In 1992, when Tom Fallenstein was 12, his sisters started a side hustle renting out Halloween costumes their mom made for the family as the kids were growing up. The girls, who were in college at the time, ran the seasonal business out of their parents’ home in Minnesota. Over the years, the siblings got involved in trade shows and started creating costumes of their own, amassing 500 rental pieces.

And the pumpkin seed was planted.

Now Fallenstein, CEO of HalloweenCostumes.com, plans to close 2019 with 180 full-time staff members, 2,000 seasonal workers and nearly $100 million in sales. He attributes much of the company’s success to the wide selection of 30,000 SKUs—many of them officially licensed characters like from movies “Back to the Future,” “Star Wars” and “The Princess Bride”—a shift toward manufacturing exclusive designs and using data to manage stock counts during peak season.

From early on, Fallenstein placed a premium on offering a deep inventory of niche costumes, and he says the approach has served him well. While he was studying computer science, Fallenstein built a website for the rental business he ran with his sisters but also bought a few costumes to sell, starting up FlapperCostumes.com. The retail site offered one outfit in three colors and featured his sisters as models.

He soon built a couple more sites such as WizardOfOzCostumes.com. All of the products fit into Fallenstein’s walk-in closet, but by December 2004, he had raked in $40,000 in sales and hit $15,000 in profit.

Fallenstein found himself at a professional crossroads and had to choose whether to pursue a full-time career with his computer science degree or try out entrepreneurship, and he decided to give himself a year to see if he could gain a foothold in the Halloween industry. After moving his stock into his parents’ garage and commandeering the dining room as his office, Fallenstein hired a part-time employee, and when October 2005 arrived, “everything kind of exploded,” he says.

By that point, Fallenstein expanded and was running six niche sites, including StarWarsCostumes.com and PirateCostumes.com, and sales ballooned to $250,000. His family members were moonlighting for the business, pitching in outside of their full-time jobs to fulfill orders.

“I would try to recruit my friends after the bar at 2 a.m. to come over and ship out packages because we couldn’t keep up. We had to unplug the phone because we just couldn’t help any more people,” he says. “That’s when we knew we had something bigger happening. We’ve kind of been on this crazy trip ever since.”

Fallenstein’s two sisters soon came on full time, and in 2006, they incorporated the company before purchasing their first facility—a 10,000-square-foot space—and achieved $1.7 million in revenue. Within two years, the costume retailer acquired the HalloweenCostumes.com URL, outgrew the original facility and upgraded to a 50,000-square-foot area. After another three years, Fallenstein needed even more space and moved the company into its current 200,000-square-foot home.

HalloweenCostumes.com has become the primary brand for the company, which is ranked No. 560 in the Internet Retailer 2019 Top 1000, and drives the vast majority of sales for parent FUN.com. The retailer claims to be the largest online-only costume shop in the world and focuses on catering to all demographics.

“Six pirate costumes might seem like enough until you start realizing OK, three of these are sexy and they’re maybe only for college students, only one of these is for a mom, and then you’ve got one plus size” Fallenstein says. “We give mom 30 different options that can make sense.”

Staying ahead of the competition

HalloweenCostumes.com considers Party City Holdings (No. 319), and Spirit Halloween Inc. (parent Spencer Gifts LLC is No. 815) its main competitors. But mass merchants Walmart Inc. (No. 3) and Target Corp. (No. 16) also take a significant market share in the Halloween costume segment. Yet bricks-and-mortar stores are limited in the physical space they can devote to seasonal products, so chains typically opt for the most popular characters and sizes.

Read the rest of this story about how HalloweenCostumes.com stays ahead of the competition and how it deals with peak season demand. Sign up for a free site membership, or if you are already a member, please sign in below. 

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