(This column originally appeared in Entrepreneur)
Spirit Halloween expects to hire 40,000 seasonal workers and a ‘record number’ of pop-up locations this year — but how? Pop-up stores are harder to run than you think. Before you get any ideas about launching a pop-up business of your own, let’s talk about the real entrepreneurial risks that are scarier than your favorite Halloween horror.
- Pop-up stores are harder to run than a traditional business. Here’s why.
It’s the spookiest time of year, and you know what that means! It’s time for your annual visit to that local pop-up store to buy your kids’ — or perhaps your — Halloween costumes. But have you ever wondered about how — or if — these stores make money? On the face of it, a pop-up Halloween store seems like an easy way to make a buck. You open for a few months, grab the holiday buyers, set up shop and count your money until the following fall.
Spirit Halloween — a national chain running Halloween pop-up stores for the past 40 years — expects to hire more than 40,000 seasonal workers this year and is launching a “record number of locations,” according to a recent press release. 40,000 employees? Sounds like a great business, right? But, as anyone in business will tell you — nothing is as easy as it seems. And when you start digging into the details, running a pop-up store is, in many ways, harder than running a year-round business. How so? If you’re thinking of doing something similar, first consider the issues.
For starters, there’s inventory. You need to order the right amount to meet demand, and if you’re not entirely familiar with the demographics of your store’s location, you could be sitting on a lot of excess inventory come November. Are there a lot of kids nearby? Is this an older community? It’s important to consider the demographic of the community where you’ll base your store. Then there are other factors to consider when you’re buying, like what’s going on in pop culture. A lot of the costume buying takes place many months before Halloween, so you’re guessing what’ll be on people’s minds.
Who knew last winter that the Barbie movie would be a smash? Or that certain political candidates would dominate? Or that we’d want to dress up as Carmy from The Bear? Guess wrong, and you’ve got a lot of unsold stock. And even if there’s hope that you can sell your overstock next year, what to do with it in the meantime? Finding and maintaining an affordable storage facility is no easy task, particularly if you’ve got numerous locations to account for. And how do you know the answer to all these issues? You probably had to invest in a good inventory management system, which isn’t cheap. And neither is the continuing and repetitive training for your short-term staff to use it.
Oh yes, the staff! It’s hard enough to find talent for any regular business in these days of tight labor and rising compensation costs. Imagine now you’re operating a business that’s only in business for just two months a year. It’s a big country, and there’s always going to be someone willing to do something, but working at a pop-up store is a short-term commitment. So, what kind of talent are you able to attract? To entice them to this short-term gig, you’re certainly going to have to pay them more than a typical business, which means you’re going to have pricing issues and those issues are compounded by the Walmarts and Targets down the street who don’t have these challenges. And what happens when you have a star employee that you want to retain for the long term? That’s a challenging task for a store that’s only open for such a short period of time.
Real estate can’t be easy either. Sure, there are plenty of empty offices in many downtowns, but a typical pop-up store customer isn’t going to do their shopping on the 24th floor of a skyscraper. Attracting buyers to a downtown location is now less appealing when you figure in traffic and their added costs for parking, let alone the wave of shoplifting and other crimes that are causing so many big box stores to close up shop.
Retail space in the suburbs — even rural communities — has been in demand thanks to all those remote workers. Convincing a landlord to let you rent their space for only a couple of months when there are other retailers willing to commit to five or more years is a big hurdle. Some pop-ups somehow finagle longer leases at discounted rates, so anything’s possible in a negotiation. But it’s definitely not the norm.
Insurance seems like a headache, too. All the insurance. Property insurance carriers normally contract for more than just two months. Business interruption insurance may or may not be a thing, but what about product liability insurance for all those products that are likely made in China or some other low-cost manufacturing part of the world? Insurance companies are all about risk, and doing business with a “temporary” business like a pop-up store may not be the kind of risk those companies would like to take.
Pop-up businesses are a big financing gamble, too, particularly if it’s a smaller business. Inventory has to be purchased. People hired and trained. Down payments made. Deposits traded hands. Advertising contracts signed and executed. All of this is done before one dollar of product is sold. Where does this money come from? Most likely from a bank. That’s all fine when interest rates were below 3%, and credit was easy. But now that the prime rate nationally is 8.5% (and most pop-up stores will easily pay a few points above that) and credit is tightening, getting that financing is going to be expensive if it can be obtained at all.
Calculating all of these costs takes a head for math. When the smoke clears and the shop closes after Halloween, the final bills are paid, the paychecks are issued, and there should be enough money left over for the company and its stakeholders. Miscalculating any of the above could put a serious dent into this profit and have made the entire exercise fruitless. Forecasting in advance is critical. Keeping a close eye on overhead is essential. The smartest people who do this watch their pennies.
Running a pop-up store takes a lot of work. How can a small pop-up store overcome these challenges? And how does Spirit Halloween do it? Here’s the spoiler alert: The store’s parent company is Spencer’s — a novelty gift corporation that owns the Spencer’s Gifts chain and has about 30,000 employees and more than $4 billion in revenue. Oh, now I get it!