Five Below Ramps Up Its Expansion Plans

Retail bankruptcies normally signifies the end of something. This year alone, household names like Bed Bath & Beyond and David’s Bridal have permanently shut their doors.

But one retailer’s demise also means another retailer’s gain. Take Five Below Inc.  (FIVE) - Get Free Report. The extreme value chain, which focuses on tweens and teenagers, recently said it will now open more than 200 new stores this year, including locations previously occupied by Tuesday Morning.

During a conference call with analysts to discuss first quarter earnings, CEO Joel Anderson said Five Below, which originally planned on 200 new stores in 2023, will exceed that target after it acquired some leases out of bankruptcy from Tuesday Morning. The home goods retailer, which had operated over 200 locations, will cease operations at the end of June.

Anderson didn’t disclose the exact number of leases but one analyst on the call estimated it at 18. The company also didn’t identify the locations but Five Below has been aggressively expanding into California, Texas, and Florida. Data firm ScrapeHero estimates that those three states account for 34%, or 144 stores, of Tuesday Morning locations.

Valuable Real Estate Up for Grabs

Commercial retail space, especially those located in off-mall locations like suburban lifestyle centers, are extremely valuable. That’s why closings and bankruptcies present significant opportunities for retailers like Five Below to expand. Coresight Research estimates that retailers as of the end of April have already shed 52 million square feet this year, far exceeding its original estimate of 31 million square feet for all of 2023.

Five Below is definitely in expansion mode. The company wants to more than double its locations from 1,340 last year to eventually over 3,500 stores this decade. The company normally signs 10-year leases

The retailer plans to spend $335 million this year opening those 200+ stores and converting 400 current locations into its “Five Beyond” format, which offers higher priced merchandise like toys, electronics, and accessories.

Five Below has also been gradually growing the size of its stores, from the original 4,500 to 5,000 square feet to now as much as 9,500 square feet. The addition of Five Beyond could push the company to go even larger, Anderson said.

“And the way we've set up Five Beyond is we can continue to grow” the format, he said. “All we have to do is keep pushing that back wall back. And so, it's only limited by our merchants coming up with (new products and ideas). I think pets is a great example that we've built over the last few years.”

Inflation Leads to Smaller Baskets

Five Below does face challenges from a shaky economy marked by inflation. Though the retailer said the number of transactions has grown, the average size of each basket has declined for several quarters now.

Given the economy, “I think that's a sign the customer is being very discerning in what they put in their basket,” Anderson said.

That’s why the Five Beyond conversions and new store growth are so important: they give the retailer a sales lift at a time when consumers are more than willing to spend less each trip.