"By the end of this year, we're going to open 17 to 18 stores," David Schlessinger, co-founder and chairman of Five Below, tells GlobeSt.com. "Next year, we're going to open 30 stores, and our goal is to open more than 100 over the next three years." Currently the company has 80 stores in seven Northeastern and mid-Atlantic states.
The fact that Five Below is looking to expand at a time when several other retail chains have scaled back plans to open new units might seem like a function of the chain's pricing model—all merchandise lists $5 or less. However, LLR partner Howard Ross tells GlobeSt.com, "I thought their strategy was timely when it started" in 2002. "It's even more compelling in this kind of economic environment."
Ross continues, "I don't know how much of the current success is due to the current economy vs. the company just hitting its stride and emerging as a strong retail concept. I think it's a combination of both. Once you capture the mindshare and a particular geography through marketing and density of stores, you start establishing in people's minds that Five Below does exist in their neighborhoods."
Schlessinger feels that the company's choice of locations for its stores, which average 7,500 sf, is a major factor in its success. "We prefer power centers or regional centers with major anchors," he says.
For example, the company will be opening a store next week at the Arena Hub in Wilkes Barre, PA, where anchors include Barnes & Noble, Michael's, Lowe's and Panera Bread. "We want to be where there are people," says Schlessinger. "Wherever there are people, we're successful." He adds that centralized location is especially important at the moment, when high gasoline prices lead consumers to consolidate their shopping trips.
Five Below's near-term expansion plans will target its already-established market that extends from Virginia to Massachusetts. "We don't plan to go beyond that over the next 12 to 24 months, but we feel that beginning in 2010 or 2011, we'll add a major market," Schlessinger says. "Right now we think there's plenty of opportunities in this market, particularly to backfill down through the New York City metro area."
The New England states will be a focal point for expansion, Schlessinger says. "We saw a phenomenal opportunity in the New England area," and there are plans to eventually open up to 50 stores throughout the region.
Ross says plans are to fund the current wave of expansion with the $17-mllion investment. "The company can then use its own scale to fund future growth," he says, although he adds that LLR would certainly be in a position to provide further financing, since the firm currently has more than $1.4 billion under management.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
