As retailers from David’s Bridal to Bed Bath & Beyond filed for bankruptcy this year, Five Below is bucking the trend.
That’s because Five Below’s young customers aren’t acting afraid of inflation, says chief executive Joel Anderson. The company’s sales rose again this spring, after topping $3 billion last year. They’ve doubled since 2018.
Over those five years, as the Philadelphia-based company has grown to 1,350 stores in more than 40 states, Five Below shares are up 87%, far ahead of national giants such as Walmart, Amazon, Target, Dollar General and Urban Outfitters. The stock has continued to outperform over the last year.
Five Below’s first store opened in Wayne, Pennsylvania, in 2002. Founders Thomas Vellios and David Schlessinger had earlier run Zany Brainy, the kids’ toy chain they launched in 1991. For Five Below, the pair envisioned what CEO Anderson calls “the HomeGoods for kids” featuring most items priced at $5 or less.
A new Five Beyond section at the back of many stores is adding more expensive items and services — record players, ear-piercing — and points to a future of larger outlets over 10,000 square feet, more than double the original target size.
This year, the company is opening 200 new, mostly larger stores, some in spaces left behind by bankrupt chains such as Tuesday Morning and Party City.
Anderson, a past executive at the former Toys R Us chain, joined Five Below in 2014 after a stint as president of Walmart.com. He reports to a board of veteran retailers and venture capitalists headed by Vellios and oversees the more than 20,000 employees who work for the company.
Anderson recently talked to The Inquirer about his business at his sunlit, rough-wood-lined headquarters atop Philadelphia’s 130-year-old former Lit Bros. department store. Remarks have been edited for clarity and brevity.
Q: How is Five Below different from Zany Brainy, the founders’ previous chain?
A: We are sitting at what we call Tom’s Table. Back when Zany Brainy was winding down, Tom and David sat at this table with a yellow legal pad, coming up with the feeling of Five Below.
Everyone who knew Zany Brainy loved it. But it could only reach a small segment of America. They designed this for the mass market.
Q: Is this a dollar store, but for kids?
A: They are a store of needs; we are a store of wants. Their assortment has gotten more grocery.
You come here for a treasure hunt. We are the HomeGoods, for kids.
You don’t walk into our store with a list of things to buy, but with a list of problems to solve: What do I get for a 10-year-old’s birthday? For my kid that just got straight A’s? What can we get to make that vacation, event, or ritual more exciting? That’s our list. Not items — celebrations.
Q: How do you reach kids?
A: In our early days, we had paper circulars printed. We don’t spend a nickel on paper anymore. It’s all digital — social media, email, text.
We have some paid social influencers. But, honestly, the most successful campaigns are done by our customers. TikTok videos by people who had a great “treasurer hunt” at a Five Below store do fantastically well for us. The more authentic, the better.
Our core customers are kids and families. If you think about the rituals of growing up and the milestones of life, the more rituals we can capture, the more milestones somebody celebrates in our store, the more successful you are going to be.
Balloons. Birthdays. Graduation.
And we just started ear piercing. It’s a big milestone in a kid’s life. It’s becoming very mainstream [for school-aged kids]. We are finding that for us this skews more boy than girl. Our store is a safe zone for everybody. It’s not like going to Claire’s [a store chain which focuses on girls].
Q: Is it tough finding workers?
A: A milestone in a kid’s life is that first job. A lot of big-box retailers won’t hire kids under 18; but some of that work is different. We are a store for kids. It would be disingenuous if we didn’t hire kids. We hire a lot of 16- and 17-years-olds. A lot of them turn out to be career associates.
Q: How hard are you squeezing suppliers to keep prices under $5?
A: We have some partners who have been with us for a long, long time. They understand we are in the value space. They appreciate the growth we’ve been able to give them and in return they work really hard to take costs out for us and for the customer.
A lot of retailers work from cost up; it’s all about the markup. We start with the (sale price) and figure how to take the costs out.
We wanted to deliver a $5 basketball. We bring them in from overseas, deflated. That’s because an inflated basketball takes up more space, per shipping container. And space costs us. We couldn’t afford all the packaging. The customer doesn’t care about it. So we took it out.
Q: How have you responded to the shift in China exports?
A: As we reduce our reliance on China, we are diversifying into places like Vietnam, India (where Zany Brainy, now an online retailer, has a new sourcing office), and Honduras.
Q: Won’t you have to raise prices above $5?
A: Our stores were originally under 5,000 square feet. Now the average is closer to 10,000. That fits with our Five Beyond sections, where we sell items that may include an LED scooter, a robot vacuum, a Bluetooth speaker table, a record player, rolling luggage, at a $20 to $25 price point.
Q: How long can Five Below grow?
A: Our strategy is the triple double — to triple stores by 2030; and to double our sales and earnings by 2026.
We will go over 1,500 stores this year. We believe there are over 3,500 [total store sites] available in the U.S. for us. So we have a long runway for growth right here. And there’s no reason this concept won’t work internationally.
