What’s driving Five Below’s success?

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There’s no stopping Five Below. The trend-savvy, tween-and-teen retailer, which relies on its 600 bricks-and-mortar stores for the vast majority of sales, ranked 17th on STORES Hot 100 Retailers for 2017, posting 20 percent sales growth last year with worldwide sales of $1 billion.

But the 15-year-old Philadelphia-based retailer with stores in 32 states isn’t standing still. The chain is refreshing its stores, even as it continues expanding into the California market, with 15 locations planned there by the end of 2017. Five Below stores will look lighter and brighter, says CEO Joel Anderson, and include more eye-popping ways to display and get shoppers to engage with its products.

Anderson says the chain has plenty of room to ultimately open more than 2,000 domestic stores — and eventually expand outside the United States. He spoke with STORES contributing writer Bruce Horovitz about Five Below’s plans for success.

Would you say Five Below lives — and dies — by the trend?

I don’t think that’s an accurate assessment. Yes, we are a trend-right retailer, but trends don’t define us. We have eight distinct worlds upon which we focus: tech, sports, room, party, style, create, candy and now (seasonal items). It’s those eight worlds that give us the ability to bring to life many different categories. More than trends, it’s the value proposition that makes us so unique. People know that they can get anything in the store for $5.

That’s our wow factor.

How do you monitor teen and pre-teen trends?

We learn trends in a lot of ways. Most importantly, our buyers are in the marketplace all the time. Some of the best trends are identified by store managers. We consistently hear feedback from store managers who get it directly from customers. We also have open communication between the field and home office.

How quickly can you respond to a trend?

Let’s take the fidget spinner trend. We didn’t even know about spinners in January of this year but we got a lot of feedback on spinners from our stores and from social media. So, when the year started, we weren’t even thinking about spinners, but by April we had them on our shelves. It took less than six weeks from idea to shelf.

What’s been the stand-out trend over the past year?

We call it the string of S’s. That’s spinner, slime and what I call “smiley” (emojis). They have all been great over the past 12 months.

What are you dying to sell for $5 that you can’t?

iPhones. I wish we could sell iPhones for $5. The single biggest trend for preteens and teens is the proliferation of the smartphone. We have a huge section that’s accessory-driven that supports the iPhone.

What’s the next big trend for 2018?

We don’t create the trends — we just try to identify them. It’s too early to speculate on a specific trend for 2018. But two trends that define us will never go away: great value and a great store experience.

How does Five Below differ from dollar stores?

Dollar stores have morphed into things like consumables and groceries. They are largely about needs. We are largely about wants. You can now buy ketchup or mustard or even milk at the dollar store. Those are needs. You walk into Five Below to get cool stuff that you’ve just got to have. Those are wants.

What is Five Below’s formula for fun?

Well, that starts with the store associates. We encourage them to wear jeans to work, and the top to their uniform is a t-shirt. There’s a new, fun t-shirt for holiday coming out soon. We hire associates who are fun and engage with customers.

Then we add a visual element to our stores — typically bright, interactive fixtures. For example, you can walk over to one of our new fixtures and fill up a bag of 10-cent candy. Or you can bounce a basketball. We appeal to all the customer senses.

How do you appeal to each sense?

The visual sense is extremely important. The store has to be clean and brightly lit the moment you walk in. For touch, we have lots of things to touch — whether it’s bouncing a basketball or touching the slime that we sell.

There are lots of demos in the stores on weekends. For taste, there is lots of candy that so many people come in to buy. And when you walk in, you will always hear music playing and an associate who says, “Welcome to Five Below!”

How are you remodeling and updating your stores?

Thriving retailers today constantly reinvest in their store footprint. While we are only 15 years old as a company — and coming up on 11 straight years of comp store sales growth — we have to keep updating the fleet. We rolled on a new prototype this year, and it’s in all new stores built in 2017. When you live in a house for 15 years, it needs new carpet, a fresh coat of paint and maybe some new furniture.

We call it a refresh. The stores are brighter. The fixtures used to be grey, but now they are all white. And we have more interactive fixtures, like the dedicated candy tower where you can grab your own 10-cent candy. It’s a brighter, cleaner, more interactive store. We also added self-checkout and recently added Apple Pay. Customers love it.

Thriving retailers today constantly reinvest in their store footprint. While we are only 15 years old as a company, we have to keep updating the fleet.

You opened an online store last year — how’s it doing?

While store growth is our number one priority, our online store expands our exposure to customers who don’t live near Five Below. Many end up creating lists of things they want from what they see online, then bring it into the store. Our digital strategy is more about the interactivity it allows than transactions.

How has Five Below not only survived, but thrived, in an Amazon world?

Retailers that are winning are those who give customers a reason to come to the store. We give extreme value and a fun shopping experience.

Is that Five Below’s secret formula?

Since the beginning of retail time, where retailers have won is when they created a point of differentiation. Sears catalogs became fixtures on coffee tables. Walmart and Kmart had their heyday. They all had things that made them different. Five Below has succeeded because we are a differentiated treasure hunt that targets tweens and teens at value pricing. Nobody else is doing it.

How big can Five Below get?

We will open 100 physical stores in 2017. Last year we opened 85 and the year before, 75. We will be north of 100 in 2018. We just crossed 600 total stores in the United States and we envision the potential for 2,000 Five Below locations — and that’s before we even talk about expanding outside the U.S.

When will you have stores across the country?

When we went public five years ago we were in 18 states and now we’re in 32. We don’t have a time frame for that, but we believe we have at least a decade of growth in front of us.

Every company has its roots, and ours happens to be in Philly. It would have been irresponsible to our investors for us to leap into California earlier than this. We spent years preparing for expansion into California. You have to have a really strong supply chain to be a successful retailer there. We’ll have 15 stores in California by the end of the year.

What state do you wish you were in that  you’re still not in?

You would be shocked by the number of letters we receive from customers pleading with us to come to their state. I wish we were in all the states.

Is there a product that you can’t wait to sell for $5?

I can’t wait to sell TVs and computers for $5. It sounds crazy, but three years ago we didn’t sell Bluetooth, and now it’s a large part of our assortment.

How do you sell a Spaulding basketball for $5?

We ship them across the world deflated — so we’re not shipping air. And we sell them out of the box, so we don’t pay for packaging. We take the costs out that customers don’t care about. It’s all about extreme value.

What’s magical about a $5 price point?

I don’t think it’s magical. But $5 is a reasonable price that gives access to all, while $20 gives access to some.

How important is brand name to Five Below customers?

Only a very small percentage of our product is branded. Teens have evolved in how they feel about brand names.

All of our candy is branded — the non-branded candy we attempted to sell didn’t sell. We are largely private label. Most important to the customer is good quality and good price.

What happens in five, 10 or 20 years when the $5 price point is no longer feasible — will you change the name to Ten Below?

It seems every time that discussion comes up, the time frame gets pushed out further. We’ve had a decade of lower inflationary pressure. As we scale our growth, we have been able to more than offset that upward pressure.

How big can Five Below get?

Last year we crossed the $1 billion mark. It means nothing in one sense, but in another sense it’s a nice round number that signals beyond a great concept, it’s an idea that’s become a great company. Landlords come to us now — we used to go to them.

What’s one last tip to retailers who wish they were as successful as Five Below?

You need to either be in the value space or the store experience space. We happen to be in both.

Bruce Horovitz, a freelance writer, is a former USA Today marketing reporter and Los Angeles Times marketing columnist. He can be reached at brucehorovitz@gmail.com.

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