The $650m+ Spirit Halloween business

Spirit Halloween has over 1,450 pop-up shops and makes all its money in only 2 months (September, October).

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Today, is a seasonally appropriate — and updated — repost of a seasonal business I wrote this season last year: Spirit Halloween, the pop-up costume shop (I don’t know if you heard, but the business is seasonal).

Also this week:

• Starbuck’s $450m makeover

• So many AI updates (Tesla Bot, Meta glasses, Conversational ChatGPT)

• And them fire memes (including the iPhone 15)

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Ah yes, October is here.

If you are living in the US or Canada, you’ve definitely seen Spirit Halloween pop-up shops taking over bankrupt big box retail stores all around your city. If you are from elsewhere, you’ve seen the glorious Spirit Halloween jokes on X/Twitter.

Spirit Halloween is much more than a meme, though.

It is in the hall-of-fame of seasonal businesses, which includes:

• Maria Carey royalties for “All I Want For Christmas” in Q4.

• Kinder Surprise Eggs during Easter Weekend

• KFC and Domino’s during the Super Bowl

• Tylenol every time I go for a jog that lasts longer than 10 minutes

The retailer’s monster seasonal business is built on an impressive real estate operation that runs over 1,450 locations…and pulls in ~$650m a year (almost entirely between September and October).

Spirit’s cash bonanza is the confluence of a pioneering pop-up store model and the US Halloween Industrial Complex. And trust me, it is an industrial complex: Per the US National Retail Federation, consumer are projected to spend a record $12.2B on Halloween in 2023 including: costumes ($4.1B), candy ($3.6B), decorations ($3.4B) and an unreasonable amount of greeting cards ($500m).

That works out to ~$108 per consumer (your neighbour who spent $20,000 on Haunted House decorations is definitely skewing the average).

How did Spirit Halloween get here?

The story begins in a California strip mall in 1983. A retailer by the name of Joe Marver owns a store called Spirit Women’s Discount Apparel. The business was not doing well but Marver caught some inspiration watching a costume shop across the street pull in insane business every Halloween.

When the Halloween retailer vacated the location, Marver pivoted his own store to a costume shop. In maybe the greatest business coincidence ever, he was already sitting on the perfect name: “Spirit”.

Per the Seattle Times, that first year for Spirit Halloween was “the best October” that Marver ever had and “the next year, he did it again with a temporary space in a nearby mall and sold $100,000 worth of merchandise in 30 days.”

The model hit and — over the next 16 years — Marver expanded the seasonal pop-up business to 60+ spots across the US West and Southwest.

Then, in 1999, Marver struck a deal that took Spirit to another level.

Enter Spencer Gifts, a chain of 600+ stores which sells an inexplicable mix of products including clothes, room decor, collectibles, jewelry, and sex toys (the last category has led to a number of controversies with newspaper headlines like “Undercover Video Shows Kids Getting Access to Adult Sex Toys”).

Now called Spencer’s, the mall brand capitalized on selling kitsch products on whatever was trending at the moment. Spirit Halloween was kind of a perfect match for that ethos.

As Marver told Bloomberg in 2016, Spencer woo’d him hard but Marver was happy with his existing business. After a few years of of chatting, Spencer finally convinced Marver to sell Spirit Halloween by giving him a “very nice check” (reminder: if any of you readers have an inclination to write me a “very nice check”, please reply to this email).

The explosion of Spirit’s business in the decades since has coincided with the retail apocalypse. As more brick and mortar retailers go out of business, Spirit is waiting in the wings to scoop up real estate and feed America’s insatiable Halloween appetite.

Spencer’s is a private business so its financials aren’t public. However, in the aforementioned Bloomberg article, ratings agency Moody’s estimated that Spirit brought in $400m in 2015. That worked out to ~16% of America’s total Halloween costume spend that year (other major Halloween retailers include Walmart and Party City).

At the same share of total Halloween costume spend, Spirit’s sales would hit $656m in 2023…which is probably undershooting it because Spirit’s footprint has since increased:

While Spirit Halloween pop-up shops make almost all its sales in September and October, the business is actually a year-round operation.

According to Vox, the Spirit team starts the search for next year’s pop-up locations on November 1st (AKA the day after Halloween).

Spirit has 14 leasing agents covering nine regions across the US and Canada. Here’s what they are looking for, per the company’s website:

• Location: Communities that have 1) a population of at least 35k, 2) living within a 3-5 mile radius, and 3) with a car count of at least 25k cars per day

• Type of retail: Stores sizes of 5k to 50k square feet in power centers, strip centers, free-standing stores, major downtown retail locations and in major malls surrounded by a national retailer mix (preferably with a street view storefront)

• Length: the Spirit lease is 3 months from mid-July to mid-November (allowing time for prep and clean-up)

• Kick-out clause: Spirit has to give up the lease if the landlord secures a longer-term tenant by June

The pitch for retail operators is simple: above-market rental rates for guaranteed foot traffic for real estate that is otherwise making $0 (oh, and also ludicrous Halloween animatronics at the larger Spirit locations).

When Spirit has its 1.4k+ locations set up, the real estate operations is nearly on par with Target (~1.9k stores) and bigger than Trader Joe's or Whole Foods (each has 500-600 stores). Even its online business is primarily meant as top-of-funnel to send people to physical locations, especially for last-second “I need to buy a mask for the Halloween office party where I’m going to over-drink and probably embarrass myself” rush (in total, 90% of Spirit’s sales are brick and mortar).

And that is how we get Spirit taking over such retail classics like Babies ‘R Us, Circuit City, Sears and Toy ‘R Us (if you’re thinking “this is incredibly grim”, I agree).

To staff the locations, Spirit hires tens of thousands of temp workers and provides a very on-brand benefit: 25% discounts on costumes (lol).

It’s not just the real estate scouting that is year-round. Spirit also stocks ~4-5k costumes. In the early days, Marver made inventory bets in January based on movie and TV trailers that he thought would be popular. Nowadays, the Spirit Halloween Twitter handle is a good place to see what costumes are trending: some relevant hits for 2023 look like Wednesday, Barbie, Teenage Mutant Ninja Turtle and “skull with a spike in its head”.

Fortunately for Spirit, a lot of its inventory is re-usable because stuff costumes like ghosts, Elvis and “things with spikes in them” never go out of style. Steven Silverstein — who has been Spencer’s CEO since 2003 — told Forbes that Spirit’s inventory management is its “secret sauce”.

“You have to be able to carry over a significant amount of inventory year to year,” says Silverstein. “In traditional retail, you might not be repurposing anything. For us, consistent themes remain, and we're repurposing 30% to 40%. We're not just trying to get rid of it."

Spirit Halloween has one last thing that is “year-round”: a very popular meme template that plays on the metronome consistency of Spirit pop-up shops taking over bankrupt retailers.

Anytime an organization is going through a perceived failure or hard time, someone on the interwebs will post a photo of the Spirit Halloween banner photoshopped over the ailing organization with the caption “wow, they move fast” or “whoa they move fast”.

Below are two viral examples of the meme format:

• Facebook HQ after the site went offline for a full day

• OnlyFans logo after credit card companies temporarily said they would block payments on the platform

Another banger format that took off in 2022 is the “fake Spirit Halloween” costume:

Since online engagement has completely warped by brain, I hope a new Spirit Halloween template drops this year. Either way, keep an eye out for the existing ones…whether or not it is October.

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Links and Memes

Starbucks $450m makeover: Starbucks annual sales is ~$40B across 37k+ stores. At such a scale, it’s very profitable to shave a few seconds off every order. Per Bloomberg, Starbucks would make an extra ~$900m a year if each store served 5 extra patrons per day.

This is probably why Starbucks is investing $450m in a new bar setup called Siren System, where the key ingredients — dairy, pumps, caffeine, ice — are arranged in an optimized counterspace. As a comparison, this is how long a Mocha Frappuccino takes to make:

• Under the existing system: 16 steps and 87 seconds

• Under Siren System: 13 steps and 36 seconds.

There are currently 383 billion potential drink combinations at Starbucks. And orders have gotten so ridiculously elaborate, that the average customer wait time is 5 minutes. Why does Starbucks allow these time-consuming drink orders? Because “extras” on the orders are worth $1B a year.

For people like me — who just want a simple black Trenta Iced Coffee — it’s kinda annoying (I legit feel bad for the baristas who have to make these adult milkshakes). The Siren System will be in 40% of US stores by 2026. That’s cool but investor Josh Wolfe has an even better idea (see the Siren System video here):

Starbucks would make an extra $2B a year with an express lane of people who want JUST black coffee — like me and TrungTPhan (+ anyone who sees long line and bails, at least 10 patrons do this daily per store, especially in airports)

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Insane week of AI news…including these four updates:

• “ChatGPT can now see, hear and speak”: OpenAI has released a version of the app that can look at photos and images and interact with users about them (eg. someone takes a photo of a bike seat and then verbally ask for instructions to have it adjusted).

• Tesla Optimus Bot: The latest version of the Tesla robot has very impressive hand movements. Jim Fan — a senior AI scientist at NVIDIA and someone with a great last name — reverse engineered how the robot thinks and works.

• Meta AI chat and glasses: Zuck Daddy Flex unveiled some impressive AI updates including celebrity chat bots (kind of gimmicky) and the latest round of smart augmented reality Ray-Bans. The Ray-Ban demo is pretty impressive, showing AI-powered overlays of the world in real-time (the coolness is tempered by the fact that I don’t really want Meta listening and seeing everything I do all day…although I guess my iPhone already does that).

• Investor Masayoshi Son has taken some lumps over the past few years. He famouly raised ~$100B from the Saudis and made insane bets such as giving >$15B to the dumpster fire known as WeWork. Anyways, Son — who once turned a $20m investment in Alibaba into $100B (and went from briefly being the world’s richest person to losing $75B of paper wealth during the Dotcom bubble)— has balls of steel and never stops. After recently taking chip-design firm Arm public, Son is in talks to give former Apple design chief Jony Ive $1B to build the “iPhone of AI” along with OpenAI. This Hacker News comment on the Jony Ive news really hits the spot:

Man, I can't even begin to imagine what they're going to come up with. Titanium AIPods. Non-detachable alluminum RayBans. Google Glass, but it's a literal Black Mirror worn on your face. Self-driving Segway. Transparent plastic smart lunchbox. Electric long-board that's also a tablet. Fist-mountable selfdefense impact jackhammer. 5G base station Zurb ball. A keyboard that starts repeating nnnn when you think of what you want to type. Neuralink, but for discreetly listening to major record label IP. Contact lens payment system where you wink to tip your landlord. Quantified shelf. A car without a steering wheel, made entirely out of Corning glass. Heelies that auto-reverse when they sense an oncoming homeless person. Van-life, but it's a sentient executive jet plane. Longevity device that puts you to sleep for at least 8 hours every day. Intimacy fit-ring. Schedulable dopamine-inhibiting nanobots? This could be huge.

My thoughts: These developments demo well but I think if the real-world application isn’t pretty close to 100% usable all the time, most people will just revert to the old way of “yeah, my smartphone is good enough”.

Having said that, the potential for a truly powerful AI assistant that can see and hear everything is massive…as this example shows:

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Here some other baller links:

• US government vs. Amazon: The US Federal Trade Commission (FTC) has filed an antitrust lawsuit against Amazon. The thrust of the case is that Amazon uses its market power — particularly through Amazon Prime — to block out competitors and to lock in suppliers. Here are two related reads:

  • Matt Stoller at The Big Newsletter looks at how Amazon Prime’s free shipping may be imposing a “hidden tax” on end consumers and hurting sellers.

  • Ben Thompson at Stratechery thinks the FTC has an uphill battle. He says that Amazon’s practices are “common tactics in retail for literally decades” and the company should be allowed to profit from the billions that it has invested in logistics and its delivery platform.

• End of Hollywood Writer’s strike: Hollywood producers agreed to new terms with the Writers Guild of America (WGA) including higher minimum rates, a guarantee that AI won’t replace them and residuals on streaming shows based on transparent metrics. As some of you may know, I once sold a comedy film to Fox. The film never got made and I was never part of a guild, but I did get producer notes on my script saying that the film needed “more monkeys” because it is set in Southeast Asia.

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…and here them wild tweets / X posts:

Another wild tech event that occurred this week was Mark Zuckerberg's interview with Lex Fridman insider the metaverse. They both had full-body scans and some technology — that I don’t understand at all — projected their lifelike avatars into the "metaverse" while they both were wearing Meta VR headsets. Lex was in Austin and Zuck was in California, but it appeared as if they were side by side.

The interview is over an hour long and this 4-second clip was my favourite part:

Every time there is a new iPhone release, YouTube reviewers do the most insane “durability tests” on the device (smash it, burn it, bend it, cut it) to see how it holds up.

Jerry Rig Everything is one of the most popular accounts for this type of tear down (8 million subs on YouTube) and his review of the iPhone 15 is next level. It includes a blow torch for some reason and I joked about it on X / Twitter. The post took off and the replies from people that don’t understand I was joking are gold (“dude, why would anyone leave their phone next to a blowtorch for one second...let alone 20 seconds?).

I think Jerry Rig got the joke, though.