Party City, a beloved party supply store, has suddenly shut down its operations after nearly 40 years in business, leaving hundreds of employees without jobs. The company’s CEO, Barry Litwin, blames inflation, rising costs, and shifting consumer behavior for the demise. However, a closer examination reveals that the true culprit is vulture capitalism.
Private equity firms have been involved in Party City’s ownership over the years, including Berkshire Partners and Thomas H. Lee Partners. In 2012, Thomas H. Lee Partners acquired majority control of the company through a leveraged buyout, loading it with enormous debt. This strategy allows private equity groups to take over companies with borrowed money, saddling them with crippling debt that makes it difficult for the company to innovate or expand.
The result is often devastating. Companies become running on fumes, with every dollar going towards paying off interest payments rather than investing in growth. A leveraged buyout is essentially a death sentence for a company, as Mitt Romney’s Bain Capital learned when it bought out Toys’r’Us and KB Toys. Similarly, Elon Musk’s leveraged buyout of Twitter has left the platform struggling to maintain its former glory.
The case of Party City illustrates this strategy all too well. In 1986, founder Steve Mandel launched the company with a single store in New Jersey, offering affordable party supplies to customers. However, when private equity firms took control, they eliminated competition by acquiring Amscan, a party supply manufacturer that gave Party City a monopoly on the market. This allowed the company to charge full price for its products without having to offer discounts.
Mandel himself warned of this fate in an interview with the New York Post last year, stating, “If you can’t afford to give discounts, maybe you can’t afford to be in business.” Unfortunately, his prediction came true. The factors that Litwin blamed – inflation, rising costs, and shifting consumer behavior – were inevitable consequences of the company’s weakened state.
The Party City saga serves as a stark reminder of the dangers of vulture capitalism. By prioritizing profits over people, private equity firms can create companies that are unsustainable and ultimately doomed to fail. As we mourn the loss of this beloved party supply store, it’s essential to recognize the true culprit behind its demise: the predatory practices of vulture capitalism.
Source: https://www.vice.com/en/article/party-city-fired-everyone-without-severance-right-before-christmas