What’s 5 Below?

As a chain of more than 500 stores in the Eastern U.S., 5 Below is a hit with young people for its eclectic, fast-changing selection of goods, most costing under $5. Roy White reports.

Roy White
What’s 5 Below?
May 2017
Is Five Below a dollar store? Is Five Below a discount store? Is it a party store? A toy store? Well, not really, on all of those counts. The chain gets its name from the vast majority of items it sells for $5 or less. If you have to categorize it, Five Below is a cool store – the coolest ever according to some – wherein lies the key to this format. The inventory and go-to-market theme are in fact different from anything currently operating in mass market retailing today.
Cool as it may be, Five Below is also one of the fastest growing operations in the market. Emerging 15 years ago as the brainchild of two former discount store and alternate retail merchants, it now has 525 stores in the eastern half of the US, does close to $1 billion in annual sales and opens 70-85 units annually. Sales grew over 20% last year, profits 40%. 
Stores average 7,500 square feet, and churn out over $2 million annually, and last year comp store sales rose 2.6%.
Five Below targets teens and preteens – ages 5 to 19   and is all theater. The 4,000 SKU’s typically merchandised are trendy and funky and never the same. The first thing that hits a customer on entering is promotion. The front of the store is devoted to seasonal items, and there is a wide promotional aisle that stretches back almost to the rear wall. Moreover, this is no staid in-line store. There are bins, racks and a wide variety of fixtures everywhere, including barrels and wheelbarrows, well-filled with items for a treasure hunt. But if there is a signature item, it’s the t-shirts with every conceivable in-your-face message. “Princess – not everyone can be a princess; someone has to clap” is among the least offensive.
But for all the contrived mess, this is a highly organized outlet. The units are clearly divided into well-defined categories: media, room, sports, candy, crafts, style and something called “Now.” Merchandising discipline is of a high level, and as soon as a promotional period ends, the next one is up and running almost immediately. Trend-right and opportunistic purchases are guiding principles for the Five Below buying group. 
While extreme value is the way Five Below management describes pricing, the highly promotional mix does in fact generate gross margins of 35% -- which compare well to the 22-25% of a supermarket, or the 30-31% of a dollar outlet. Moreover, these generous margins flow down to the bottom line; the chain generates a very healthy 6 to 7% net on sales.
The differentiating factor of Five Below is that it’s primarily about providing a shopping experience to its target teen and pre-teen audience – and backing that up with an exciting ever-changing mix priced to match their allowances. It’s a formula that apparently works and constitutes a powerful lesson on the potential of theater that is possible with brick-and-mortar retailing.
For PLMA Live, I’m Roy White.
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