We present an edited version of our conversation with Joel Anderson, CEO of Five Below, Inc., from the Coresight Research Open for Business webinar held on July 15, 2020. The webinar was hosted by Deborah Weinswig, CEO and Founder of Coresight Research. Joel Anderson has been President and CEO of Five Below, Inc. since February 2015. Prior to Five Below, Anderson was President and CEO of Walmart.com. He has also held leadership roles across a range of operational, merchandising and marketing functions at Walmart, Toys “R” Us and Lenox. Anderson currently serves on the boards of Sprouts Farmers Market and My Eye Doctor.  

Reopening Stores Post Covid-19

Can you talk about the reopening of stores post Covid-19 and the trends that you are seeing? When we shut down, health and safety of our associates was first and foremost. One of the best decisions we made during that period was that, while we did furlough a lot of people, we kept our store managers. That turned out to be really important, because we were in constant communication with them during the closure period, and they knew exactly what to do to get the stores reopened right. We have been opening new stores for a long time now, so that muscle memory of how to reopen stores is actually pretty good for us. We never thought we would use it to reopen our existing base! But as a company, we are pretty good at opening a lot of new stores all the time, and that served us well as we tried to get our stores back open. In terms of trends, it is really that theme around staying relevant—we’ve never sold so much hand sanitizer! We have always been relevant, and right now, essential products are really what have been important to the customer. Also, every parent is home with their kids as all schools shut down, and they are looking for an outlet—a way to entertain their kids—and our stores have been that outlet as we reopen. [caption id="attachment_114033" align="aligncenter" width="700"] Joel Anderson ; Deborah Weinswig.
Source: Coresight Research [/caption]  

Changing Consumer Behavior and Future Trends

What changes have you seen in this new environment? We will always be a “treasure hunt” retailer—I think that’s what makes this art of discovery when you walk into our stores. Customers don’t necessarily walk in with a list of things like you would in a grocery store, but they walk in to solve a solution. Our buyers do a great job at that. And certainly, as we reopen, we have really watched what the trends have been, and they are back in the market buying. We have got great partnerships, our buyers are talking overseas using video-call technology—back to China, back to India and some of the other countries we operate in. So, in some ways, the current situation has actually allowed us to go faster—we do not have to wait for a buying trip or a time to fly overseas, because that was basically rendered impossible during this time. So, they are using video technology to expedite and get that product back in our stores. The customer is where we have seen the biggest changes. Like many retailers, we are operating under shorter operating hours than we ever have. Our stores are only open from 11:00 a.m. to 7:00 p.m., so two things have happened:

1. We are seeing our customers consolidate trips; they are being very deliberate when they are out shopping.
2. We have seen a migration from shopping at the weekends to during the week. We have seen a flattening of the Saturdays and that volume shifting into Monday through Thursday.

That is actually good for retail; it allows us to be more efficient. We need to spend more time cleaning and preparing our stores, so while we are closed, we have that time to get the store set for the next day. The fact that all seven days are equal now makes it much more efficient for the retailer as well. Our associates are wearing masks, and the customer is very prescriptive in what they are buying. People do not yet feel safe from Covid, so this whole safe shopping trend is going to be with us for a while—in the short to medium term, six to 12 months. Unfortunately, I think we are also going to see a continued consolidation of retail. This situation has put some real stress on some retailers out there. Five Below entered the crisis with no debt and a strong balance sheet, and we weathered the storm nicely—coming back in good shape. How will Five Below change its format and strategy in the future? I always say we have got to play offense; we have been playing offense for the entire six years I’ve been at Five Below. The prototype is completely different now than it was.

• We made a big investment last year in Nerd Street Gamers; we believe heavily in gaming and where that's going to go. That is just another example of how we are changing.
• We also changed our model when tariffs came along last year. That was the first time ever we broke the $5 price point. We have landed on the branding of “Five Beyond,” but what is not different is that it's all about value. We have an opportunity now to really bring incredible value to our customers in items above $5. We have the opportunity to be in different markets: We have gone into much more rural areas than we ever thought we would go; and we are also pushing further into markets.
• Self-checkout now will be in almost half our chain by the end of the year. We started working on that idea long before Covid came along, and the customer wants that self-isolating experience and checkout as part of it. For us to pivot from no self-checkout to half the chain in less than two years is an example of playing offense and constantly innovating.
• Holiday 2020 is going to be a different this year—but what I have learned from previous recessions is that the last place parents stop spending is their kids.
  • We are going to have incredible gifts; now that we have Five Beyond, we are going to bring in some unique gifts that we have never had before.
  • We also certainly think that there is going to be a bigger shopping experience online than we have had in the past.
  • We have talked about being open 24 hours in December, just to give customers that need more space that time to come in the off hours.

We are still putting together a holiday plans, but those are just a couple of examples of how we are changing to have a great 2020 holiday.

Serving the Community

How is Five Below thinking about the future of last-mile delivery? I think one example is curbside pickup; we never had this. A lot of people didn’t have curbside pickup, and that just emerged in less than 60 days for us. That contactless transaction has really been important. Everybody is at a different stage with this: We have got to be there for those customers that need more space from us, the retailer—and I think e commerce is going to really provide a great opportunity for that. While it may not be 50% of the business, like it is for some other retailers, it is an aspect of convenience that we need to offer our customers. At the same time, our stores are still a big area of growth for us: We are still going to open over 100 stores this year, and we will continue to be there in all aspects for the customer. How are you thinking about community at Five Below? Store managers are the face of the community. When we get the right store manager, it makes such a difference. We had some stores when we closed down that customers came to and left notes on our windows for us, from kids that were at home writing notes to Five Below, saying, “Can't wait until your back. Hope you're safe.” That story really illustrates our sense of community, and when we go into these rural areas, we connect with the local customer. They know our associates; they know our store managers. That is one of the responsibilities that we have, and it is why we are getting into gaming: We have to go where the customer is spending their share of wallet.

Audience Q&A: Communication and Resilience

Can you share one big way in which e-commerce and your brick-and-mortar stores have worked together? What advice do you have for retailers? We move our associates back and forth between distribution and fulfillment when days are busy. One day, customers are buying from us in a store, and that same customer two weeks later is buying online, and they want the same experience. We have one set of buyers for our e-commerce channel and store channel, so we never created a separate infrastructure. The best advice I can give in terms of reopening is communication. I can't tell you how many town halls I have done via video. That sense of community has to happen internally in your organization. We have spent a lot of time just being out in front, being visible, talking to people. We have had to reassure people that we are concerned about their safety—that had to come from me, it had to come from our head of stores, and that happened constantly. Video is a great way to make that communication happen. What drives location of physical stores? It has changed over time. We used to let the real-estate organization go wherever they could get a store; we had to bang on the doors of landlords to explain the concept. Now, it is the other direction: They are coming to us—they want us to be part of their assortment because we are such a different retailer. We try to have a healthy mix of not too many new markets, while densifying existing markets; you really can't overextend beyond your supply chain. We really want to be in vibrant centers, so you will see us largely in A and B strip malls and power centers. We are not really in indoor malls. Do you see Five Below getting to more staples and necessities? We are starting to add more essentials than we have ever had; we are testing that in a few markets to see how it is received by the customer. In all stores, we have added at least eight feet of essentials, and we are looking at maybe expanding that even further. Value has been on a roll for 10 years, since the last recession, and I think the value retailers that are going to be here in the long term are the ones that really deliver a great store experience. That is what we are really striving to do: Deliver value for our customer and a great store experience. Over 60% of our stores by end of this year will be of the new “fresh concept.” We are going to stay true to making it a great experience. What does resiliency mean to Five Below, and how has it driven success so far? Our founders created a great business model. Our first 10 years was about perfecting the concept; this next 10 years will be about perfecting the company. How do you take it from concept to scale? I always say it's a three legged stool: people, infrastructure and systems. You have got to invest in all three. We have been investing in our people, in new infrastructure like distribution centers, and we have been investing in new systems. While it was a great concept, once it took off, we had to put in enterprise-like systems. We just changed our financial systems; we changed our operating systems in our distribution centers and introduced a new POS system, etc. Those three areas—people, systems and infrastructure—have been the key to staying resilient, and we continue to grow and will continue to invest in those three areas.