Is Party City Holdings (NYSE:PRTY) running scared? The party-supply outfit recently announced it would be opening a Halloween storefront on Amazon.com (NASDAQ:AMZN) in a bid to reach more customers, becoming the latest retailer to come to the realization that if you can't beat 'em, join 'em.

Each year, Party City opens between 250 and 300 pop-up stores across the country under the Halloween City banner, which typically operate for two months or so before closing again till the following year. The stores are so successful that they generate about 20% of Party City's total domestic retail sales, though it fluctuates depending upon which day the holiday falls.

Since it also already has its own online presence, an Amazon storefront might seem superfluous, but it's actually a smart strategy for the celebrations supplies leader.

A family of four dressed up in scary Halloween costumes

Image source: Getty Images.

Some scary numbers

Like others that have partnered with Amazon, Party City realizes you can't just ignore the elephant in the room. Best Buy, Chico's, Kohl'sNike, and even Sears Holdings have set up their own storefronts on Amazon.com after realizing customers are not only buying online from Amazon, but beginning their searches there, too.

Surveys indicate nearly half of all online shopping searched started on Amazon.com in 2017, and though that's down from 55% the year before, only 15% were beginning at a specific retailer. Going to where the action is makes sense, and Halloween is big business.

The National Retail Federation estimated consumers spent $9.1 billion on Halloween last year, up 8% from 2016. Some $3.4 billion, or 37% of the total, was spent on costumes, while candy accounted for another $2.7 billion, or 30%. A similar amount was spent on decorations.

As with everything else, consumers are turning to the internet for their Halloween needs. Internet Retailer says that despite most people still doing their Halloween shopping in brick-and-mortar stores, 16% will shop online, with a whopping 71% of those buying from Amazon.com.

Slice Intelligence indicates online sales of Halloween costumes increased 29% last October, and One Click Retail found Amazon sold $52 million worth of costumes in 2017 and almost $20 million worth of candy. And the closer it gets to Halloween, the more people actually turn to Amazon instead of the specialty retailers. From Oct. 24 on, Internet Retailer found that Amazon traffic spikes while niche retailer traffic slows, perhaps because of Amazon Prime and its speedy delivery times. 

A unique opportunity

Amazon itself isn't actually Party City's rival but rather, as CEO James Harrison terms it, "the world's largest and most trafficked mall." It's not Amazon selling the goods but third-party retailers. So setting up a storefront on the platform is really no different than opening one of its pop-up stores in a strip mall, one that might help incrementally drive sales higher. 

Party City also says the new Amazon storefront will offer a selection of Christmas and New Year items, with the possibility of expanding the selections further next year.

Moreover, Party City also owns Amscan, the world's largest manufacturer and supplier of party supplies, which sells costumes and related goods to other retailers, including those on Amazon. It's the third-party retailers buying from Party City that should be worried because now they'll essentially be competing against the company that provides them with their merchandise, potentially even undercutting them on price.

This online storefront initiative represents another way Party City is trying to expand its reach to customers and strategically grow its business. It follows its recent announcement that it would be opening 50 Toy City pop-up stores to capitalize on the demise of Toys R Us for the Christmas season.

Key takeaway

Most of the Halloween merchandise that will appear on the new Party City shop on Amazon will be costumes, since that is what customers shop for most, but it will represent only about a quarter of what they can find at a Halloween City store. That should incentivize customers to still go to the stores if they want something a little more unique or specialized and keep the storefront from cannibalizing sales from the pop-up chain.

By also using the storefront for other holidays, Party City may be able to extend the value of its brand even further.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.