Party City’s founder blames bankruptcy on private equity firms that jacked up prices

The Party City founder blamed the retailer’s bankruptcy on mismanagement by private equity firms, saying they drove up prices despite the company’s roots as a discounter.

Steve Mandell, who started the chain in 1986 with a single store in East Hanover, NJ, attributed the retailer’s implosion to a lack of bargains and variety in its stores — a problem he says was created when private equity executives locked him in a big bid. deal with a manufacturer they already owned for about 80% of their supply.

“They [new owners] pulled out the two main things that made this company extra special,” Mandell told The Post in an exclusive interview. “First, we were the discount hypermarket. Today, it’s not a discount store. The prices are on top.”

“Second, Party City had great variety,” he added.

That changed in 2005, according to Mandell, when Party City was acquired by private equity firms Berkshire Partners and Weston Presidio. They also owned party supply maker Amscan, essentially giving it a monopoly.

“Party City has taken away the competition,” Mandell, 78, said. “All the innovation is long gone. It’s a huge problem.

Party City founder Steve Mandell is launching a personalized cookie company that will launch next month.
LinkedIn / Steve Mandel

Yet the model worked for nearly two decades. In 2012, Thomas H. Lee Partners bought the company for $584 million in a $2.69 billion deal, investing just 22% in equity. The following year, the owners asked Party City to borrow $338 million to pay themselves a dividend.

Party City’s market-leading position and 35% profit margins made it relatively easy for a few years to take excess cash to repay loans. Then the company went public in 2015 and its market share began to erode against big-box competitors like Walmart, Target, and pop-up stores like Spirit Halloween.

It also didn’t have much leeway to offer better prices than its rivals.

Photo of Party City CEO Brad Weston.
Party City CEO Brad Weston blamed inflation and supply chain issues for the company’s failures.
LinkedIn / Brad Weston

“If you can’t afford to give discounts, maybe you can’t afford to be in business,” Mandell told The Post in a phone interview from his Florida home.

Profits have fallen sharply in recent years.

Leveraged buyouts and loans helped swell the company’s debt to $1.67 billion before Party City filed for bankruptcy last week. The chain has 823 stores nationwide and 16,330 full-time and part-time employees.

“Party City’s financial restructuring will address indebtedness that predates the company’s 2015 IPO and will allow the company to emerge financially stronger and better positioned to build on its market leadership,” said a Party City spokesperson told the Post on Wednesday.

Private equity firms Thomas H. Lee and Weston Presidio declined to comment. Berkshire Partners did not return the calls.

Party City CEO Brad Weston blamed inflation and supply chain issues for the company’s failures. Mandell claims he was blasted by Weston three years ago after trying to give advice.

“The average selling price is too low for inflation to have a big impact,” Mandell countered. “That’s a great excuse.”

He pointed to Party City’s failures to maximize profits during the key Halloween period, which accounts for about a quarter of the company’s sales.

Party Town Store
The company went public in 2015 and its market share began to erode against big box competitors like Walmart and Target.
Bloomberg via Getty Images

“Spirit Halloween opened 1,400 stores this fall and was unfazed by the pandemic,” Mandell said. “Party City had 100 Halloween City pop-up stores.”

Mandell lost control of the company he founded in 1999, three years after taking the company public. He blamed the then-CFO for not tracking inventory properly, which led to the company not filing a 1998 audit on time.

This caused its shares to plummet and investor Michael Tennenbaum took control of the company for a relatively low price after it was delisted.

Mandell is now planning his next venture, a cookie company that makes personalized treats for corporate clients, weddings and birthdays. He will launch Incredible next month.

“Nobody is focusing on that space,” Mandell said.

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