Five Below (FIVE) has big plans to grow. The extreme value retailer, which focuses on tweens and teenagers, wants to more than double the number of stores to over 3,500 locations across the country by 2030.
In doing so, the company hopes to double sales and profits in that time period. But Five Below’s ambitious strategy doesn’t rely on just building new stores.
In a conference call with analysts, CEO Joel Anderson said Five Below plans to launch a loyalty program in 2025. The company had actually planned to do so much earlier but the covid-19 pandemic, supply chain issues, and introducing new products, pushed the project back.
“I think we are at the point of starting to explore loyalty,” Anderson said. “Now that we've got some of the base in place to start looking at putting in a loyalty program.”
“But the groundwork's been laid,” he said. “And as we continue to see more normalization of our business and we're back to playing offense … that's in the pipeline.”
Loyalty programs are, of course, nothing new. By one estimate, 60% of companies offer one.
Inflation puts focus on loyalty
But such programs have taken on extra importance in recent times. Inflation has prompted consumers to cut spending on discretionary items like apparel, accessories, home goods, and electronics. Basically, anything that they don’t need on an everyday basis like food and groceries.
Take Target (TGT). Analysts have downgraded the stock in recent weeks because the retailer’s growth depends more on such discretionary categories, the ones most vulnerable to inflation cautious consumers, than rival Walmart (WMT).
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In a recent conference call with analysts, top executives emphasized the role of Target Circle in boosting sales and traffic. The company disclosed that Target Circle users made two and a half times more trips in the first quarter compared to regular customers. Perhaps more importantly, Target Circle members spent three times more.
“Something that we're leaning into that has the potential to continue to create relevance for our guests is Target Circle,” said chief growth officer Christina Hennington. “We've seen that that is generating better returns than mass promotions. And so, our ability to not only create relevance for our guests, but deliver better returns for the business is a big priority for us.”
So driving repeat purchases is a big plus for loyalty programs. But that doesn’t seem to fit Five Below. As the name suggests, the retailer offers lots of merchandise below $5. So it doesn’t really seem worth the trouble to encourage consumers to simply buy more $2 pencils.
Five Below looking to upgrade
However, loyalty programs are not just about consumers buying more but also about changing what consumers actually buy. Specifically, Five Below wants consumers to start buying higher priced items, perhaps even more premium versions of the stuff they normally buy.
A marketing study published in Harvard Business Review found that such “upgraders,” along with shoppers who simply bought more, spent 50% more because of loyalty programs.
Indeed, Five Below’s growth strategy depends on selling items that cost more than $5. The company plans to convert 400 of its existing stores this year to include its Five Beyond format, which offers higher priced items like toys and electronics.
“Five Below wants to upgrade their image, appeal to a broader range of people,” said retail consultant DeAnn Campbell. With a loyalty program, “the retailer wants to entice shoppers to a higher price point.”
