Bringing Deep Discounting To One Of America’s Most Expensive Streets

For deal-hunting consumers, Five Below is the little-bit-of-everything store of their dreams. Putatively pitched at kids, tweens and teens, the shop offers goods across a wide variety of categories, with a focus on fashion accessories, sports items, home goods, technology, games crafts and gifts. As for what one will find when walking through the door? Barbie dolls, basketballs, decorative knickknacks, fidget spinners, headbands, shoes, novelty items – name a product that might appeal to someone under the age of 18, and odds are it is somewhere on the shelves of a Five Below store.

The challenge, of course, is finding the treasure in the haystack. Though Five Below does not quite count itself as a direct competitor to the likes of TJX or various other “dollar store” chains, they are certainly hunting the same customer group. All of the items in a Five Below are $5 or less (hence the name), and the customers it draws in are those looking to spare their budget, but still purchase items of a certain branded quality. As it turns out, in the era of digital and the great race for the middle and upper-middle class shopper, brands like Five Below on one end of the spectrum and extreme luxury brands like LVMH at the other have been largely immune from the so-called “Amazon effect.”

A recent analysis by KeyBanc Capital Markets confirmed that picture – while there is some item overlap between what a consumer can find on Amazon and what they can find in a Five Below, the customer who shops at Five Below is deriving unique value from their chosen shopping venue.

“[The data] suggests customers find value that is not replicated at Amazon, as items we have surveyed are 50 percent-plus less expensive on average at Five Below for similar products,” according to KeyBanc.

So much value, in fact, that Five Below has expansion fever in a retail era when it seems most merchants are trying to figure out how to curtail the size of their physical footprint. Today, the Philadelphia-based chain has about 600 stores sprinkled throughout the United States, with a goal of increasing that count by the end of the year. The broad goal, according to CEO Joel Anderson, is to build a fleet of 2,500 stores.

But one store in particular has managed to capture a special share of attention, because of its location. As of this fall, Five Below is coming to New York‘s Fifth Avenue, arguably the most expensive street in America. Near Bryant Park and nestled between 44th and 45th Streets, Five Below will soon find itself with a very different class of neighbors than it tends to find in the suburban strip malls where it is known for setting up shop. Bergdorf Goodman, Harry Winston and Tiffany & Co. are just some of the tony new stores that Five Below will share the street with, and the move has left many market watchers scratching their heads.

Why would one of the least-spending store brands in the U.S. make a move on one of America’s most expensive streets?

According to Anderson, the opportunity was just too good to pass up, as rent prices in New York are, for the first time in a long time, starting to show some signs of cooling off.

“This is a unique opportunity for us to establish a presence in one of the world’s most iconic and popular shopping destinations and introduce new customers to the Five Below brand,” Anderson told CNBC.

The new location will be bigger than Five Below stores tend to be – with two levels, the new store will measure 11,000 square feet, compared to the average 8,000-square-foot shops. With great size, however, come great expectations: The retailer is expecting that this new store in Manhattan (which officially gives Five Below a presence in all five boroughs) will do $2 million more in annual revenue than a typical store.

Five Below is able to make the move into New York because after years of rent hikes, landlords in the city are finding themselves with a record number of empty storefronts on their hands. On Fifth Avenue, the most expensive stretch of retail space in the city, average rents fell 18.2 percent during the second quarter of 2018 compared to the previous year, according to brokerage Cushman & Wakefield.

Discount rents made for the perfect opportunity for the discount retailer – but does a “spendy” street like Fifth Avenue need a discount store?

Time will tell, of course – but given New York City’s scope as a tourist destination, it stands to reason that customers who stream in from around the nation and world might like to be able to actually buy something on Fifth Avenue, and it seems safe to assume that with its $5 merchandise, Five Below will allow them to do that.

But then again, the Fifth Avenue address is not a guarantee of success – Aeropostale, Toys R Us and FAO Schwarz all flopped hard on the iconic street.

We’ll keep you posted on whether Five Below can withstand the pressure of trying to take Manhattan.