Five Below to expand higher-price concept to 30% of stores by year-end

Dive Brief:

After successful tests, Five Below plans to roll out its "Five Beyond" store-within-a-store concept to 30% of its fleet by the end of 2021, CEO Joel Anderson told analysts Wednesday.
The company added permanent Five Beyond sections to 140 stores in 2020 and plans to double that number this year, Anderson said, according to a Seeking Alpha transcript.
To boost the concept and its offering, Five Below is working to add "exclusive online items," such as an expansion of Bugha gaming products and a partnership with illustrator and author Andrea Pippins, Anderson added.

Dive Insight:

Five Beyond grew out of tests of the discounter's "Ten Below" concept. Analysts with Telsey Advisory Group said in a research note that Five Beyond "provides the flexibility to widen the assortment while still offering value at higher prices."

The concept creates something of a loophole in Five Below's under-$5 offer to customers. It gives the retailer flexibility to both meet customer demand for products, like electronics, that might not otherwise fall within Five Below's price promise as well as expand the company's margins where it sees opportunities to do so.

"The emergence of Five Beyond from our Ten Below tests is a great example how we pivoted to play offense," Anderson said. "The customer has responded positively to our new Five Beyond assortment, which is filled with fresh, amazing value items and new categories to our customers."

Anderson described the store-within-a-store concept as part of an effort to "elevate the experience for both our customers and our crew." As such, Five Below is testing prototype new stores and remodels that have Five Beyond in the back. In a press release, Anderson said Five Below plans to add 170 to 180 of the Five Beyond prototypes in 2021. At other stores, the retailer also deploys a similar "Wow Wall" for seasonal offerings.

The expansion follows a strong fourth quarter for Five Below, which posted a top-line sales increase of nearly 25% year over year and a record comparable sales increase of 13.8%. The pandemic weighed on the discounter for the full 2021, with comp sales down 5.5% and operating income down nearly 29%.

The Telsey Advisory Group analysts, led by Joseph Feldman, said they were "encouraged by the strong business momentum at Five Below and its ability to execute at a high level." The analysts pointed to the retailer's "value-oriented assortment and treasure hunt experience," as well as store growth omnichannel and self-checkout capabilities, expansion into new areas such as gaming and digital, and the rollout of Five Beyond.