Five Below - Why They're Successful

[Music] five below is quickly becoming one of the biggest most successful retailers in the united states too often on this channel we talk about retail chains closing locations or filing for bankruptcy so it's refreshing when i have the opportunity to talk about one of the few that have found a way to grow in such a challenging environment they're like a flower growing in the desert in 2009 they passed the 100 location mark and already by 2020 they had more than 1 000 of them and if all goes according to plan there will eventually be 2500 of them all across the country they started in pennsylvania in 2002 and have since been expanding further and further away from there here look at these maps 2013 compared to 2021 over that time they have expanded into major markets like florida texas and california for the people in the northwest or other select parts of the country i don't think it'll be long before you have five belows all around you so i am honored to possibly be the first place that you ever hear about them i don't think i've seen another store quite like it they pretty much took elements from other successful stores and blended them together in a way that just sort of makes sense i guess the simplest way to describe it would be a dollar store for teenagers which hearing it now almost seems like an obvious combination much like when the reese's people finally combine peanut butter and chocolate into a delicious candy cup which by the way can be bought at five below i am really getting ahead of myself here in trying to identify why five below has been succeeding while so many others have failed i came up with five major reasons behind it that do build on each other the first reason is their focus on teenagers well really they try to target anyone from ages 5 through 19 years old which is a sizable market about a fifth of the country's population is within that age group so the potential customers are there it also happens to be an age group with a fair amount of disposable income money that they could spend on whatever they want looking at teenagers many of them have jobs but few of them have bills and debt and other financial obligations in addition i would say that they even do a good job in attracting other people as well parents of the children and i'll say it even myself i wouldn't consider myself a frequent customer of five below i'm not in that demographic but it's one of those places where if you walk in you're gonna buy something my next reason is the other part of that winning reese's combination their low prices they put a twist on the dollar store model by making it five dollars and allowing them much more room in the pricing to sell better stuff that's where the name five below comes from and i do like that name because it tells you a lot about the store but not in an obvious way you kind of have to think about it i don't even know if i have to explain why this model works especially well with teenagers they do have disposable income but not tremendous amounts of it it's not the highest income group so five below is one of the few opportunities where they can go into the store and buy just about whatever they want using their own money it gives them a sense of freedom and independence which are good reasons to keep coming back the way that they're able to sell everything at such a low price is because they're really efficient at controlling their costs these stores are small and attach to existing shopping centers as opposed to freestanding locations averaging about 9000 square feet which is comparable to other dollar stores and way smaller than a walmart or a target store on average they say that they recover their costs from opening a new store within its first year so the overhead is low and they have relationships with the vendors allowing them to get inventory at a low price historically closeout items have been a big part of their sales that's when they're able to buy stuff at a discount because it was overproduced or outdated so getting it cheaper better allows them to keep that five dollar price point my next reason behind their success is their leadership their current ceo is joel anderson who really seems to understand what makes five below successful they have doubled their sales and their store count since he took control in 2015 but the two people that i want to focus on here are their co-founders david schletzinger and thomas vellios i think that seeing where they came from and what led to the foundation of phi below is important in understanding their current success and the principles behind it david schletzinger has been one of the most ambitious people that you will ever see five below is actually the third successful business that he started the first one was a discount bookstore called encore books another good name he started it when he was 18 years old using ten thousand dollars that he had saved up from various summer jobs that store was successful and over the next decade he continued opening more of them until it became one of the country's larger chains of bookstores in 1984 he sold it to rite aid for 10 million dollars making him a multi-millionaire by age 30. over the next few years his interest turned to the toy industry specifically educational toys where he felt that there was a big opportunity it was from personal experience he was planning on becoming a father himself and was discouraged by how hard it was to find toys that provided educational value so in 1991 appropriately the same week as son was born he founded a toy store called zany brainy yet another cool name i've never been there myself but it seemed like a cool place too a little pricey but they became known for their displays of educational toys you could actually go in the store and play with them and for the second time his idea was so successful he was able to start opening more of them at their peak around the year 2000 there were almost 200 zany brainies in existence that were now being led by ceo thomas vellios who had been promoted from a vice presidency position when david stepped down in 1998. this company really did make an impact on the industry which ironically sort of led to their downfall david was absolutely right in believing that there was a big market for educational toys unfortunately the success of zany brainy made others believe the same thing toys r us started carrying more of them various other stores started popping up with the same specialty and by the end of the 1990s zany brainy wasn't even all that unique their strategy against all of this competition was to continue pushing forward and opening more stores so they could use their size to their advantage which was a risky one that ultimately ended up backfiring in the year 2000 they bought one of their main competitors called noodle kid doodle in a 40 million dollar stock deal it's like we're in a dr seuss world look at that headline zany brainy to buy noodle could doodle for 40 million dollars they had issues integrating the two companies together so it didn't immediately give them that economies of scale that they were hoping for on top of that some of the big fads of the 90s like pokemon and beanie babies were starting to die down a bit leading to lower sales that holiday season and beyond that everything bad was happening at once so the following year they were forced into bankruptcy and zany brainy was sold to wright stars who then bought another toy company called fao schwarz and then filed for bankruptcy twice there's a lot happening there but let's get back to five below once david and thomas were done with zany brainy they were looking to team up and start an entirely new business again taking inspiration from his son who was now soon to become a teenager he set out to open a store for teenagers the idea for five below i would almost call it a combination of his previous ideas he took the low price element from his bookstore and applied it to a younger demographic like he had with the toy store given the attractive concept in their previous experience they were able to convince investors to give them one million dollars to open the first five below that store was immediately popular they used existing relationships with manufacturers to secure low-cost inventory they adopted the hands-on interaction model that they used in the toy store and within the year they were already opening more of them amazingly david schletzinger had started his third separate chain of successful retail stores and i don't know how many other people can say that okay getting back to the list of why they're successful the next reason is their selection despite having such small store sizes they carry a pretty wide selection of items about 4 000 different stock keeping units that they categorize into eight distinct segments their style room sports tech create party candy and now my personal favorite section would be the candy because i have found things there that i just don't see anywhere else which i suppose could apply to all of their sections i don't know if i'm necessarily the right person to vouch for this part but they do put a lot of effort into keeping up with the trends and ensuring that what they're selling is still relevant the fact that they're selling things to kids and teenagers means that they have to stay hip they have a high sell through rate meaning that they go through their inventory fast because there's always new and different things on the way plus the fact that their selection is changing so often it means that every visit could be different from your last the customers continue coming back so they can see what new stuff they can find my final reason behind their success is the atmosphere here's a word that i don't use often but i think zany could be a way to describe it or maybe i'm stretching it so i could use that word but it's definitely fun it's an open layout so it's almost impossible to get lost it's easy to walk through and you could see almost any point in the store from any other point in the store plus they have all these bright and colorful signs labeling the sections that are loosely based on those eight categories that i mentioned just look at it this is one of the most colorful stores out there on top of that they have popular music playing and maybe this is where the zaniness comes from they use wheelbarrows to display some of the items i've seen them right in the center of the store it's a way to do it that's fun and different and adds to the overall atmosphere so that's my list outlining what i believe to be the five biggest reasons behind the success of five below and to put it all together in one long sentence their experienced leadership has found a way to attract the teenage market by offering a wide trendy and unusual selection a fun borderline zany atmosphere and of course low prices now when looking at the retailers that aren't successful right now or failed altogether one of the biggest most common reasons has to be the internet right people are now doing their shopping on amazon or somewhere else online so they're not going into the stores as much well when looking at my list here i think three of the reasons provide a direct answer to that the atmosphere obviously gives customers a reason to go there very few of us are going to encounter a wheelbarrow filled with toys that we could play with if we stay at home the selection of course amazon is more than 4 000 items but i'm talking about the discovery part of it just searching through the store to see what new things are on the shelves and i'll even argue the prices i don't want to go through a whole price comparison but you'll agree that five dollars is pretty low especially once you account for shipping i have to think that most of this stuff would be more expensive online let me know in the comments what do you think of five below does my list do a good job in explaining why they're successful or do you think there's more to it if you are a regular customer why would you say you go there in your opinion what makes them so special and what do you see for the future of five below should the people in idaho get their hopes up about visiting one sometime soon or do you think things will take a turn from what i can tell it's looking pretty stable but there's plenty of things that can go wrong so any thoughts about any of it leave them in the comments i'd like to hear what you have to say thank you for watching [Music] you

Channel: Company Man

Views: 309,173

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Id: 8c4auxdXHOs

Length: 11min 22sec (682 seconds)

Published: Wed Apr 14 2021