As incomes stagnate or fall for the majority of Americans, a store where everything costs $5 or less is booming. Its promise? “A store that every kid in America could afford.”
Five Below / Via investor.fivebelow.com
Five Below likes a dramatic entrance. When the chain broke ground in Houston this June, it threw open eight stores in a single day, advertising 5-cent hot dogs and giving away multiple $100 shopping sprees and free T-shirts — a tradition of its opening days.
And there have been plenty of openings. CEO and co-founder Tom Vellios has been taking his colorful stores to dozens of new communities each year, offering a simple pitch: Everything costs less than $5. From iPhone covers to candy and indoor play sand, it's all targeted to teens and tweens, and sales are booming.
The chain pulled in $535 million in sales last year, up from just $89.5 million five years earlier, and will end 2014 with 366 stores, compared with just 82 in 2008. It's the fastest-growing teen retailer or value retailer in the U.S. by store count and revenue, according to eMarketer data, and there are no plans to slow down. Five Below envisions reaching more than 2,000 stores in the next 20 years, an estimate Credit Suisse analysts deemed "conservative," hoping for as many as 3,000 instead. To get a sense of that number, Toys "R" Us has roughly 870 stores in the U.S.; Target has about 1,800.
In an era in which retailers are obsessed with bridging the gap between online and offline — peppering conference calls and presentations with the word "omnichannel" – Vellios is taking a more old-school approach, inspired by his own love of the five-and-dime stores that abounded when he moved from Greece to Brooklyn as a young man. (The 5-cent hot dogs derive from a sign that Vellios once saw on Coney Island.) The internet, so far, has little role to play in the company's success.
"There is some type of an online play that will complement our bricks-and-mortar business, but we're not in a hurry," Vellios told BuzzFeed News in a rare interview. Right now, the business is 100% reliant on store visits.
Vellios has a knack for supplying the stuff of rabid, momentary teenage fads — his last big gig before Five Below was leading Zany Brainy, an educational-based toy store that made its name supplying kids with temporarily in-vogue products like Pokémon cards and Beanie Babies. At Five Below, hopping on emerging trends rapidly is essential; colorful rubber bands, for example, lifted the entire company's comparable sales in last year's third quarter during the Rainbow Loom craze.
Facebook / Via facebook.com
"Our goal is not to be first to identify a trend — we have the ability to be a very fast second," Vellios said. "We take discretionary product and through our editing process, with the right quality and right trend and color, enable our customer to really want to come into our stores. It's the trend-right approach."
Indeed, Five Below's business is starkly different from Dollar Tree and Dollar General, which have been prominent in the news as the two dollar stores fight over who will acquire their rival Family Dollar. While all three discount chains have different pricing strategies — only Dollar Tree sells everything for a dollar or less — they all target low-income America with cutthroat prices on junk food and consumer staples like detergent and toilet paper. Five Below, according to filings, says its target market is the 60 million Americans aged 5 to 19, who are estimated to account for at least $250 billion in annual spending.
The goal behind creating Five Below in 2002 was to "make a place for kids, a place that I could go in with my allowance money and be able to afford everything in the store," Vellios said. "We saw saw the traction dollar stores were getting at the time."
Few retailers are expanding at Five Below's pace, given the rise of e-commerce and concerns around shopper foot traffic. Dollar stores, however, have fared well compared with the rest of the industry in the past decade, as incomes stagnated for most Americans amid an economic crisis and sluggish recovery.
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