Source: Five Below
Can Anything Slow Down Five Below?
Five Below isn’t slowing down its expansion even if consumers are more discriminating about spending their money.
The retailer posted a first-quarter net sales increase of 13.5 percent and net income of $37.5 million, up from $32.7 million the year before, as it opened 27 new stores in 19 states and converted 250 Five Below stores into its Five Beyond format which sells higher-priced goods.
Five Below CEO Joel Anderson, speaking yesterday on the retailer’s earnings call, said his company is now on pace to exceed its goal of opening 200 stores in 2023 “while building our pipeline for next year and beyond” as a result of having acquired an unspecified number of leases from retailers in bankruptcy. Two recently opened stores were in the top-25 of Five Below’s all-time grand openings.
The retailer reported that transactions increased by 3.9 percent in the first quarter, helping to offset a 1.2 percent decline in the average ring.
Mr. Anderson said the retailer’s increase in transactions was Five Below’ highest since 2017, excluding the pandemic when federal stimulus payments were made to Americans. He called the first-quarter performance “a strong indicator that Five Below is a destination customers rely on even in tougher economic times.”
Five Below is looking to increase its average unit volume in stores by adding Five Beyond sections and introducing new services and products, , including “ear piercing and fun snarky helium balloons,” Mr. Anderson said.
The retailer is committed to expanding the Five Beyond concept within its traditional stores and as a standalone concept. The conversion of 250 Five Below locations to the Five Beyond banner put the retailer well on its way to achieving its goal of 400 store conversions in 2023.
Mr. Anderson said that merchandising is a company strength. Seven of Five Below’s eight merchandising worlds (AKA categories) – Tech, Create, Play, Candy, Room, Style, Party and New & Now – posted gains in the first quarter. Tech was the exception as consumers focused more on consumables while shying away from higher-priced discretionary items.
Five Below opened its first global sourcing office in India in the first quarter.
“We are very excited to have a presence on the ground to work directly with our factories overseas and, together, develop and bring to market even more amazing products at disruptive and distorted value for our customers,” Mr. Anderson said.
Discussion Questions
DISCUSSION QUESTIONS: Do you see Five Below being able to weather a further slowdown in consumer spending should one materialize? What do you see as the retailer’s opportunities and challenges over the next few years?
Poll
Loading …BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Five Below is a destination store for kids and their families. What better place to let them roam the aisles, pick out their purchases, and check themselves out. I don’t see anything stopping the expansion, despite the recent birth rate decline. This is TJX for kids, with candy. What more could they ask for?
Still, a decrease in average transaction amount is a bit troubling. But when your brand name puts a cap on inflation, maybe it’s understandable. The “Five Beyond” was a smart way out of that bind, but I’m not sure building a whole different brand—and stores—was necessary. Dollar stores crossed the dollar price threshold long ago. Even with these slight concerns, I think Five Below is doing a great job snapping up discounted locations and building out a fast as they can. They’ll do just fine.
There is no rebrand to Five Beyond. They just take a section of the store and put the merchandise over $5 in that section. Five Beyond is the name of that section of the store only and that is as far as the name goes in the 2022 opened stores.
In my area they have merchandise over $5 outside of that section as well, mostly toys.
Now I see they are rebranding to Five Beyond as I read the article better.. this doesn’t make much sense to me.
I’m a fan! Five Below has certainly been riding an impressive wave. Personally, I do not see them slowing down in the near term. I’m especially impressed with impressive growth within their core categories (merchandising worlds) – Tech, Create, Play, Candy, Room, Style, Party and New & Now.
Opportunities abound: 1) store locations and reach; 2) shopper “curiosity” and spending consciousness; 3) simplicity in messaging and assortment; and 4) growth at the expense of others (e.g., Bed, Bath & Beyond and Tuesday Morning come to mind).
There will, of course, be challenges: 1) supply chain disruptions could occur; 2) consumer spending could become weaker (recent Medicaid coverage changes have not yet been realized in affected states); 3) geopolitical climate (political uncertainty in the U.S. and global conflicts); and 4) unpredictable weather.
I always worry about over-expansion. No markets are infinite. So perhaps 5 Below is just bumping up against reality.
Brands that invest more during slower economic times ultimately fare better when the market returns. I applaud aggressive retailers as long as they are executing to a plan. Going after Bed Bath and Beyond and/or party city business is smart.
The ever-present threat of recession has consumers thinking bargains. Five Below’s name reinforces the budget mindset, so it remains a destination for families looking for a way to stretch their dollars, plus have a little fun discovering what’s new (and affordable) in the aisles.
Five Below is poised for continued growth given today’s economic climate. They also deserve kudos for expanding the Beyond format. This is a smart move that will help them gain share from other struggling competitors.
I find these stores incredibly Fractionating. Customers pack the aisles while staff members constantly run out new treasures from back rooms to keep loading the shelves. . I actually think that customers are actually are considering these stores a must shop. In tough times, I believe that these stores will serve as a great service to their customer. As they grow and prosper, new venues of the store will blossom with piece points that escalate, and attract new customers. It’s a new and changing retail world.
Five Below has some good growth vectors that will help it in the years ahead. The first, is opening new stores as, despite expansion, the retailer still doesn’t have comprehensive coverage. Second, the continued trend of trading down among lower- and middle-income demographics will drive more shoppers to stores: Five Below has a great selection of general merchandise that is both useful and fitting for many life occasions and events. Third, the push to higher priced merchandise via the ‘Five Beyond’ concept will help to ease sales – although this is something of a longer term play. In short, Five Below is a good operator and is on the right side of trends.
Five Below, just like dollar stores, is in a good segment to weather economic downturns. Discount stores seem to do well in good and bad economic times. Five Below’s focus on merchandising is key to their success and continuing to adapt their product assortments to what customers value is imperative. As some others have mentioned, over-expansion is a risk that should be considered. The focus of adding additional in-store services is a great way to fend off potential online retailers like Temu.
There’s an old aphorism that “the only thing left after an apocalypse will be cockroaches and Keith Richards”. This holds true for Five Below and Dollar General. Not intended as a disparagement to dollar stores (or Keith Richards), but they are built for survival in a harsh environment, and could well be the only thing left standing after a major recession.
They are overexpanding, many of the new stores don’t do close to the volume their stores were doing 5-7 years ago if my foot traffic observations mean anything, and they are selecting some questionable locations.
Their pricing is also all over the place. Their ability to keep consumables in stock is poor and most of their pricing on consumables is very high.
They have various routes or angles they could take if they run into trouble with performance. For instance, more focus on home goods, more focus on consumables, etc. The cluttered nature of the stores and their newness to many customers gives them a unique merchandising flexibility that more established chains do not have. So there is that.
Five Below is in the right space at the right time with a great offering.
The appeal is much broader than just the young generation.
The economy is driving Five Below success, as their format and merchandise is filling a gap. Walmart took out the discounters and inflation is taking out the dollar stores. Consumers are trading down to dollar store, but shrinking offering is limiting growth potential. Dollar stores will either switch to the five-dollar target or go out of business just like the discounters. Five Below future competition is growing internet sales and repositioned dollar stores. Even with inflation appearing to decline, wages will take years to recover. As long a Five Below does not get over its skies it has years of success ahead just like Walmart.
The growth of Five Below is directly influenced by consumer perception. As long as consumers maintain skepticism regarding the state of the economy, Five Below will continue to experience growth.
However, the company faces a significant challenge within a category where low prices and off-brands are the prevailing norms. Additionally, consumer retail preferences are heavily influenced by convenience. This presents difficulties for Five Below and its competitors, as they must strive to adapt and distinguish themselves beyond this category.
Yes, Five Below will be able to continue to thrive in difficult retail times. Their strenght comes in offering new and refreshed selections at very competitive prices. This is really not much different than Family Dollar and other discounters who are looking to grow in difficult retail times.