Party City founder blames bankruptcies on private equity firms that jacked up prices

The Party City founder blamed the retailer for the collapse due to mismanagement by private equity firms, saying they raised prices despite the company being a discounter in the first place.

Steve Mundell, who launched the chain in 1986 with a single store in East Hanover, New Jersey, attributed the retailer’s demise to a lack of value propositions and variety in its stores, a problem he says came when private equity executives blocked him in a big offer. deal with a manufacturer they already owned for about 80% of their shipments.

“They are [new owners] removed the two main things that made this company special,” Mandell told The Post in an exclusive interview. “First, we were a discount party superstore. Today it is not a discount store. The prices are the highest.”

“Secondly, there was a lot of variety in Party City,” he added.

That changed in 2005, Mundell said, when Party City was bought by private equity firms Berkshire Partners and Weston Presidio. They also owned party supplies maker Amscan, essentially giving it a monopoly.

“Party City has done away with competition,” Mundell, 78, said. “All innovations are long gone. It’s a huge problem.”

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

Party City’s leading market position and 35 percent profit margin made it relatively easy to use excess cash to pay off loans over the course of several years. The company then went public in 2015 and its market share began to shrink due to big competitors like Walmart, Target and pop-up stores like Spirit Halloween.

It also didn’t have much wiggle room to offer better prices than its competitors.

“If you can’t afford discounts, you may not be able to afford to do business,” Mundell told The Post in a phone interview from his Florida home.

Profits have plummeted over the past few years.

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

“Party City’s financial restructuring will remove the legacy debt load that predates the company’s 2015 IPO, and allows the business to become financially stronger and better positioned to solidify its market leadership,” 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 calls.

Party City CEO Brad Weston blamed inflation and supply chain problems for the company’s failures. Mundell claims Weston dumped him three years ago after trying to give advice.

“The average sale price is too low for inflation to have a big impact,” Mundell countered. “Great excuse.”

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

“Spirit Halloween opened 1,400 stores this fall and the pandemic hasn’t put them off,” Mundell said. “Party City had 100 Halloween City pop-up stores.”

Mundell lost control of the company he founded in 1999, three years after the company went public. He accused the then CFO of tracking inventory incorrectly, which led to the company not submitting its 1998 audit on time.

This caused its stock to collapse and investor Michael Tennenbaum gained control of the business at a relatively low price after he was delisted.

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

“No one is focused on this space,” Mundell said.