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Five Below Ready for Recession-Minded Shoppers

Five Below’s chief executive officer sees a shift underway for the extreme-value retailer as consumers begin to wake up to the reality of rising inflation.

“I think as we especially get closer to holiday…we’re going to see a lot of customers start their trip at Five rather than finish their trip because they know the value that they’re going to find there,” Joel Anderson told investors in a call earlier this month.

Consumers typically seek out value “even more” when times are tough, positioning the Philadelphia-based retailer to evolve from a “discretionary retailer into a needs retailer” as the year unfolds, he said. Even when they cut back spending, consumers still have to buy things for their children.

The 1,225 store-retailer is in the process of converting over 750 doors over the next four years into its new Five Beyond concept, which began as a store-in-store pilot called Ten Below. Customer response to the “new prototype has been overwhelmingly positive,” Anderson said. Prices range from $5 to $10, versus the $5 and under products that fill Five Below stores.

The company will open all new stores in the Beyond format and eventually convert the entire fleet.

Five Below’s first-quarter sales grew 7 percent from a year ago to $640 million as comp sales dipped 3.6 percent on lower basket sizes and transactions, Anderson told Wall Street analysts.

This year Five below plans to open 160 doors with 200 to follow in 2023 in A and B shopping centers. But with growth primarily from new doors, Five Below’s also betting there’s no second-half slowdown and that supply chain delays and higher freight and labor costs soon recede.

Five Below faces the same challenges as its off-price counterparts. TJX is considered recession proof, as merchandise buyers snap up deals in the marketplace that attract bargain-hunting shoppers. However, the pandemic and inflation have made it tough for off-pricers to keep their margins intact. Even Walmart and Target are feeling the heat from inflation and supply chain disruptions.

Five Below has secured additional container capacity and a new Indiana shipping facility is set to open this summer. The company is taking advantage of closeouts and one-time special buys “that have already begun to emerge,” and is “poised to take advantage of dislocations in the marketplace,” Anderson said.