Five Below CEO on Growing a $680 Million Business Into a Behemoth

Five Below CEO Joel Anderson.

Joel Anderson is running a retail empire. But unlike the Amazons and eBays of the world, Five Below sells nothing online and is an entirely brick-and-mortar operation. With sales of $680 million in 2014, it’s one of the fastest-growing retailers in the United States.

The Philadelphia-based company has an ever-expanding footprint of stores that’s set to reach 436 locations by the end of 2015, and Anderson says he expects to double the store count over the next four years. That means the company can buy in serious bulk — leading to more and more fancy products it can still somehow sell for $5 or less. Think bluetooth speakers, earbuds and even boots.

Since becoming CEO in December 2014, Anderson’s job has been to scale the business into a national powerhouse. He certainly has the experience, serving as president and CEO of Walmart.com, running a division of Walmart with $20 billion in sales and 100,000 associates, and holding top jobs at Toys “R” Us.

I sat down with Anderson at Five Below’s Center City headquarters where we discussed how the company toes the line between cheap vs. cool, how it differs from dollar stores and why it decided to put down roots in Philly with a massive new flagship on Chestnut Street. (This interview has been edited and condensed.)

BizPhilly: Let’s do a tough question right out of the gate. How do you keep the products cheap without sacrificing quality or “cool factor?”

Anderson: Five Below is a store about wants not needs. One of the marching orders to every one of our buyers is quality. We aren’t looking to provide something that only lasts a day and you throw it away. Look around our stores and you see incredible quality in products like our earbuds, boots and blankets. What Five Below does is take all the costs out of the supply chain. We’re going as close as we can get to the source. When you’re able to cut out all those middle layers along the way, that allows you to still deliver quality at a really reasonable price — all $5 and below.

We sell a $5 Wilson basketball. We ship those in from China deflated with no box around them. So we take out the cost of the box, the cost of shipping it inflated and we fill them in our stores. By taking away all those costs that don’t mean anything to the customer, we’re able to delver it at a “wow” price. It’s still a Wilson basketball. It still has the same quality. You’ve got to get creative in figuring out how to take costs out of what we’re selling. As we’ve gotten to the size we are today, the scale of 400-plus stores allows you to buy in container loads. It allows you to take pennies out of the cost — and pennies matter. Take our bluetooth speakers. We would have never been able to sell those as recently as two years ago.

Plans call for 436 stores by the end of the year. Are there any additional Philly stores in that plan?

We’ve continued to grow in the Philadelphia metro. I think we’re up to 60 stores in Pennsylvania. It’s probably our highest concentrated area and yet we still have areas we’re really void in. While our Center City flagship is the only store opening in the balance of this year in this area, we have several we’re looking at in 2016 and beyond. Leases aren’t signed yet but we’re getting really close. Philly loves us and we love Philly.

What’s the national expansion plan for next three to five years?

We’re still in the process of mapping that out. What I can share with you is that we expect to double our store count over the next four years. We’ll open 70 this year, and roughly 85 next year. That makes us one of the fastest-growing retailers in America — let alone the world.

You just opened the flagship location on Chestnut Street, rather than Times Square or some other location. Why is it important to put roots down in Philly?

Five Below was started right here in Center City at 1616 Walnut. With Center City growing in vibrancy, for us not to have a flagship Five Below store just didn’t feel right. So we’ve been looking — even before I got here — for the right space. We came across this location on Chestnut and jumped on it. It’s the first and only two-level store we have. It’s Five Below loud and proud.

Tom Vellios and David Schlessinger founded Five Below, but now here you are as CEO. What’s it like to work with those guys and do you ever find yourselves disagreeing?

It’s a combination of respect and self-confidence — and respect goes both ways. It took a long time until Tom, David and I got to “yes.” This was a passing of the baton for them, as it is for any founder. It’s their baby. They created an amazing concept. Tom and I still have lunch together once a week. We hash out our differences. When you constantly keep communicating and talking, it’s as much a project in human relationships as it is running a business. What we’ve got to do now is set this company up for scale. We’ve got to continue to divide. It can’t all be run centrally. We’re going into different regions of the country and going into different product lines.

I respect those aspects that only an entrepreneur and owner bring to the table. Constant communication is really, really important. At the end of the day, we walk out aligned. It’s been a great relationship. I have no regrets whatsoever.

Five Below seems to be destroying dollar stores as we know them. Why not just sell cleaning products and other household items and really put them out of business?

First of all, we’re not trying to be a dollar store in the way they’re positioned. This is a store for teens and tweens — and teens and tweens aren’t looking for cleaning supplies. We want parents to be dragged there by their kids. When you get down to it, it’s staying true to who you are. Walmart stands for something. Target stands for something. The dollar stores stand for something. Five Below stands at a very unique segment that differentiates us from everyone else. The world doesn’t need another dollar store. The world needs Five Below. Let’s face it, since 2008, times have been tough. The fact that we can deliver for everybody a $5 bluetooth speaker is amazing.

Why not sell products online and is that part of the plan for the future? 

As for .com, that’s an element of our future. We will become more and more digital as we continue to grow. The first phase though is staying true to our core business. This core business has an incredible retail box and the economics are amazing — so we’re growing out our store base, expanding into geographies we weren’t in and then we’ll layer in digital and e-commerce in phase two. Part of it is figuring out how to make the economics work with shipping. Doing it at lower levels is different than doing it at the container and palate level.