they I mean, whatever they could do and and how quickly they could because the masks are tough to manufacture. You've to get the mold in and everything, and so it'd be interesting to see if they were able to get in a bunch of Vice President Harris masks ahead of time, and if they're able to offload any of the President Biden masks.
Speaker 2:Oh my gosh. With it being so profitable, why haven't we seen maybe more businesses adopting this kind of model? Besides Spirit, I feel like there's no one else doing this.
Speaker 3:There's a lot of competition here, and in some ways Spirit kind of when they were established was at the right time. It started in 'eighty three, sold dispensers I think in 1999, right when mall stores would have had some money to throw around. They have what's called a first mover advantage, where they came in and they've 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.
Speaker 3:And so it would be difficult for like sort of a new store to open in this space. You'd be small and if you're competing for the same space against a spirit, you're gonna get outspent probably is is what I would guess. And there's not that much room really, because yes, you know, spirit comes in, but I mean, 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. Then even if you're like, okay, we'll come in on the low end.
Speaker 3:Well, that's what Goodwill and Salvation Army and whatever your local thrift store might do too. And so there's a lot of pressure for Halloween and Spirit has sort of carved out this niche. And I don't know that that niche would exist anywhere else.
Speaker 2:We've been talking a lot about Halloween and also another holiday, Christmas. And 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.
Speaker 2:How do you think they're gonna fare there?
Speaker 3:Yeah, these are the major leagues now. Everybody knows Christmas. I think they can be successful. It is interesting. I think in 2024, they're launching with 10 stores around like New York, New Jersey, Connecticut, kind of tri state area up there.
Speaker 3:And it'll be interesting to see how they do because it's not as obvious maybe what you would buy like that for Christmas because at Halloween it's like, okay, I need a costume. A costume is kind of a kitschy thing that you're not gonna get a bunch of places or candy or whatever. For Christmas, and maybe you could sell things like wreaths, trees, ornaments, kind of very specific stuff like that, and there probably is a market for that. I would say though that the presents, you're not going go to Spirit Halloween to get somebody Christmas present. Maybe.
Speaker 3:But it's more like you go to a regular store, Amazon or whatever. And then the other stuff around it, you know, Halloween works well because everything is disposable. A lot of it is single use. You know, in the SNL thing, he said, you can buy a single use fog machine. There's no equivalent of a Christmas single use fog machine.
Speaker 3:And you have trees, but, you know, either of a tree you're gonna go cut down somewhere or a fake tree that you've had since your mom gave it to you in college. And you have ornaments and stuff like that that I don't think are as sort of consumable. I think Christmas is probably a less consumable holiday for the things that aren't gifts. Certainly Christmas gifts, we buy more than we need, give people more needs, spend more than we have. That's, you know, we've been saying that since Charlie Brown.
Speaker 3:But it's less obvious to me what this is going to be. Now, it's less obvious to me, but I haven't been to a spirit Christmas store. So maybe they have a great idea and they nailed Halloween, so maybe they can do this. I will say they're not the same brand that they are in Christmas as they are on Halloween. They've really changed.
Speaker 3:You know, it's not the scary Grim Reaper guides like Santa winking at you. I've seen their logo. I don't know that people will immediately know, oh, this is Spirit Halloween, but for Christmas. And there's so much competition retail wise around that time of the year. I mean, there's whole industries that they don't make money until October.
Speaker 3:I mean, that's why Black Friday is called Black Friday. That's when companies go from the red to the black. And so there's a lot of competition. I wish them well. But there's a lot of competition.
Speaker 3:Maybe it'll work, and it is interesting. And I'm sure people will go in and look around and see if there's anything there, but it will be the test this year to see if it works. And then, I mean, we see them in Colorado in 2026, we'll know, hey, all right, I guess this a good idea. But right now, I'd say definitely the jury's out. But they have the infrastructure to do it.
Speaker 3:It's just do they have the product in the right market?
Speaker 2:So time will tell.
Speaker 3:You know, think you might honestly be better off with Spirit Valentine's Day. Just again, more candy, cards, little I mean, comes from Spencer's gifts, right? So, you know, they already have like the cheesy romance items they can sell.
Speaker 2:I Some I'm with Stupid t shirts.
Speaker 3:Exactly. Yeah. They're both both pointing at each other, but I'm in love with stupid or whatever. Yeah, so I think 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.
Speaker 2:Sounds good. Yeah, Spencer's, don't be stealing our idea here.
Speaker 3:Exactly.
Speaker 2:We're trademarking this. Well, Zach, thank you so much for talking with me today. I really appreciate it.
Speaker 3:Yeah. It was it was a lot of fun.
Speaker 2:That was CSU associate professor Zach Rogers talking about Spirit Halloween's unique business model. I'm your host, Stacy Nick, and you're listening to CSU's The Audit.
