Each year as summer winds down, the ultimate American pop up retailer winds up. We've sort of now established August 1st as National Spirit, Halloween Day. Here for work this week from Ireland.
And yeah, my wife was asking to get some like Halloween stuff while we're here and we don't have Halloween stores like this back in Ireland. In 2020 for the Halloween chain has opened over 1500 locations across North America and grosses around $1 billion, according to some estimates. Achieving this is not an easy feat considering the company's unique real estate model.
We don't see an abandoned Kmart. We see a Spirit, a Spirit Halloween this New York City flagship Spirit Halloween location opened here for the first time in 2024. Previously, this 21 000 plus square foot store was a Buybuy Baby that became vacant after the company went bankrupt last year.
We spoke with the broker, who told us that the asking price for the ground floor of this location is $100 per square foot. The property also includes additional space downstairs at a lower cost. It's unclear what spirit paid for the duration of its lease in retail.
You know, Black Friday holidays. You know, the periods where you make most of your money. But here you're literally making your entire year in in four weeks.
You know, and you have to do it so effectively. And they're really good at it. So how did Spirit Halloween turn the pop up store concept into a $1 billion operation?
These are fun. I'll be a pickle. Okay, I'll be the pickle.
I'll be the cup of noodles. Longtime mall retailer Spencer's bought the Spirit Halloween brand in 1999. After serving as the president of linens n things, Steven Silverstein stepped in to run the company in 2003.
I got us all together, and I said, all right, let's just imagine for a second I don't know how we're going to do it, but if we could, what do you think the market potential is for Spirit Halloween? So this is 2003, and we had 130 stores. And we all sort of got together, held hands and said 400.
If we could just get the 400, man that would be unbelievable. About a decade later, Spirit Halloween surpassed 1000 locations. Today it sits at over 1500.
This is pretty awesome. Spencer Spirit Holdings is a privately held company and declined to share financial data with CNBC. But in 2015, Moody's estimated the company's sales to be around $400 million.
By January of 2024, that number had reached $1. 9 billion for the combined businesses. Spencer's currently operates less than half the number of Spirit Halloween's, but its stores are open all year round.
Most of the revenue and the you know, the margin is generated by by spirit and most of their you know, the overall businesses income and revenue is generated leading to Halloween that quarter that has Halloween in it. Let's see what the cost of this costume is. I'm interested.
So this would run you $30 to be a pickle. Spirits growth in recent years reflects broader U. S.
Halloween spending trends. Americans are estimated to spend $11. 6 billion on Halloween in 2024.
That's around $3 billion more than 2019. You go back to what happened in 2020 2021. People had money in their pocket from stimulus.
So people started spending more on Halloween. Business at spirit has more than doubled and pre-COVID in terms of revenue, but they've really been able to drive additional traffic in the store. The company does operate an online storefront, but told CNBC that that accounts for a single digit percentage of its sales.
That's because a key part of its offering is the experiential nature of its stores. Take a look at these animatronics or this funhouse right here. Spirit halloween's entire business relies on landlords that haven't been able to sign their property full time, and are willing to take a short term lease out of the top five prior tenants of Spirit Halloween locations.
Four of the five filed for bankruptcy in recent years. CNBC looked at a dozen Random Spirit Halloween locations across 11 different states. 11 out of the 12 previous tenants have filed for bankruptcy at some point.
The short term lease is often a win for a struggling landlord as well. It gives them time to negotiate and sign a lease with a long term lessee, while still drawing foot traffic and security to the area. They're looking to rent that space to a permanent tenant that will only happen in the beginning of the year, because very few retailers will build out a space and miss Christmas.
So once you get to June or July, if you've got an empty retail space, that space is not going to get occupied at the very earliest until January or February of the following year. Pricing is another important consideration. This leasing proposal is for a storefront in Redding, California that was previously a Barnes and Noble.
A once bankrupt retailer, a broker that CNBC spoke with, said that a permanent tenant in the area would pay between $16 and $18 per square foot. That's about $27,000 per month for that location. It's also about the same price as Spirit's proposal for the four and a half month contract.
Suburban locations usually fall in the range of 20 to 40 thousand dollars for the Halloween season, according to experts that CNBC spoke with. Meanwhile, a storefront in New York City may be well north of six figures. The difference betwe en 5 and 50,000ft is not we don't pay ten times the rent.
We're looking at each of these locations, understanding what our volume potential is, which we've learned over many, many years, and that will translate into a fair rent payment. Now, the pop up chain is looking to take its business. Past Halloween, it announced the piloting of ten Spirit Christmas locations in October of 2024.
Eight of those stores are currently Spirit Halloween's, meaning those leases are signed beyond their typical move out dates. Four of them were formerly Christmas Tree Shops, which filed for bankruptcy in 2023. Over the years, Spirit Halloween has become a trusted company within the real estate world.
Larry Link, president of New York real estate firm level Group, told CNBC that its track record has eliminated the risks of a standard pop up, and Spirit can use that to drive an aggressive deal. This is unique because Link says that New York City pop up stores would typically pay a 20 to 30% premium to use the space for a short term contract. That's because renting space to a temporary storefront comes with more risk than a traditional retailer.
Some may not decide to leave when they're 3 to 4 month lease expires and litigation is expensive and time consuming. Spirit says securing contracts was a lot more difficult in its early years. There was hesitance because of the unknown.
We were not known. It was just, you know, we had to explain, well, what does Spirit Halloween. You do what?
And how do you do that? And why should I have confidence that you're going to come in and and be a benefit to me? The typical challenge of a regular retailer is that you commit for a lease for five years and you discover you have a terrible location, but now you're stuck.
Well, they are not in their case. Once they find the saturation point, they will learn it immediately and then all they need to do is not reopen that location next year. I think this is pretty great.
Chips and salsa. Chips and salsa. Okay.
All right, let's do it. I think we'd get a lot of, um, funny looks at the office, but. I did not wear a costume last year.
I know some people did. I think I think this is our year to run its 1500 store. Temporary retail business.
The company is hiring 50,000 seasonal workers in 2024. Labor market can fluctuate from year to year. Labor market can be fluctuating because of more short term issues that are harder to anticipate.
And I think that that's kind of the exposure that Spirit and other companies are selling for short time windows are exposed to. But there are some other potential challenges, too. Although many Spirit Halloween stores are open for three months, a lot of the company's sales are done in the two weeks leading up to the holiday.
If it's a really cold year, if it's a storm coming through and the kids are not going to be able to go out trick or treating, all those things are going to have a huge impact on the demand for that particular year. By then, the stores are already committed, the inventory is already committed, and that can affect the performance of the Halloween season for that particular year. When it comes to merchandizing at stores, the company carries a mix of things that are ultra relevant and trendy to the current year.
Think about the Beetlejuice movie that just came out. It has a whole section here dedicated to just that. But then there are things that are more classic Halloween.
Think evergreen costumes like witches or cats. The company can rely on the fact that year after year, things like a broomstick are going to be sought after. The evergreen stuff doesn't sell.
No harm, no foul. You just carry it into the next season. Unlike most of retail, having inventory is not a bad thing.
You know, if you have to hold it year over year, you can still use it. It's funny because, you know, you go from these, like, bloody scream masks to Garfield all within 20ft. It's hilarious.
We're actually looking to be in stock going into those last two weeks where as other retailers who are trying to fully liquidate really have to be sort of at their last licks, if anything. Another consideration is tariffs with merchandise coming from overseas. Those could increase depending on the results of the 2024 election.
They need to anticipate those orders sometimes months in advance to the Halloween season. They buy in locations of the world that are like cheap to to produce. You can think of like Southeast Asia, China.
That's probably where many of these products are coming from. These require long lead times and a lot of long term planning. We're deep into 2025 right now, even conceptualizing 2026.
And that's really part of that supply chain puzzle. It's a relay race. We have a calendarization of everything that has to happen.
So right now we're in the concepting phase and we're doing a lot of the early prep work. But you have to get those seeds in the ground and, you know, certainly will be influenced by what comes out of of our Halloween experience this year.