Five Below Refocuses on Core Customers Amid Strategic Overhaul

Five Below, the discount retailer that first opened its doors in 2002, is navigating a period of introspection and realignment.

Founded by David Schlessinger and Thomas Vellios, the company has aimed to be a go-to destination for preteens and teens by offering cheap products. Yet, recent financial results and market conditions have prompted a refocus on its core customer base.

Vellios, who co-founded Five Below, acknowledged the company’s recent challenges during the second-quarter earnings call.

“Over the past few years, we lost some of that sharp focus on our core customers,” Vellios said.

The company had expanded rapidly — opening over 450 new stores and remodeling more than 750 locations since 2022 — while also broadening its product assortment. These efforts came during a challenging macro environment and seem to have diluted the core value proposition that initially set Five Below apart.

“We know the resulting issues are fixable,” Vellios said. “Work is already underway, and we are committed to an operational and strategic refocus of our business. Going forward, we are refocusing on our core customers. We are prioritizing initiatives that enhance value, improve the shopping experience, streamline our operations and ensure that we meet the evolving needs of our customers. Specifically, we need to regain our speed and intensity in identifying and bringing in key trend items into our stores that delight our customers. We need to deliver more wow and value, which, for Five Below, is the intersection of trend, quality and price.”

Second-quarter sales rose 9.4%, to $830 million, but comparable store sales fell 5.7%. The drop was attributed to a decrease in transaction volume despite positive store traffic. This discrepancy pointed to issues in conversion rates, suggesting that while customers were visiting, they were not purchasing as frequently or in the quantities expected.

Ken Bull, interim CEO, president, and COO of Five Below, outlined a plan to address these issues, noting second-quarter results “fell short of what we know this business is capable of delivering.”

The strategy includes simplifying the product lineup and emphasizing lower price points that have historically been popular among Five Below’s young shoppers. Bull emphasized that the company plans to “significantly reduce the breadth of our assortment” and return to pre-pandemic levels. By concentrating on $5 and below price points and streamlining store operations, Five Below aims to enhance the shopping experience while delivering exceptional value.

Bull explained how Five Below found itself in this position.

“Over the past few years, we faced significant macro pressures, including stimulus-driven demand, supply chain disruptions, inflation and evolving customer preferences,” he said. “To manage inflation’s impact, we raised prices and expanded price points. We also overexpanded our assortments and pursued an ambitious Triple-Double vision to triple our store count by 2030 and double EPS by 2025.

“In hindsight, this timeline was too aggressive, creating immense pressure on the organization,” he added. “We increased corporate overhead, raised retail prices, tightened store labor and faced added complexity from shrink mitigation efforts. To address these issues, we have a plan focusing on key areas across product, value and store experience.”

Bull also highlighted the importance of maintaining a fun and energizing store environment.

“Our strategies to improve the product will only be successful if we deliver our customers a store experience that reflects our brand,” he said.

To achieve this, the company is reevaluating its store operating model to reduce complexity and optimize labor. This approach will help ensure that Five Below stores remain engaging and aligned with the expectations of its target audience.

Similarly, Dollar Tree, the parent company of Family Dollar, which operates more than 16,000 stores across the U.S. and Canada, is revamping its strategy with a focus on diversifying its product range and delivering more value to its core customers. The new initiative, now in 1,600 stores, introduces items priced between $1.50 and $7 without raising existing product prices.

Dollar Tree plans to introduce more than 300 new items by year-end as part of its expanded multi-price assortment. This initiative is designed to meet the demand for more variety and value, aiming to boost store performance and customer engagement.

In a press release accompanying the company’s second-quarter results released Wednesday (Sept. 4), Dollar Tree Chairman and CEO Rick Dreiling noted early success, with stores featuring the new format seeing significant sales increases.

“We are encouraged by the continuous progress we are making,” he said, emphasizing that this transformation is crucial for adapting to shifting consumer preferences and economic conditions. With many stores yet to be converted, the company anticipates continued growth.

One of the key insights from Five Below’s recent evaluation was the need to reinvigorate the sense of excitement and discovery that initially drew customers to Five Below.

“We just kind of lost our way a little bit based on the things that we were focused on post-pandemic,” Bull said. The company plans to reintroduce elements of surprise and delight into the shopping experience, aiming to “get the wow back” into their assortment.