The past few years haven’t been kind to traditional brick-and-mortar retailers, with tons of former mall and main street mainstays — like Toys”R”Us, Gap, Payless ShoeSource, J.C. Penney, Victoria’s Secret, Walgreens, and more — either closing stores or shutting down completely.
Despite struggles throughout the retail industry, discount and dollar stores are still going strong. (Between 2010 to 2015, dollar store sales in the United States increased from $30.4 billion to $45.3 billion, posing a threat to off-price retailers, both in the physical space and online.)
But one department where many discount retailers are still lacking is the in-store experience. That’s because most of the items available in these stores are indistinguishable from one retailer to the next. And, by offering products at such a cheap price point, customer service can suffer due to a lack of general upkeep, limited funds for more (and well-trained) store associates, and poor services.
Five Below is different…
For the past 13 years, the tween-focused discount retailer has posted positive comparable-store sales and continues to grow its number of stores. The Philadelphia-based retailer cut the ribbon on 125 new locations in 2018, plans to open 150 more this year, and recently expanded into Nebraska, Arizona, and Iowa (it posted its best Q1 opening to date in Cedar Rapids). It’s only a matter of time before they go international. (They expect to reach $1.8 billion in sales this year.)
“Our two founders, David Schlessinger and Tom Vellios, created a great concept. It was, and remains today, unduplicated,” Five Below CEO Joel Anderson told Philadelphia magazine in 2017. “And it’s a concept that while it targets teens and tweens is universally appealing.”
Here are three reasons why Five Below is beating the competition.
Not Your Average Discount Store
At first glance, Five Below sells the same types of items (in their case, for $5 or less) — such as school supplies, simple electronics (like headphones and cellphone chargers), fitness and sporting equipment, affordable clothes, candy, cosmetics, and more — you’d likely find at another discount retailer.
But what sets Five Below apart from the competition are the items themselves, which are often both unique to the store and only available for a short time.
“When you walk into one of our stores, you will discover things you didn’t know you wanted. It’s like a treasure hunt,” Anderson told the Wall Street Journal in 2018. “We’re the T.J. Maxx for kids.”
Indeed, walk into a Five Below store, and you could find “hedgehog headphones, D.I.Y. crystal bath fizzies kits or heart-shaped cat-eye sunglasses.” But, walk into that same store a couple of months later, and those items may no longer be available.
There are two reasons for this:
1. Offering an item that plays into a customer’s perception of hype (many of Five Below’s items are made to be Instagrammable and end up gaining attention online) and exclusivity makes consumers want to pick up a product before it’s gone
2. And by not being chained to a consistent stream of products, Five Below can capitalize on consumer trends (think fidget spinners and slime, both major hits for the retailer) a lot quicker
Doing so makes Five Below an outlier amongst discount retailers who usually offer value to their customers in terms of straight discounts as opposed to providing products they can’t find anywhere else.
“If you see something in our store and you love it, you better take it, because you don’t know if it’s gonna be there three months later,” Anderson said to Philadelphia magazine.
Generation Z Lives Here
While it’s customer base is relatively large (with everyone from moms to college students to twenty-somethings loving the brand), Five Below’s primary target market is undoubtedly Generation Z.
There’s a good reason for that.
As the largest single consumer group out there, Millennials are often targeted extensively by retailers and brands. But recent research by groups like Deloitte’s Center for Consumer Insight and Accenture has found that Millennials aren’t quite the goldmine businesspeople initially imagined. (Since 1996, the average net worth of consumers under 35 has dropped by 35%; Millennials are further cash-strapped due to rising student debt and the increased cost of housing.)
Gen Z is different. With the majority of them still living at home, their income (as small as it may be) isn’t tied up with other expenses.
Five Below’s founders tapped into that knowledge early on — with each having a pair of preteen boys at home, they understood the power of a weekly allowance and made their stores the perfect entry point for young customers with modest budgets.
Basically, Five Below’s products are so affordable and desirable they’re almost hard NOT to buy, making them a big hit with preteens and their thrifty parents.
An Elevated In-Store Experience
Five Below’s success can also be attributed to its ability to provide real value to customers while still focusing on the in-store experience.
“If you spend time in a dollar store or mass merchant like Target or Walmart, it’s not really about letting go because you’re there to meet your needs,” David Makuen, EVP of Marketing and Strategy at Five Below, told The Washington Post. “Our purpose is really simple: we want customers to be able to let go and have fun.”
Walk into a Five Below store, and you’ll be greeted with pops of color, pumping tunes, and energetic associates willing to help you along the way.
On top of that, stores are easily organized into worlds like Style, Sports, Tech, Crafts, Party, Candy, and more that make it easy to navigate and inhabit.
“When you kind of think about other discount stores, they may not know who their customers are,” Dave Sanborn, Senior Director of Operations at Five Below, recently told Foko Retail. “We know exactly who our customers are, and we know how to build the environment for them.”