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Five Below Inc.’s testing new strategies to get ahead of its shrink troubles.
Executives for the extreme-value chain said during the company’s first-quarter earnings call that they were optimistic about the retailer’s mitigation efforts.
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Kristy Chipman, treasurer and CFO, told analysts that the company’s goal to have “75 percent of all transactions to be associate-led checkout, with 100 percent associate-led transactions in our highest shrink stores” has been “successfully implemented.” The company said in its prior fourth-quarter call that it would transition to self-checkouts to lower its shrink issue.
Chipman also said the company is testing additional strategies in 70 stores, including changes such as “receipt checking at the door, adding guards, and incremental upfront labor.”
Chipman said a count of physical inventories in 250 stores in May, including those testing the new strategies, had positive results in the overall shrink rate. “The subset of the stores that had an associate-led checkout, along with another mitigation measure, experienced greater improvement in the rate of shrink,” she noted.
Chipman said that after a review of the results from the testing, the company will proceed to “quickly roll them out to the stores.”
“We are cautiously optimistic about the progress we made in Q1,” president and CEO Joel D. Anderson said, adding that Five Below has a “firmer handle on how to mitigate shrink. These early reads demonstrated several examples of our operating efforts working and have put us on a path to reducing our shrink levels.” He also told analysts that tools used in the 70 test stores, such as more video cameras, show “even bigger declines than the stores that just had the associate checkout.”
Shrink has been a problem for retailers, particularly at chains that target the lower-income shopper. The dollar chains—Dollar Tree and its competitor Dollar General—in their first quarter earnings reports also spoke about mitigation strategies. And the two dollar stores to share another common theme with Five Below, one concerning higher-income consumers trading down as they seek value purchases to curtail the impact of several quarters of rising inflationary pressures.
Anderson said the company saw a “meaningful slowdown in sales during the back half of the quarter.” He said consumers were “more discerning” with their spending, although that was less of an issue with Five Below’s higher income customer base trading down as they sought value at the chain’s stores. Still, the slowdown was experienced across all geographies.