Not all the retailers have done well this earnings season, but Five Below Inc (FIVE) is certainly one of the winners.
The company has been able to capitalize on a niche market segment, engage its customer base , and offer a low price point that is attractive to both their target customers and parents alike.
"Five Below is really stepping up their game, props to you guys!" says the host of the Hello Kristen YouTube channel in a recent YouTube tutorial about cheap room décor, while giving thumbs up to the company. "It's not high-quality stuff, but it's perfect little knick-knacks, dorms stuff and things that you would rotate out seasonally."
A big hit with Kristen are inflatable, furry chairs in white and pink, hanging wood shelves and a cat tent. She continues to film the rest of the store, gushing over a range of products, all of them under $5.
Certainly, the retailer is less known than Walmart Inc (WMT) and Costco Wholesale Corporation (COST) , but there are interesting insights from their second quarter results on what it will take retailers to compete against the backdrop of Amazon's seemingly unstoppable growth, global trade fears and still booming domestic consumer confidence.
Not focusing on e-commerce alone
While nearly all big retailers are consumed with the push to e-commerce, Below Five is focused on growing its geographic footprint in addition to the online store. Five Below offers a range of low-priced items that shoppers pick up along their route and it's growing its a range of tailored services and experiences.
This is a retailer for the Instagram and Snap Inc (SNAP) generation, consumers who want to save but also share the find or experience with their followers. They want to tell a Story about their shopping experience.
"The low price point affords the company some defense against e-commerce cannibalization," says Scot Ciccarelli, analyst at RBC Capital Markets.
Does every big retailer out there succeed in capturing the YouTubers' attention to host "Under Five $100 challenge" and other features? The answer is no.
Tariffs are not always a burden
In an increasingly interconnected global environment, with currency crises in the emerging markets and multi-party trade wars, it helps to stay focused and connected to your customer. Tariffs are test of how robust your business model really is.
"The tariffs already implemented on $50 billion of Chinese goods are not expected to have a material impact to our business or our results," says Kennth Bull, company CFO. "While there is still uncertainty around the implementation of an additional $200 billion in tariffs, we do not expect these additional tariffs to have a material impact on fiscal 2018."
Other retailers have proved to be much more susceptible to tariffs and higher freight costs.
Customer engagement
Not all discount retailers automatically resonate with consumers.
Dollar Tree Inc (DLTR) missed expectations for same-store sales this quarter and struggled with sales.
Big Lots, Inc. (BIG) also posted disappointing results and had a recent leadership change.
Five Below, on the other hand, is growing 20% every year, is reinvesting in better quality and is able to surprise customers like Kristen.
As this earnings season has shown, many established retailers are losing their ability to surprise and dazzle customers as the retail industry evolves and becomes more crowded.
Niche segments
The rise of Amazon as a dominant force in e-commerce does not mean that there aren't niche segments with room for growth.
As Etsy Inc (ETSY) has shown, the right market positioning and focus can work well.
"Overtime, you'll see competitors come up and try to replicate what they've bene able to do in crafts or beauty or room and the price point under $5 - they've been able to carve out this niche," says Check Grom, analyst at Gordon Haskett.
