Five Below delivered a -5.7% comparable sales decline on a -3.3% decline in visits per location (Placer) during Q2 2024. However, the good news is that management team--including co-founder and Chairman Tom Vellios and well-respected Chief Operating Officer Ken Bull) understand the problems and have an immediate plan to remedy them. Moreover, their customer appears to have responded nicely to some early corrections with August 2024 month-to-date traffic improving by +660 basis points relative to July. Our visits per location data also indicated a sharp recovering in visitation trends during August (below).
By way of comparison, Dollar Tree’s month-to-date visits have only improved by +30 basis points, meaning the improvement at Five Below is stronger by 10 times. Below are management comments on what went wrong and how they are addressing that; the general take is that success in retail is about getting the details right; they didn’t and they are now correcting.
Co-Founder and Chairman Tom Vellios
“Over the past few years, we lost some of that sharp focus on our core customers…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.”
Interim President and Chief Executive Officer/Chief Operating Officer Ken Bull
"Before I share how we are addressing the issues we have identified, I want to take a minute to discuss how we got here. We experienced many macro pressures over the last several years that significantly impacted our business. Post-pandemic, we saw stimulus driven demand, supply chain disruptions and inflation as well as evolving customer preferences and changes in where and how our teams worked. To manage the inflationary impact to our margins, we increased prices and expanded the number of price points. We overexpanded our assortments across our world without a strict editing process of past years and without the key item focus that screen value and differentiation. During this time, we also set our Triple-Double vision to triple our store count by 2030 and double EPS by 2025. With the benefit of hindsight, the timeline for these goals was too aggressive and put a tremendous amount of pressure on the organization. In addition, we added corporate overhead, which added further weight to raise retail prices and tightened store labor. Recent shrink mitigation efforts also increased complexity and workload for our stores. To address these issues, we have a plan in place that includes key areas of focus and supporting initiatives across product and value as well as store experience.
Starting with product and value. We are renewing our commitment to being that YES store for kids and parents. The pre-teen and teen demographic is our core customer. And while we will always work to deliver universal appeal, we need to refocus on delivering an assortment that will WOW this core customer demographic. We are focused on the following actions to achieve this. We will significantly reduce the breadth of our assortment and return to pre-pandemic levels. We will lead with value, amplifying the price points that are most impactful for our core customer. We will emphasize key items at $5 and below price points. We will also reduce the number of price points to drive simpler store execution and customer experience and strengthen our competitive pricing. We will increase the flow of newness across all worlds. We will reinvent and maximize our seasonal businesses. We will raise the bar on Five Beyond focusing on key items amplifying value and trend...To help achieve all of this, we are returning to in-person work at our office in Philadelphia. We work better when we're together. (Mimicking what Nike and others have determined.) And I know this will drive better performance as we return to the culture that has driven our success. I am particularly excited about what this means for collaboration and innovation within our merchandising organization as we renew our focus on delivering WOW and value for our customers.
Our strategies to improve the product will only be successful if we deliver our customers a store experience that reflects our brand, fun and energizing. To accomplish this, we are evaluating our store operating model with the goal of reducing complexity and optimizing our store labor. The outcome of this work will be simplifying store tasks and adding labor hours where necessary. As we do all this work, we are also continuing to optimize our cost structure and sharpening our approach to investments as we implement each of these initiatives across product and value as well as store experience. Over time, these cost savings will serve as a partial offset to the labor investment I just mentioned. Finally, we will continue to be a leading growth retailer with best-in-class new store economics. As we reset the business, we are moderating our store growth for 2025 and currently expect to open 150 to 180 stores” (Down from 200-plus stores).
