Party City is closing most of its stores in a major liquidation, but 26 franchises remain open—offering a small lifeline as the retailer grapples with financial collapse.

Party City announced Saturday that it would start a “wind down” of its retail and wholesale operations as it prepares to shutter nearly 700 stores nationwide.

This year, Spirit Halloween announced it would expand its retail footprint into December and Christmas decor with a line of Spirit Christmas locations. Founded in 1986, Party City has over 700 ...