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Why Five Below Has Above-Average Ambitions: Q&A With Five Below

Recessions are bad for retailers -- with one exception. Discount stores do well when the economy does poorly, because shoppers trade frills for frugal function. Five Below, a Philadelphia-based chain that sells items for $5 and under, is no exception. Like other deep-discount chains Dollar General (DG), Dollar Tree (DLTR) and Family Dollar (FDO), the recession has been good for Five Below. The company sells items ranging from sporting goods to candy to electronics; teenagers are its core shoppers.

Founded in 2002, Five Below operates more than 100 stores in 10 New England and mid-Atlantic states, and plans to open 40 more this year. The chain is beginning to push further west; management recently announced plans to open in Cleveland. BNET Retail spoke with David Schlessinger, Five Below's co-founder and chairman:

BNET: How has the recession changed your business?
David Schlessinger: Our business was very good in the pre-recession days. We had good same-store sales several years prior. People have shown that they're Five Below fans in times that are good and not so good. [The recession] has impacted our business very positively. Our business has gotten better as more customers have come to Five Below to give us a try. They are watching their dollars.

BNET: Are you selling the same sorts of items now, compared to before the recession?
DS: Our merchandise has essentially stayed the same. We've always had lots of great brands in the stores like Adidas, Wilson and Lego. There's probably been a small shift to more needs-based items. There are some categories we've expanded a little bit that people want on a regular basis, like trial-sized bath and body items. But over all, we've stayed with the same merchandise items.

BNET: Have sales gone up or down since 2008?
DS: Sales were good before, but we have definitely broadened our customer base, and sales have increased. As the economy has weakened, people have had to make their dollars go a longer way. People don't come to our store and say: "How do I get a lower price on this item?" They say: "I'm thrilled to be able to buy a lot of the stuff you have for $5 or less, but what I really want are the brands, quality and the trend I want." We really attacked it from not just how we reduce our prices but how we increase our quality and the number of brands.

BNET: How is your expansion going from a real estate standpoint? Are you getting better deals from landlords?
DS: If you look at the competitive landscape, we were one of the few retailers to expand throughout the downturn, so landlords really appreciated the fact that we were there to take space in that 7,500-square-foot range. That makes us more valuable as a tenant. Landlords have come to realize that our brand is desirable and we bring a lot of foot traffic, which is what they need to help make their centers successful. As far as the types of real estate out there, there are no new shopping centers being built. On the other hand, we are able to get into the better shopping centers.

BNET: What are your expansion plans?
DS: Last year we entered the Pittsburgh market, which was our most successful market entry ever. We're adding our second and third stores there now and we have more deals in negotiation. We're now adding the Cleveland market. We also have a store opening in Columbus (Ohio) this year. Other new ones this year include Raleigh-Durham (North Carolina), and we're going into upstate New York, in Syracuse and Albany. In 2011, we are looking at a lot of major markets further west, like Chicago, Detroit, Indianapolis and Milwaukee.

BNET: Late last year a few discount retailers went public. What about Five Below?
DS: We get that question asked of us on a regular basis, based on the expansion and success we've had of late. Certainly the marketplace is asking if we would do that and when, but at this point we don't have any comment on that.