- Five Below’s sales have been hit by an overstock of Squishmallows and price-sensitive customers.
- Five Below’s CEO said inflation was causing customers to prioritise food and drink.
- Off-price retailers say they are seeing a slowdown in discretionary spending.
Five Below said it bought far more Squishmallows than customers wanted, which led to a drop in sales this quarter.
The popular stuffed animals have gone viral in the years since their 2017 release, becoming “the Beanie Babies of Gen Z,” Business Insider reported in 2020.
Five Below on Wednesday cut its earnings forecast for this year as price-sensitive customers prioritize food, candy and beverage purchases over Squishmallows. Stale inventory, including old Squishmallows, is also hurting Five Below, Chief Executive Officer Joel Anderson said on Wednesday’s earnings call.
“This quarter made it clear that consumers are feeling the effects of years of inflation in many key areas, including food, fuel and rent, and as a result are being much more cautious with how they spend their discretionary money,” Anderson said.
The retailer’s shares were down nearly 4% at the close of trading and are down 38% since the beginning of the year.
Just a few months ago, Squishmallows seemed like a promising option for Five Below: The company lists 40 of the brand’s products on its website, and Mr. Anderson said on the company’s March earnings call that the products were on Five Below’s list of “strong performers” for 2023.
But rising living costs across the United States are hitting Five Below, as well as other low-cost retailers, which are seeing a decline in spending on non-essential items.
Higher spending means Americans save less. Personal Savings Rate The unemployment rate fell to 3.2% in March from 5.2% a year earlier, government data showed.
Last month, McDonald’s, Burger King and Wendy’s all announced under-$5 menu items in an effort to win back budget-minded customers.
