Paper Warehouse says it wants to concentrate its expansion efforts in the Midwest and Southwest, where it already is in a number of markets. The sale "will put our ongoing store geography in better alignment with where we currently see expansion opportunities," says Yale Dolginow, president and chief executive officer of Paper Warehouse. The company has no plans to exit any other markets, he says.

The terms of the deal were not disclosed. The deal will give Party City a total of 15 stores in the Seattle area -- achieving a "critical mass in that important market," says Jim Shea, chief executive officer of Party City. He thinks the new stores can be "easily modified" to the Party City format with a large expenditure of time or money. Party City has 200 company-owned stores and has 244 franchise stores, while Paper Warehouse, which also operates under the names Party Universe and PartySmart.com, has 100 company-owned stores and 52 franchise stores.