Philadelphia Based Five Below Sticks to Target of More Than Doubling Store Count to 2,500

 By Linda Moss CoStar News

Five Below, the hands-on retailer that caters to kids, tweens and teens, said it's keeping to its target to more than double its number of stores to 2,500.

The Philadelphia-based chain now has 1,190 brick-and-mortar retail locations in 40 states as it continues its national expansion, moving westward from the East Coast. The company has also been bolstering its distribution network with new warehouses in Arizona and Indiana.

Counting store debuts in the fourth quarter, Five Below completed 170 net new openings for the year, CEO Joel Anderson said during a fiscal third-quarter call.

“As we look ahead, we are confident that we will continue to drive sustainable long-term growth while realizing our 2,500-plus store potential in the U.S.,” he said in a statement.

While some retailers that serve the younger set have struggled — most notably Toys R Us, which is attempting yet another comeback after the chain was liquidated — Five Below has been in a super-growth mode. The retailer’s stores offer children and tweens — generally considered those 9 to 12 years old — an array of toys, candy, sports items and other merchandise that they can play with and “experience,” priced from $1 to $5. Officials boast that Five Below offers parents a place to take their kids to have a fun time at a minimal cost.

"You shouldn't expect our growth engine around new stores to slow down," Anderson told Wall Street analysts. “There is no other national retail out there that is specifically targeting teens and tweens and kids, and Toys R Us went out three years ago. And we do it with a great shopping experience, and it's all about value. [And] as long as I'm here, we're going to keep investing for the future.”

Five Below's competition may be heating up, as WHP Global, now majority owner of the Toys R Us brand, recently said it was opening up a flagship for the once-defunct toy store at the American Dream mega mall in East Rutherford, New Jersey, later this month. Toys R Us shop-in-shop locations are also open in Macy's.

Five Below is experimenting with two new store prototypes, including one that incorporates higher-priced items in a section called "Five Beyond," according to Anderson.

"I will tell you that we're extremely bullish about Five Beyond," he said. "It's in about 30% of the chain today. It will be in roughly about half the chain at the end of next year."

Rapidly expanding its store fleet — particularly into California, Florida and Texas — means that Five Below has had to open more logistics facilities, according to Christopher Giannini, the retailer's senior director of property management and development.

It has more than 5 million square feet of distribution space, with almost 4 million square feet of that developed over the past three years, he said during a panel last month at NAIOP I.CON East, the nation’s largest gathering of industrial real estate professionals, in Jersey City, New Jersey.

Five Below's first major distribution center was in Pedricktown, New Jersey, and the company has since opened warehouse facilities outside Macon, Georgia, and in Conroe, Texas, according to Giannini. It also recently debuted one in Buckeye, Arizona, one of the country's fastest-growing suburbs, and has construction of one underway in Indianapolis, he said.

Five Below typically owns its warehouses rather than leases them, and they are generally 700,000 to 1 million square feet, with the ability to expand, Giannini said. For example, the one being built in Indianapolis will be 1 million square feet, but it is on an 85-acre site, which will permit the building to expand to 1.3 million square feet, he said.

Referring to Five Below's retail openings, Giannini said, "We want to double the amount of stores and then some, so we built in some flexibility [in warehouses] to continue to grow that.”

For its stores, Five Below leases space, taking on average 9,000 square feet with a 10-year lease with options to extend the deal.

The company’s net sales rose 27.5% to $607.6 million from $476.6 million in the third quarter of fiscal 2020, while comparable sales increased by 14.8% versus the third quarter of fiscal 2020.

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