Five Below’s Strategy, 3 Things to Watch
If you are wondering where consumers are spending their money in this period of high inflation then you have to look no further than your local discount store. Five Below, Dollar General and Dollar Tree are among some of the most successful retailers in the United States. From tasty snacks to trendy toys that won’t break your budget Five Below knows how to lure consumers in. Five Below’s sales were up 8% last year to reach $3.1 billion and the retailer has plans to capitalize on this growth. If you are curious about how Five Below plans to keep on growing then consider these three elements of its strategy.
1. Store expansion. Expect to see a Five Below store near you. The discount retailer has embarked on a store expansion plan which is part of the retailer’s “triple double” strategy which aims to triple the number of its stores to 3,500 by 2030 and double sales to reach $5.6 billion by 2025. The investment required to open a new Five Below store isn’t very high which will help to facilitate this expansion. It only costs $400,000 in upfront costs to open a new Five Below store. Then the store makes $2.2 million on average in sales and $550,000 in EBITDA. "We are seeing continued strong new [store] performance, demonstrating how effective our model is with an industry-leading less than one-year payback," said Five Below CEO Joel Anderson.
As Five Below expands across the United States it plans to diversify where it locates its stores. "In addition to our traditional focus on suburban power centers, we are now accelerating urban, as well as semi-rural stores, and are testing alternative venues.” said Anderson. "We're starting to do more grocery anchored centers, and we opened some of our first outlet stores last year."
2. Product expansion. Five Below is also planning to add more of its Five Beyond concept to its stores. Five Beyond is a store within a store concept where customers can shop for merchandise that is $6 and higher. Management sees this concept as a key growth driver. "We wouldn't be accelerating our conversions into the Five Beyond prototype if we were seeing any concerns whatsoever," said Anderson. "Customers who buy a Five Beyond item continue to spend over twice as much as those who buy only Five Below items, illustrating how powerful a driver these store conversions and Five Beyond products are to maximizing the productivity of our stores." 20% of Five Below stores have a Five Beyond section. “Our goal is for Five Beyond everywhere, and we already announced plans to convert 400 more stores to the new format in 2023,” said Anderson.
Five Below continues to compete with Dollar General by offering trendy products aimed at a younger consumer demographic. “However, at present Five Below still has an edge with the quality and breadth of its offer and with its format which is generally seen by consumers as more fun and engaging,” said Neil Saunders, managing director at GlobalData Retail. Five Below also has a wealthier customer demographic than some of its competitors with the 28% of its customer base making over $100,000.
Five Below is also diversifying its merchandise to bring in more customers. “Some examples of other store changes in the prototype are new offerings of ear piercing and helium balloons, which we tested throughout 2022, and are now rolling out to over 500 stores,” said Anderson.
3. eCommerce is not a large part of Five Below’s business, representing only 7% of its sales in 2021. But adding a loyalty program which is expected to launch in 2025 should boost online sales. Five Below also began to offer same day delivery of online orders via Instacart in 2020 and then last year it added buy online and pick up in store (BOPIS). “We rolled out BOPIS across our chain in September and are pleased with the initial customer response and see a big opportunity to continue to grow,” said Anderson. “Theseare examples of how we are evolving into a true omnichannel experience, leading the customers where and how they want to shop.”
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