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Dollar Store Chain Aims to Lure Teens

For budget-conscious teens, retailer Five Below couldn't be more apropos.

Five Below’s T-shirt wall.

For budget-conscious teens, retailer Five Below couldn’t be more apropos — a dollar store aimed at them, just as after-school jobs dry up and mom puts her credit cards on lockdown.

Unlike many traditional dollar stores, which are deliberately drab, Five Below (all items $5 or less) celebrates whimsy. Music pumps from speakers and painted wheelbarrows playfully “tip” out novelty merchandise. Most of the left side of the store is devoted to style: earrings, sunglasses, beauty supplies, a T-shirt wall and peg racks featuring handbags, scarves, flip-flops, tights and other accessories. There are Guitar Hero posters and pink travel coffee mugs with a makeup mirror built in and not a can of Comet bathroom scrub in sight.

“Historically, dollar stores have not been great shopping experiences, but we’ve seen the whole industry maturing — with better store prototypes, better layouts and enhanced consumables,” said Wedbush Morgan Securities financial analyst Joan Storm, who follows dollar stores and discounters. “Five Below would fit that trend. It looks like they have all fairly new stores, which is an advantage. It’s pretty fascinating that they’re going after teens and probably a good thing. Even with recent weak performance, the stocks of teen retailers have held up better through the beginning of the recession than other retailers.”

One sign of teenage affections at Five Below? YouTube.com is full of so-called “haul” videos of girls detailing what they bought at Five Below or giving makeup tutorials using the chain’s beauty brands. Three-for-$5 nail polish from Funky Fingers, produced by Lawrenceville, N.Y.-based Forsythe Cosmetics, is a big seller.

“My friends and I go there all the time when there’s nothing else to do,” says Kelsea Morley, a 17-year-old high school senior from Melrose, Mass. “We always buy candy or sodas, but I’ve also bought a lot of the nail polish, shirts and some cards and little gifts for friends.”

The Center City, Pa.-based company has grown to 80 stores in seven Eastern states since opening its first unit in Wayne, Pa., in 2002. The plan is to operate 200 stores by 2011. In October, despite stock market mayhem, the privately held company scooped up a $17 million, second-round investment from private equity firm LLR Partners Inc.

“As our customers watch their dollars more carefully, we have found Five Below has become even more meaningful in their lives, and actually have seen a significant uptrend in our business,” said co-founder and chairman David Schlessinger in October in a statement announcing the additional financing had closed.

The company declined to comment for this story. Five Below stores range from 6,500 to 8,500 square feet, according to the company’s Web site, which lists New Jersey and the New York metro area — two places where it does not currently have stores — as expansion markets.

Along with savvy merchandising, the company is undoubtedly riding the dollar-sector’s overall growth. According to TNS Retail Forward ShopperScape, nearly half of all U.S. households shop dollar stores or small-format value retailers on a monthly basis, up from 36 percent of households that reported doing so in 2002.

The Five Below model — focused on quick turns on DVDs, video games, sports equipment, health and beauty and fashion accessories — “appeals to teens on two levels,” said Paige Newman, editor of the Zandl Group Hot Sheet, a syndicated trend report that surveys 3,000 teens. “It feeds their desire for new things and taps into their newfound frugality.”

During a recent store visit, much of the store’s merchandise was $5, including long fashion scarves ticketed at $18 apiece, but selling for $5. In health and beauty, brands included Banana Boat, Vaseline, Dove shampoo, L’Oréal, Dial, Sally Hansen and a number of private labels.

In fact, high school senior Morley — who plans to buy a $5 yoga mat on her next trip — has been watching the store’s $5 T-shirt wall ever since recognizing a Dr. Seuss T-shirt (or one suspiciously similar) she’d paid $15 for at Gadzooks.

“I’m definitely paying more attention,” she said. “They have really cute stuff and I don’t care what the brand is as long as the quality is pretty good.”