Inside the $7 Billion Business of Halloween Costume Shopping

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Love it or hate it, it's full-blown Halloween season in cities across America. Business is booming for companies like Halloween Adventure, Halloween Express, Halloween City, Ricky's and Spirit, but the industry is becoming increasingly crowded as more and more businesses catch on to the concept of opening a temporary seasonal store, and spaces are getting harder to come by.

At first glance, it might not seem like a viable business model to open shop for one or two months out of the year. But if anything, the pop up Halloween business is only becoming more popular.

"The former management at Ricky's were really pioneers behind pop-up stores in general—you might even say in the country," Richard Parrott, president of Ricky's NYC, told Racked. "They led the way, years and years ago, by doing it in the city. They would go around during Halloween time, and strike up conversations with landlords and say, 'Hey, you've got nothing going on, how about I come in and sell Halloween goods? For, you know, a month.'"

Decades later, the Halloween retail industry is worth over $7 billion and climbing. A recent National Retail Federation survey revealed that consumer spending was expected to be at an all time high, with the average customer spending $77.52 on Halloween goods during the season.

"Obviously anytime somebody does something well, it's only a matter of time before other people come in and compete," Parrott said. "So that's what happened. Other businesses came in and also got very savvy. Landlords realized, 'Hey wait a minute, these guys are making money on this so I want to profit too.' So then it became an industry of license agreements and legal fees and term fees and commissions that never existed before."

The pop-up model took some time to catch on in the retail real estate industry, which traditionally thrives on businesses who are looking to stay put and pay rent for a long time. "It used to be a lot more difficult fifteen years ago," Randy Koziatek of Halloween Express told Racked. "The pop-up industry for Halloween was still a little bit new, so there were a lot of questions over whether developers should do it. But now, everybody is pretty much on board." As Parrott pointed out, the pop up model is pretty much a real estate business in itself now.

Securing temporary locations for the Halloween shops is a year-round process. Halloween Express is built on a franchise business model where owners across the country are constantly on the lookout for retail space in their cities, while Ricky's offers bonuses to its employees who produce leads on potential retail locations each year. For both retailers, it pays to keep close tabs on companies who go out of business during the year, opening up prime spots in high traffic areas. "We've got an outside rep that helps us in finding our real estate and working with the developers," Koziatek said. "As a matter of fact, there's a merger between Office Max and Office Depot right now that we are watching relatively closely to see what's become available for next season."

Ricky's offers bonuses to its employees who produce leads on potential retail locations each year.

The recent upturn in the retail economy, while good for business overall, presents its own set of problems for finding and securing real estate each season. "It definitely was a lot easier six or seven years ago to find locations with the size that we like," Koziatek told Racked. "A lot of those 10,000- to 15,000-square-foot areas that were available at that time are no longer available, so some of our operators are resorting to 5,000 to 6,000 square feet, or even trying a 3,500-square-foot property. It's a lot more difficult to find locations than it used to be."

Since the ideal retail space is so large, the job requires a lot of advance planning and buying to be able to fully stock these temporary spaces. Owners inevitably end up with extra merchandise although most of the time, excess inventory can be stored for following years. "Some operators have storage units, others own 53-foot-long trailers that the merchandise gets stored in along with their store fixtures," Koziatek said. "Some have warehouses and then it just gets delivered to the new location every August."

But the advance planning doesn't always work out so well with trendier merchandise. In the past, Ricky's has had to swallow thousands of dollars in lost costume sales when hyped movies bombed at the box office.

However, in recent years, Ricky's found a foothold in the market by proving to real estate companies that there was potential longevity in their leases: ten Ricky's stores and counting have been converted from pop-up locations to permanent retail spaces. "This year I had a lot of people who wanted to work with us because we really looked at spaces," Parrott explained. "We're like, 'You know what, this is a real possibility for Ricky's. I'd like to talk to you about this as a potential site,' instead of, 'Hey, I'm going to open up a Halloween store and I'd like to make as much money as I can.'"

But even as the permanent locations are expanding, the pop up locations haven't lost value as a credible business model. "I use [the pop ups] as testing grounds, for branding exercises, for marketing exercises, to reach out to communities that may not be serviced," Parrott told Racked. "We use it almost as information gathering. Of course we're in it to make money, but it has so many other values other than just ringing a register. It has to do with the internal growth of the company."