Five Below CEO Joel Anderson Brings The Wow Factor To Retail

In keeping with the spirit of a visionary business leader, Five Below (FIVE) CEO Joel Anderson has created a metaphorical template for developing a winning team and culture.

X Anderson, who became CEO of the extreme-value retailer in February 2015, has been guided by the template in each of the four jobs he’s had for the past 25 years. It reflects Anderson’s philosophy of management and leadership, and has been the driving force behind what he calls Five Below’s value-based, “wow” culture.

The template looks like this: Picture a bus with Anderson or another company leader or manager as its driver. The driver sees three billboards ahead. The first one says “people,” the second says “passion” and the third says “performance.”

While the art changes (the bus driver is usually the founder of each company), the message is the same,” Anderson told IBD. “It’s about getting everybody on the bus heading in the same direction. If you have a great bus driver, who follows a great route and is on time (with a smile on their face), everybody wants to be on that bus. The way to rally your team is to get them on the bus going in the same direction and then you get to the three billboards.”

Guided by this approach, Anderson and his team have vaulted Five Below to a top retail industry performer and a strong competitor against mighty Amazon.com (AMZN) and other online and brick-and-mortar store rivals.

Five Below CEO Joel Anderson
Joel Anderson in a Five Below store. The chain has been a standout at a time when many retailers grapple with the likes of Amazon. (James Borchuck/Zuma Press/Newscom)

The order of the three billboards reflects Anderson’s leadership philosophy and defines the company’s values.

“Too many leaders focus on performance first,” said Anderson, a veteran retail industry business leader. “I believe you have got to start with people. Everything I’ve done when I’ve moved to a new company has always been about people. Sometimes it’s meant changing people or encouraging current people. In all cases, to be successful will require starting with the people. If you have the right people on the team and then passion for the customer, in that order, then the performance will come.”

Anderson says the “Bus/3P’s” approach is about achieving long-term performance. Simply focusing on the metrics without first starting with people and passion for the customer is not a winning formula in the long term.

Anderson joined Five Below in July 2014 and was president and chief operating officer from that time through January 2015. In February 2015 he was appointed president and CEO.

Anderson’s long-term performance approach has served the company well. Five Below — with its on-trend extreme-value offerings that appeal to tweens, teens and beyond — has been a standout at a time when many retailers grapple with the likes of Amazon amid changing consumer-shopping habits.

Bluetooth speakers, smartphone accessories, makeup and toys are among the offerings at Five Below for $ 5 or less.

With a sharp focus on long-term performance, Anderson put in place a “20/20 through 2020” strategy in 2016, targeting 20% top-line and 20% bottom-line growth annually through 2020.

“We’re three years into that and we haven’t missed a single year,” said Anderson.

Brad Thomas, equity research analyst at KeyBanc Capital Markets, estimates that Five Below will see closer to a 40% gain in EPS in 2018, when it reports on Dec. 5 after the close, with the benefit of a lower corporate tax rate from tax reform.

Finding A Competitive Edge

Key to Five Below’s success in its space is what Anderson sees as its competitive edge.

“We’re in the value space and wake up every day trying to deliver more value,” said Anderson. “We also have to have a great store experience — with music playing and associates who have energy and bounce. At the heart of our competitive edge is some retailers are doing one or the other — not both. We try to deliver value in a great store experience.”

Another advantage: “Five Below generally doesn’t compete with Amazon,” Ken Perkins, president of Retail Metrics, told IBD. “They offer products that sell for prices below what the shipping cost would be from Amazon, which is why they have a minimal e-commerce footprint. To a certain extent they’re Amazon-proof. They’re like (off-price retailer) T.J. Maxx in a sense they offer a treasure-hunt opportunity. That’s attractive to consumers. They’re able to find multiple deals on products they wouldn’t find on Amazon. But I don’t know if anybody is completely Amazon-proof.”

Five Below’s value proposition has struck a chord with consumers, leading to strong financial growth.

“Its results are consistently good quarter after quarter,” said Perkins. “It’s generating above-average same-store sales growth. And in terms of its new store productivity, it’s typically able to pay off the cost of opening a new store in seven to eight months, which is tremendous economics.”

Investors have been impressed. Its stock price is up nearly 60% year-to-date as of Wednesday and more than 70% from a year ago.

Another long-term opportunity for Five Below is store growth, says Anderson. Five Below’s store count now is around 750, and management set a target of 2,500-plus stores over the long term in U.S.

Anderson says Five Below hit a big milestone on Nov. 2 with the opening of its first Manhattan store in a top shopping location in midtown on Fifth Avenue.

“It’s going to be awesome for the brand long-term because it exposes more people from more places to Five Below,” said Anderson on a Nov. 9 phone interview. It’s a great success story for us.”

Rich In Leadership Experience

Anderson, 54, came to Five Below rich in leadership experience. Most recently he was president and CEO of Walmart.com, the multibillion-dollar U.S. dot-com unit of Walmart (WMT), from 2011 to 2014. Before then, he was divisional senior vice president of the Northern Plains division of Walmart from 2010 to 2011. Before joining Walmart, he was president of the retail and direct-business units of Lenox Group and served in various positions at Toys R Us over a 14-year period.

Analyst Thomas gives Anderson high marks for his leadership.

“The vision and opportunity for Five Below existed before he joined,” Thomas told IBD. “The challenge for him was how to grow the business, not just from a store perspective, but from same-store sales by proving the merchandise, traffic levels and the brand awareness. I think he’s done a fantastic job of improving the consumer offering. And that is ultimately what the business model is predicated on.”

Experiences at Walmart and principles gleaned from his parents and mentors helped shape Anderson’s leadership philosophy and style.

“If there’s one thing Walmart teaches you, it’s scale,” he said. “I’m now with a high-growth retailer and am applying the scale skills I learned at Walmart, where I managed a division with 100,000 associates and $ 20 billion in sales. “

Anderson says scale is a “three-legged stool: people, systems and infrastructure.”

“When a company is growing as fast as we are, we have to stay in front of that growth and put scale in place ahead of sales. I really applied what I learned at Walmart so I could set us up for the long-term future. For example, we’re going to build a distribution center a year for the next four years.”

He cites one management book he read 20 years ago, “Gung Ho!” by Ken Blanchard and Sheldon Bowles, as changing his life — so much so that he gives a copy to every new Five Below associate who comes to the home office.

“From reading that I came to understand how powerful an individual’s self-esteem is, teamwork secondly, and finally recognition and cheering people’s successes,” said Anderson.

He also learned a lot about leadership from his upbringing. “I was blessed with great parents,” said Anderson.

Life Lessons

His father was a minister and his mother was the type of person who greeted every visitor and invited people with no place to go on holidays into their home.

“From that you learn empathy and servant leadership,” said Anderson.

Other life lessons came from tragedy; Anderson’s oldest child died 11 years ago.

“It puts life and what’s really important in perspective,” he said. “I think I’m a more compassionate leader now than I was coming out of business school, when I was pretty high-charging. When you raise a special-needs daughter and she passes away at almost 13 years old you suddenly realize it’s not the end of the world when someone shows up late or you miss a metric on that month’s performance. You also realize that every person who works for you is going through some sort of personal issue. It helped me slow down and pay attention to the details and to people.”

At the core of his leadership philosophy is a focus on values, Anderson says. “Every company has values. When I first got to Five Below we didn’t have our values written down anywhere. They were learned through osmosis.

“That works great in a startup mode. When I got (here) we were trying to transition from a small company that had just gone public (in July 2012). Now we’re transitioning to one going nationwide. So we had to put scale in place. The first thing we focused on was our values.”

Defining Values

Anderson says he and his team spent his first year at Five Below defining the company’s values and the behaviors needed to live up to them. They ended up with these: “Wow our customers; unleash your passion; hold the penny hostage; work hard, have fun, build a career and achieve the impossible.”

Anderson says his favorite value is “unleash your passion.”

“I encourage you to be yourself,” he said. “You have to bring something unique to the company. The people who have thrived at Five Below are the ones who bring their passion. You can’t just be part of the crowd in the background.”

Anderson attributes much of Five Below’s success to what he calls its wow culture, which incorporates those core values.

When Five Below moved into new headquarters a year ago, it was branded “WowTown.” Five Below store associates wear shirts that say “Wow Crew,” as does Anderson when he visits a Five Below store. “We’re (management) part of the Wow Crew and team,” said Anderson. “Our job at WowTown is to make it easier for the Wow Crew.”

Joel Anderson: Keys

Vaulted Five Below to a top retail industry performer and a strong competitor.

Overcame: The retail dominance of Amazon.com, and oversaw the transition of Five Below from a small company that had recently gone public to one going nationwide.

Lesson: “If you only focus on the head and not the heart, you won’t be as successful.”

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