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Five Below: What’s Behind this Discount Retailer’s Success?

Despite the name, things are really heating up for Philadelphia-headquartered discount retailer Five Below. Wordplay aside, the numbers speak for themselves. In 2018 alone, Five Below opened 125 new stores, and had opened an additional 35 in the first quarter of 2019, with plans for 145-150 more before the year is over. Adding to its geographic footprint, the chain has had positive comparable store sales for nine straight quarters and expects comparable sales to increase between 3-4% in 2019.  

Perhaps it’s been Five Below’s strategic vision that’s gotten them to this point. In 2016, CEO Joel Anderson implemented the “20/20 through 2020” strategy wherein the company targeted 20% top-line and bottom-line growth annually through 2020. Today, Anderson remains confident Five Below will reach this goal and achieve its “2,500+ US-store potential.”  

So what is so darn special about Five Below? To understand the retailer’s success, we’ll take a look at the wow factors that show how Five Below sets a new standard for discount retail. 


Major Gen Z Appeal

Not wanting to be like their social-media driven, avocado toast-eating, e-commerce-obsessed forebears, 80% of the Gen Z cohort says they look forward to shopping in stores when they have time. Gen Z’s positive disposition towards brick-and-mortar melds nicely with Five Below’s approach towards creating a tween and teen friendly environment.

Owing to the store’s ability to entertain and encourage its visitors to find things they never knew they wanted, Anderson calls Five Below T.J. Maxx for kids. The store’s merchandisers also cater to the not-quite-fully-grown by ensuring that shelving is no higher than 5 feet and by inviting young consumers to bounce the basketballs, test-drive remote controlled cars, and to take part in slime making contests in store.

Cap all of the above off with the fact that nothing in the store costs more than $5 and it’s easy to understand why the discount retailer is such a sponge for allowance money.


Ears to the Ground

Trends are, by their nature, short-lived. Add tweens and teens, a notoriously fickle group, into the mix with these trends, and a trend’s half-life gets curtailed even further. So, to ensure the stores have the most up-to-date offerings, Five Below takes a unique approach.

The chain focuses on eight distinct offerings or ‘worlds,’ as Five Below’s CEO refers to them: stores, tech, sports, room, party, style, create, candy, and seasonal items. In doing so, the discount retailer has established a platform to nimbly provide shoppers with the latest offerings across these worlds and the categories contained therein.  

To understand what’s on trend, the discount retailer keeps its buyers in the marketplace at all times and also enables store managers to engage with customers to pass trends on to the buying team. Once a team member spots a trend, the home-office leverages its nimble approach to bring items from concept to store-shelf in 6 weeks or less.


Savvy Expansion Strategy

Brick-and-mortar retail is intrinsically local. While there are advantages, such as purchasing power, that come with having multiple locations, those advantages are oftentimes mitigated by the complexities that come with having a spread-out presence. To avoid this pitfall, Five Below has expanded gradually by concentrating in specific markets. In 2014, it had concentrated its 300 stores in just 19 states, all of which were in the country’s eastern half. Now, it has 750 stores in 36 states

This strategy gives Five Below advantageous economies of scaleafter all, a local TV or radio spot costs the same regardless of how many stores are in a given market. Plus, the company only has to rely on two distribution centers for 300 locales. Having two distribution centers also compresses the retailer’s supply chain, providing reductions in both overhead and shipping costs. This limited footprint also makes it easier for management to survey operations and make quick adjustments. Last, the company establishes strong local brand awareness before it moves into an adjacent market by ensuring that its existing markets’ demand is fully met.


Strategic Tech Investments

Driving to a store and buying something may be an analog experience for customers; however, it’s anything but for retailers. To improve and streamline the in-store experience, Five Below partnered with BRP Consulting to undertake a wide-ranging technological upgrade.

The discount retailer needed a customer service ethos to match its in-store merchandising geared towards interaction and accessibility. So, to unburden employees from back-office functions to focus more intently on customer engagement, Five Below implemented new tablet technologies, a new employee training platform, and enhanced checkout experiences. Each of these improvements frees associates up to engage with customers as they navigate Five Below’s whimsical offerings.  

Outside of its actual product offerings, the in-store experience at Five Below remains a key component of its value proposition. Maintaining and improving the in-store experience will be crucial as Five Below continues to expand; according to a 2018 survey from First Insight, in-store shoppers continue to spend more than those shopping online.


Key Takeaways on this Discount Retailer

Tweens grow up, trends change, the economy slows down, and technology doesn’t always work the way it’s designed to. With these inevitabilities in mind, is there anything Five Below and other retailers can do to steel themselves for all the change that the future brings?

No matter what the era, customer-facing and back-end retail operations are always in need of improvement. Outside of its founders, nobody saw Five Below coming in 2002so how do you adjust to new market entrants and nascent trends? Since you can’t predict the future, the only remaining option is to be prepared to adjust in the face of it, and to continuously sharpen your sword with strategic investments.

Ironically, one part of being ready for the change that the future brings is the preparedness that comes from looking at the past by utilizing the right technology to collect, understand, and act on data. The second part? Making sure your teamfrom logistics to customer serviceis set up in such a way as to react appropriately to the strategic insights that reveal themselves.

CB4 helps retailers act on the hidden patterns that their historical POS data reveals. Our app sends recommendations for operational fixes directly to store teams to grow revenue and capture lost sales. Here’s how it works.

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