Five Below is the leading value retailer of discretionary goods targeted specifically at tweens and teen customers in the U.S. Most items are priced in the $1-$4 range (60% of items sold) and as the name suggests, below $5 (though that number has moved higher to $5.55 recently). The company operates over 1k stores in 38 states.
If the store ROI is 160%, why are they only expanding 20% a year? Why not expand 100% a year? or Why not use debt to expand more quickly and pay off the entire debt in a year?
That's a good question. I think it comes down the fact that building enough infrastructure around the stores, especially in new regions, takes time. Dollar General is one of the best at opening new stores and does about ~1k stores per year now, which is roughly 6% of their existing store base. In terms of the debt -- given that the company can expand its store base at 17% (20% historically) without taking debt, just shows how good the ROI is at the store level.
So either the company building out more stores is limited by the infrastructure required (my answer), or Five Below has an aversion to debt and they don't want to take on more debt to grow faster.
Great effort! Thank you.
Hi,
I have been reading on FIVE recently and found your piece really helpful.
I was wondering where you got the stats that says that 40-45 % of products offered are exclusive to Five Below. Thanks in advance!
Hey I have been doing a bunch of work on 5 below and found your piece helpful. Let me know if you are free to chat sometime please!
Here are my questions:
- How many stores can FIVE open? Framework for thinking about this.
- Are they opening stores too fast? Confidence in real-estate team?
- How has cannibalization drag trended? What does new store productivity look like?
- Are stores being run too hot? (increased price at expense of value prop? OR overly optimized stores?)
If the store ROI is 160%, why are they only expanding 20% a year? Why not expand 100% a year? or Why not use debt to expand more quickly and pay off the entire debt in a year?
That's a good question. I think it comes down the fact that building enough infrastructure around the stores, especially in new regions, takes time. Dollar General is one of the best at opening new stores and does about ~1k stores per year now, which is roughly 6% of their existing store base. In terms of the debt -- given that the company can expand its store base at 17% (20% historically) without taking debt, just shows how good the ROI is at the store level.
So either the company building out more stores is limited by the infrastructure required (my answer), or Five Below has an aversion to debt and they don't want to take on more debt to grow faster.