Dive Brief:

• Party City on Thursday announced a pilot program to sell select products on Amazon, launching in advance of the retailer’s important Halloween season and initially offering mostly costumes. Party City garners a quarter of its sales at Halloween, executives said on a conference call, according to a transcript from Seeking Alpha.
• Party City anticipates expanding its Amazon offerings later this year to include products for Christmas and New Year’s celebrations, with further expansion possible in 2019, according to a company press release.
• The retailer is also moving to take advantage of the collapse of Toys R Us, with more toys in stores and 50 pilot "Toy City" pop-up stores beginning in the fall, executives said on Thursday.

Dive Insight:

Party City is opening a storefront on Amazon as the e-commerce giant expands its own offerings in the category, and as mass merchants like Target and Walmart increasingly take share in the party segment.

"Amazon really is probably the world's largest and most trafficked mall," Party City CEO James Harrison told analysts on Thursday. "[O]ur goal is to eventually ... get to the consumer and help consumers celebrate life special moments in advance. ...[T]he Amazon opportunity is really just an extension of that thought process." 

The news comes as Party City reported that second quarter total revenues rose 3% on a reported basis to $561 million (2.3% in constant currency) and retail sales rose 2.9% on a reported basis (2.6% in constant currency), driven primarily by growth from store acquisitions. Comparable sales rose 0.1% in the quarter despite headwinds from a shift in the timing of Easter; excluding that shift, comparable sales rose by about 1%, the company said.

Including its franchise locations, the retailer runs some 950 specialty retail party supply stores throughout North America operating under the names Party City and Halloween City, along with e-commerce websites, according to a company press release. Over the past year, the company has made improvements to stores, which are mostly away from malls in strip centers.

Those stores have seen better results, but the company's e-commerce efforts are also encouraging, noted GlobalData Retail Managing Director Neil Saunders in comments emailed to Retail Dive. "The new pilot program to sell products on Amazon should boost the company's existing online operations and allow it to expand its customer base. There are, of course, some fears that partnering with Amazon could cannibalize sales from existing stores, however, we believe that the move is a sound one."

Party City is increasingly facing pressure by retailers like Walmart and Target. "Our data shows the number of consumers using such stores for their party needs has increased and shows no signs of slowing down," he said. "The low prices and convenience of the generalists are key drivers of their trade and are the dynamics with which Party City needs to compete."

Meanwhile, Party City has mulled boosting its toy sales, and the downfall of a major player in the space has accelerated that. Margins in the category aren't as robust as in party supplies because, unlike its party assortment, the retailer itself doesn't manufacture the goods. Still, it's the right call, according to Saunders. "As it enters the critical final two quarters, its 50 Toy City pop-up stores and its various initiatives at core stores and online should serve it well," he said.