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How Will Fewer Halloween Pop-Ups Impact Commercial Real Estate?

Oct 23, 2020 by Maurie Backman
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Fall isn't just the season of colored leaves and pumpkin spice; it's a season when Halloween dominates. Consumers spend billions each year on Halloween, from candy to costumes to decorations.

This year, however, things are looking different. Many Halloween plans will be canceled due to the coronavirus pandemic, and many consumers will limit their purchases due to financial constraints. All told, the National Retail Foundation anticipates an $8 billion drop in spending, which means retailers who pay to open seasonal pop-up stores may not get their money's worth.

In fact, Party City (NYSE: PRTY) has reduced the number of its Halloween pop-up stores by 91% given the circumstances at hand. The retailer is opening 25 pop-ups, compared to the 275 locations it normally operates this time of year. And that's undoubtedly been hard on commercial landlords nationwide.

Losing pop-up tenants is a huge blow

Property owners and landlords rely on seasonal stores to generate rental revenue, so the absence of so many Party City locations will only worsen an existing financial crisis. Many commercial tenants have struggled to pay rent since the start of the pandemic, leaving landlords in a hole. Losing seasonal tenants only exacerbates a growing problem.

Of course, a big reason for fewer pop-up stores boils down to the way consumers have changed their shopping habits since the pandemic started. Many have shifted to online purchases -- a safer prospect than entering stores and hoping for social distancing and mask compliance. Online ordering is also cheaper for retailers like Party City to fulfill, and so it's not surprising that it scaled back on pop-ups this season.

On the other hand, Spirit Halloween is helping to compensate; it's already opened over 1,400 seasonal storefronts across the country, thereby allowing property owners and landlords to generate some temporary revenue.

Spirit Halloween hasn't taken the same financial hit as other retailers, as it derives the bulk of its revenue between Labor Day and late October. Retailers like Party City, on the other hand, rely on steady revenue year-round, and given the impact of the coronavirus pandemic, that just hasn't happened.

In fact, total revenue for Party City declined 54.8% during this year's second quarter, though the retailer did see success with its online ordering and curbside pickup models. Still, given its financial hit coupled with lower consumer spending projections, it makes sense that Party City has chosen not to dedicate resources to opening the same number of pop-ups it typically does. Spirit Halloween, on the other hand, has fewer financial constraints due to its limited season.

Of course, all of this speaks to a greater crisis: Retailers are closing down store locations left and right to focus on online orders instead. It's a strategic move in light of the pandemic, and one that many businesses were shifting to before the coronavirus outbreak took hold. But if this trend continues, commercial property owners and landlords may be in for a financial blow more frightening than the scariest Halloween costume out there.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.