Inside one of Five Below’s newest locations, the first-ever Manhattan store on Fifth Avenue, an additional 20-plus feet of shelf space has been allocated to toys this holiday season. The particular section, decked out with shelves containing large selections of popular name brands such as Frozen and Star Wars, is set up to let children run around and play – all part of a plan to welcome families by providing an environment where their kids want to hang out.
The decision by the general discount chain to focus on toys follows the announcement in June by former industry giant Toys R’ Us’ to close all its U.S. stores after filing for bankruptcy protection. With the 70-year-old retailer closing its doors, many families were left feeling nostalgic over the end of an era. But Five Below quickly saw this as an opportunity to take up the mantle — even with the considerable challenges the toy industry faces in general.
“While Toys R’ Us is no longer in the market, families are searching for new toy destinations, and we’re excited to serve that need,” said Joel D Anderson, president and CEO of Five Below, Inc. during an earnings call in September.
Five Below, based in Philadelphia, currently operates slightly over 750 stores across the country. Though usually compared with other retailers such as Dollar Tree and Dollar General, it is not your typical dollar store. Unlike its competitors that focus on necessities, such as laundry detergent and toothpaste, Five Below caters to teen and pre-teen customers by offering merchandise across a number of categories from style to tech – all priced between $1 and $5. The added push into toys seems to indicate wanting to capture an even younger customer base.
Five Below is willing to take the bet on toys after some success. This year, the retail company experienced robust growth in both profits and stock price as a result of the expansion of new store openings. Its year-to-date stock price is up 36% at $90.38 per share, despite the overall S&P 500 market declining within the past month. Five Below is expected to earn between $1.550 and $1.557 billion in 2018, up 3.3 to 3.7% from last year, on revenue of the opening of approximately 125 net new stores.
INSIDE FIVE BELOW
Leading the decision is the company’s President and CEO Joel D. Anderson, who joined Five Below back in July 2014 from Wal-Mart, where he also served under the same title.
Prior to joining the discount chain, Anderson also served as executive vice president of merchandising at Toys R’ Us back in 2001. His experience in merchandising helped him develop excellent business-to-business relationships with top manufacturers, such as Hasbro and Mattel.
But above all, Anderson understands that among having preteens and teenagers, as well as their money-wielding parents, as customers requires constantly having to meet their ever-changing demands. Having that in mind, Five Below understand just how important it is to provide an assortment that offers its young target clientele a wide variety of items in a tailored store environment while giving parents a measure of cost-certainty.
“It is a concept we believe should remain attractive to shoppers under a range of economic scenarios,” said Zain Akbari, an equity analyst at Morningstar Research.
Inside each store, product selections are divided by different color sections and guided under a white-neon lettered sign displaying hype words such as “style” or “tech.” Each location is staffed with approximately 10 to 30 employees, depending on the amount of space, who are stationed within the different sections.
To attract customers, employees are instructed to greet families as well as individuals with open arms. Most of all, encourage children to bounce basketballs, test-drive radio-controlled cars, even play with the selection of this year’s viral trending craze of squeezable foam toys known as “squishies” – a place to feel right at home.
And throughout this holiday season, tons of families believe to have found the ideal place to take their child toys shopping. Even better, Five Below’s low price of $5 or less makes it more welcoming — for it provides incentive to browse through the store and check out the various selection of products offered.
“It’s cheap here and everything is nice. Outside [the store] it’s expensive,” said Jane Dablizo, a frequent Five Below customer from Queens who recently brought her six-year-old daughter Gab to wander around while they both shopped for Christmas presents.
IN THE AFTERMATH OF TOYS R’ US
As Five Below looks towards expanding its market reach through toys, it isn’t the only one. Several retailers – from major chains like Target, Walmart and Amazon, to other local independents such as Lot-Less – have also made the move in order to capture their own share of toy sales.
Those retailers have also increased their toys merchandise, allocated more shelf-space, designed portions of their stores for play areas, and in some cases such as Amazon, published holiday toy catalogs. As a result of the move, Walmart and Target both experienced boost in toy sales with year-over-year increases of 9.43% and 8.7% during the fiscal third quarter, respectively. Amazon’s toy sales, on the other hand, experienced a 30% increase in the same period, topping all major brick-and-mortar retailers so far.
Although Amazon beat out major toy competitors, Five Below stood its ground and remained right behind the e-commerce giant with a 24% year-over-year increase, proving once again to be quite formidable. In fact, this year Five Below continues to thrive in Amazon’s growing shadow despite the e-commerce giant also quietly setting its eyes on discount stores by providing a section featuring items $10 or less, along with free shipping.
“Even without Toys R’ Us, Christmas and birthdays aren’t going away, and kids will continue to ask their parents for their favorite toy and get it,” said Juli Lennett, a toy adviser for market research NPD Group.
Lennett believes that Toys R’ Us closing has re-energized the $400 million global toy industry. She claims, “existing toy retailers are making bigger investment in toys, new toy retailers are emerging, and manufacturers are looking for new avenues of distribution.”
For now, Five Below’s strategy is only seasonal, according to analysts.
“While they are flexing into toys during the fourth quarter, they are not looking to be a toy store,” said John Steger, an equity research analyst at the Buckingham Research Group. “That’s not going to be a huge drive going forward for them.”
Certainly, toys represent opportunity for Five Below to drive incremental business in a quarter, especially because the company is very fourth-quarter heavy in percentage of operating income. Also, Five Below, as a retailer, has shown to have the ability of expanding into different categories when they see opportunities such as toys, flexing in and out of its stores’ square footage.
That has made some customers very happy. “You get everything at Five Below,” said Carrie Schwab, a 31-year-old cardiac monitor technician who raises three kids at home in Spring Hill, Florida.
“My kids enjoy going there, they have a section for candy. It’s like a hip toy store where you can also get clothes, for under or $5,” she said