Inflation in the country is showing signs of easing, but consumers may still be feeling its effects for some time, according to Joel Anderson, CEO of discount retailer Five Below. Anderson highlighted the underperformance in the lower-income demographic, stating that these customers are really being stretched financially. Despite this, the company is focused on delivering value to its customers and expects to see improvements by the second half of the year. However, Five Below issued soft revenue guidance for the second quarter and the full year, and its first quarter revenue came in below expectations, causing shares to plummet.
Consumers have become more discerning with their spending, buying primarily out of necessity. Anderson noted that consumers have been purchasing more products in the company’s “consumable” categories such as candy, food and beverage, beauty, and health and beauty aids. The CEO also highlighted that Five Beyond, the company’s in-store shop that sells products for more than $5, performed the best among its lower-income household stores. This indicates that when consumers see the value in products, they are willing to stretch their limited budgets further to make a purchase.
Despite some positive indicators in the U.S. economy, consumer sentiment has been lagging. The University of Michigan Survey of Consumers reported a drop of more than 10% in consumer sentiment in May. Additionally, more than half of Americans mistakenly believe that the country is in an economic recession. Anderson emphasized that the impact of multiple years of inflation in categories such as food, fuel, and rent has led consumers to be more deliberate with their discretionary spending. This has had a significant impact on their overall purchasing behavior.
Overall, Five Below is feeling the effects of the current economic climate, with shares down more than 45% in 2024. The company is working to adapt to the changing consumer behavior by focusing on delivering value and improving its product offerings. Anderson acknowledged the challenges faced by lower-income consumers and emphasized the importance of providing affordable products that meet their needs. By targeting specific categories and highlighting the value of their products, Five Below is aiming to attract customers and drive sales in the coming months.
In conclusion, while inflation may be showing some signs of easing, consumers are still facing challenges due to its lingering impact on prices. Lower-income consumers, in particular, are feeling the financial strain and are being more selective in their spending. This has resulted in companies like Five Below facing challenges in meeting revenue expectations and adapting their strategies to cater to changing consumer behavior. By focusing on delivering value and providing affordable products, retailers can better navigate the current economic climate and appeal to consumers who are looking to stretch their limited budgets further.
