What will happen now that Five Below has gone above $5?

Discussion
Photo: Five Below
Nov 18, 2019
Tom Ryan

Five Below has started selling some products for more than $5 following a test of higher price points. The higher prices address rising costs and offer the opportunity to stock costlier items at “extreme value” in the home and tech categories.

The expansion was marked by the introduction of a new “Cool Stuff. $1-to-$5-to-$10” logo and a “We owe you an explanation” note posted on its website and social media pages.

The note read: “For 17 years, Five Below has been providing our customers with cool, trendy stuff for $1-$5. We’ve always done everything possible to absorb cost increases. Recently, we had to raise prices above $5 on tech items to keep providing the products you love. We’re calling this ‘Ten Below Tech.’”

The retailer added: “We also discovered a handful of $6-$10 toys and games we thought you wouldn’t want to miss. We’ve separated these items in a special ‘Ten Below Gift Shop.’ Once you’ve had a look, we hope you’ll agree that these high-value gifts are priced as low as only Five Below can.”

Five Below said the company has no plans to change its name because most prices are at $5 and below.

On its second-quarter conference call on Aug 28, Joel Anderson, Five Below’s CEO, said the “Ten Below!” in-store section tests were enabling the retailer to offer higher-end products like Xbox and Wii video games, Nerf toys, remote-control robots and spa items, like neck and foot massagers. “We continue to be pleased with the customer response,” said Mr. Anderson.

The 10 Below! tests were also “very valuable,” he said, in guiding pricing and communication with tariff-mitigation strategies. 

Comments on the price change on Five Below’s Facebook page skewed negative, with some blaming tariffs and higher wages. Comments included:

  • “So you have pretty much equalized yourself with Walmart. We might as well just go there … I can get my groceries while I am there spending the $10 on something. Disappointing.”
  • “That’s terrible. The entire reason we went was because it was $5 and below. I didn’t have to budget or think.”
  • “I foresee no issue! There’s always going to be negative Nancies! I will continue to shop at your store!”

DISCUSSION QUESTIONS: Is Five Below damaging its value proposition and shopping experience by selling products above $5.00? Does management need to be more transparent with its tactics or would the best move be to abandon the pricing shift?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I think consumers are fine with a non-literal interpretation of the pricing model. What they care about is getting a good deal."
"The way they are handling their in-store merchandising approach to introduce these more expensive items is right on the spot."
"The $1 to-$5 to-$10 initiative is a plug and play model that can create massive differentiation from their competition."

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23 Comments on "What will happen now that Five Below has gone above $5?"


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Mark Ryski
BrainTrust

This seems to be the awkward discussion all price-point branded retailers find themselves having when prices start to escalate – which they often do. Overall, Five Below has established a loyal following of mostly young people who are into cheap stuff. I think management is handling the higher price point issue as well as can be expected. Some people will be offended by the move; others won’t care or will hardly even notice.

Bob Phibbs
BrainTrust

Cheap stuff is still cheap stuff. I doubt this does anything more than add to their shoppers’ basket and average check.

Doug Garnett
BrainTrust

Fully agree.

Their experience also points out the problem with naming and branding that’s far too narrow. It’s all fine … until you can no longer be exactly.

TV Channels have given us some of the worst of these and yet survive. MTV no longer seems to have much (if anything) to do with music. And it still keeps an audience and sells a lot of advertising.

Yes, they’ll do fine. But we need to be far more cautious about names that are this specific. There are many more ways to say “inexpensive.”

Neil Saunders
BrainTrust

I don’t think this will damage the value proposition: a lot of Five Below purchases are discretionary and, unlike dollar stores, its consumer is concerned with value for money more than with rock bottom prices. As long as they don’t stray too far from the bulk of prices being low they’ll be just fine.

Jeffrey McNulty
BrainTrust

I completely agree with your assessment, Neil. I am optimistic about the plug and play model they are introducing to increase top-line revenue by offering newly curated products within their stores.

Zel Bianco
BrainTrust

It is not realistic for shoppers, even those that are die-hard bargain hunters, to expect that tech and electronics/toys can be below $5. The fact that they are trying to keep these to below $10 should be a price point that will be palatable for most. No retailer can absorb the higher cost on all items, all the time.

Paula Rosenblum
BrainTrust

The obvious question is, how many dollar stores really sell stuff for a dollar anymore? I believe just one – Dollar Tree. So has that hurt their value proposition? In the case of those that are not doing well, I would say too big a foray into food was a bigger culprit. Others are doing just fine, thank you.

Rich Duprey
Guest

And even Dollar Tree is now experimenting with price points above $1 in several test markets.

Jeff Sward
BrainTrust

“Extreme value” is the key. There is a big difference between escalating prices as a margin grab and offering items above $5 that still offer the “extreme value” that Five Below is famous for. If they are smart about this, it will enhance their value proposition, not damage it.

Bob Amster
BrainTrust

It is easier to get away with selling products for more than the $5 in a store section marked as such, keeping the merchandise separate until Five Below customers get used to the idea that some items cost more than $5. Online, if played correctly, the over $5 items can be promoted specially or separately on the same website and the retailer can keep the name Five Below without upsetting the customer base.

Dr. Stephen Needel
BrainTrust

There will always be a few who are appalled – everyone else will keep on going for the great bargains. Honestly, if some of the stuff I had bought there for $5 was $6, I’d still buy it – maybe even up to the $10 price point.

Ed Rosenbaum
BrainTrust

I do not see this hurting them. Yes, the price point went up. But that will have little to no effect on their sales. It might even give them a boost.

Kevin Graff
BrainTrust

The way they are handling their in-store merchandising approach to introduce these more expensive items is right on the spot. There’s little reason for any customer to move their business away from them — unless they can’t control their own spending habits. Dollarama is a juggernaut here in Canada and continues to post great results. They’ve introduced items up to $4 with the only impact being higher average sales.

Steve Montgomery
BrainTrust

Five Below’s value proposition is still there it has just expanded. They are smart to test to see the impact of a broader but still low price range. Conducting the test by having a separate section allows them the flexibility to highlight the higher price point to minimize any confusion regarding the price ceiling of their other items.

Kathleen Fischer
Guest

Overall, the price points in the store remain under $5 and the company has indicated that anything over $5 is very clearly marked so it is unlikely that this will negatively affect the brand. While there will be some customers who take a negative stance, most customers will hardly notice or care.

David Naumann
BrainTrust

I think consumers are fine with a non-literal interpretation of the pricing model. What they care about is getting a good deal. For example, Dollar General and Family Dollar sell some items for more than a dollar. Five Below seems to be transparent about the price creep and I don’t think it will alienate many customers.

Ryan Mathews
BrainTrust

Did dollar stores collapse as a channel when some items went above $1? Nope. Will a limited price hike on selected items kill Five Below? Unlikely, at least if all things remain equal and it’s managed well. The issue with pricing is rarely actual price, but rather overall price perception. And until they change the brand name, the pricing impression most consumers will get is that most of the items are cheaper than they are at other stores.

Suresh Chaganti
BrainTrust

I think it is an inevitable but smart decision. There is an inherent appeal to the “$X Below” concept, whether it is $1, $5, $10 or $20. I personally shop on occasion at Five Below mainly for seasonal cheap/throwaway stuff and electronics for kids that inevitably break too soon.

I find the product selection and price attractive, quality above average and definitely good value for the money. So long as they provide value for the money, they will do good. It is better to charge a bit more and keep the product quality and selection same, as opposed to reducing the selection or quality.

Given that they are doing this for the first time in 17 years, it probably has become inevitable.

Ralph Jacobson
BrainTrust

This is not going to be an issue. The brand has established its value proposition, and higher price points alone won’t diminish that. As long as the value remains, all will be good.

Jeffrey McNulty
BrainTrust

I applaud Five Below’s effort to maximize top-line revenue by strategically introducing value-priced curated products within their stores. The $1 to-$5 to-$10 initiative is a plug and play model that can create massive differentiation from their competition. As long as they continue to remain consistent with their core brand culture of providing “extreme-value” offerings, I do not foresee any major issues.

Richard J. George, Ph.D.
BrainTrust

I do not think it will have any long term damage. Price is always on trial and the retailer always has the Walmart “roll back pricing” option. Five Below is apparently taking a page from the dollar stores who have moved well past $1 for many of its offerings. Like the dollar stores, this recent move should not adversely affect Five Below’s extreme value positioning.

Shep Hyken
BrainTrust

Ten Below is the new Five Below. When you learn the explanation and thinking behind the decision, it makes total sense and I predict it won’t hurt their business. They will still provide incredible value on low-priced merchandise. That’s what their customers are really looking for, be it $5.00 … give or take.

Rich Duprey
Guest

The value of Five Below was that in targeting the teen and tween demographic, it gave kids a place to shop where parents didn’t have too many budgeting concerns. While raising the ceiling to $10 may cause some budgetary thoughtfulness now, it is still an exceptional value store for its targeted customers. Any constraints on spending will be more than made up in volume due to the broader selection of goods it can offer and the higher quality those goods can bring.

wpDiscuz
Braintrust
"I think consumers are fine with a non-literal interpretation of the pricing model. What they care about is getting a good deal."
"The way they are handling their in-store merchandising approach to introduce these more expensive items is right on the spot."
"The $1 to-$5 to-$10 initiative is a plug and play model that can create massive differentiation from their competition."

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