Value chain Five Below Inc. (NASDAQ: FIVE) recently announced plans to triple the number of brick-and-mortar stores by 2030. However, the company also plans to bolster its e-commerce segment, which now only accounts for a small part of its sales.
At the end of January 2022, Five Below had nearly 1,200 stores in 40 states. The retailer continues to grow as its stores are highly profitable: Investing $400,000 to open, they generate over $2.2 million in sales in their first year. But at the same time, the company invests in digital technologies.
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Five Below already has a mobile app, but in fiscal 2021, e-commerce sales were less than 7% of total revenue. Five Below customers can benefit from one-day delivery of their order as well as the possibility of picking up the order at the store of their choice. Investments in logistics have played an important role in strengthening e-commerce and expanding delivery options in many markets.
From a financial perspective, online sales often generate greater profits for a business. In fiscal 2021, Five Below’s gross and operating margins were 36.2% and 13.3%, respectively, which is already a good number. Management believes that as e-commerce becomes an increasingly important part of Five Below, margin metrics will continue to improve.
But keep in mind that multi-channel sales have advantages and disadvantages for Five Below. The company offers customers to pay $5 for shipping, regardless of the size of the purchase. On the one hand, it could force them to refrain from buying when ordering cheap goods, but on the other hand, it could cause the buyer to add other goods to the cart to justify the shipping costs. Also, Five Below will have to compete with a giant like Five Below in the e-commerce market, which is not without risk either.
But in any case, the expansion of Five Below’s sales channels should be seen as a positive trend. The company’s stores provide a unique shopping experience, thanks to which, even in the difficult times of the pandemic, the retailer received good traffic. E-commerce will not compete with paper mills; it will only complement business activity.
