The Party City Liquidation: Lessons from the Retail Market

2024 ended with surprising news—Party City filed for bankruptcy for the second time in under 2 years. This time, however, it was liquidating. On December 21, 2024, Party City filed for Chapter 11 bankruptcy, looking to liquidate its assets. This happened after the company sent home all of its employees nationwide on December 10, 2024 and closed its corporate headquarters in New Jersey to everyone but executives on December 11, 2024. The resultant liquidation plan seeks to close all Party City locations by this February.

What Happened?

Although there were possible indications that this recent bankruptcy would happen, the December 2024 filing was surprising, because Party City filed for bankruptcy in January 2023 and began to implement a restructuring plan in October of the same year. After receiving the restructuring plan, the understanding was that Party City would be able to rebound and become profitable again. Competition from online retailers, big box stores and pop-up specialty stores proved to be too much for the 40 year-old company. An inability to pay its suppliers, an early end to its most recent corporate retreat and a class action lawsuit filed by its employees over layoffs and proper notice were all visible cracks in the company’s foundation that in hindsight can be seen as harbingers of doom.

The closing of Party City is indeed a tragedy in that the majority of its over 10,000 employees nationwide have suddenly learned that they will have to find other employment. Some were effectively given a few days-notice before they were laid off. Furthermore, this bankruptcy contributed a to a year in 2024 that saw “7,327 store closings and 5,919 openings in the U.S.” according to USA Today. The 2024 figure is nearly double the number of stores closed in the prior year, which saw 5,473 closings and 5,751 openings. Party City is not an outlier, but instead yet another example of the current character of the retail market.

How Did Party City Fare In the Retail Market?

In the 2023 TRET review of the retail market, thriving retailers were grouped into a few key categories--those who used their physical stores as hubs or extensions of their online stores, purely online retailers with strong delivery networks, big box stores and retailers whose stores were extensions of their brand identity. These various strategies are tailored to serve the profile of the modern consumer who is fiercely individual and identifies strongly with their personal interests. Online stores with physical hubs allow consumers to take advantage of the convenience and information accessibility of an online purchase while providing the assurance and personal connection of the physical retail experience. Purely online retailers specialize in convenience, both as an online storefront, where purchases can be made anywhere at anytime and also as a delivery service that ensures that every item purchased arrives at the consumer’s front door. Big box stores use their size and industry influence to create economies of scale and depress labor costs. This leads to lower prices for consumers. Retailers with strong brand identity allow consumers to identify with their brand and tailor their stores to enhance the consumer's connection to their brand. They ensure that the consumer’s visit to their store is reaffirming their connection with the brand.

Party City, unfortunately, did not fall into any of these categories. It’s online shopping experience wasn’t a large part of its business model. Though this choice was a wise decision on their part, as it didn’t stand a chance against Amazon’s network, reach and ability to out price it, the lack of strong online presence made it less popular among online shoppers. As such, Party City relied on its physical storefront and retail shopping experience to drive its business. The issue was that it wasn’t large enough to throw its weight around with the big box stores, many of whom sold products similar to Party City, but at lower prices. Although, it provided a unique shopping experience that certainly drove in traffic, Party City was more a special purpose store than a store that created a identity amongst its customers. Few people identified as “Party City Shoppers." On the contrary, Party City became the place where everyone went when they needed party supplies and/or costumes and either ways close to Party City location or had a need that could not wait until tomorrow for an online order to arrive. As a result, Party City became the ultimate fall back option for party supplies and that wasn’t enough to sustain its business.

How Should Party City Be Viewed Historically?

Ultimately, Party City was a successful business and by no means can be considered a failure. In a market in which the average lifespan of a businessis between 17 and 18 years, a nearly 40 year old business with a strong national presence is a successful one. Party City, however, does prove to be an example of how the rules for retail in this market are unforgiving. Retail companies serve specific purposes that fall into rigid categories for today’s consumers. Novelty in the brick-and-mortar world can be risky for a company and all those who depend on it. This fact should be taken into strong consideration, not only by retail businesses owners, executives and employees but also by retail property owners and those involved in leasing and finding retail tenants.

For a more in-depth discussion on Bankruptcy and its effects on the real estate market, please feel free to read The Real Estate Think Tank’s three-part series on Bankruptcy in Real Estate Finance:

Lender Bankruptcy and Mortgage-Backed Securitization

Special Purpose Entity Bankruptcy Concerns for Mortgage-Backed Securities

Mortgage Backed Securities and Personal Bankruptcy