That’s because too many view AI, at best, as a tool to boost efficiency today, rather than a transformative force that will define and secure an enterprise’s future.

Remarkably, trendy discount retailer Five Below embodies the latter perspective as it pursues its mission to be "the cool store for kids, the yes store for parents." Established in Philadelphia back in 2002, Five Below now generates over $4 billion in revenue across nearly 1,800 stores spanning 43 U.S. states. Plans for growth include opening 150 new stores in FY 2025, with ambitions to double its presence soon after. As a result, its shares have risen more than 17% this year.

Investor expectations for aggressive expansion in the inherently complex retail sector naturally place pressure on board and executive leaders to deliver tangible and measurable outcomes. That’s why Five Below turned to AI to strengthen its competitive edge, master inventory demands, and drive cash flow. Four distinctive steps set this growing retailer apart.

Penny Pouncer

Retail executives detest margin-eroding sales slippage, markdowns, write-offs, and shrink. Unfortunately, impulsive focus on inventory optimization metrics often alleviates symptoms while heightening strategic risks.

This is why AI initiatives built upon legacy optimization frameworks can quickly go off track. Understocking and narrow procurement strategies alienate target customers, irritate suppliers, and weaken competitive positioning. Conversely, Five Below demonstrates how to break free from AI strategy stagnation and overcome digital-era shortcomings:

1. Prioritize strategy over scaling. Cutting through costly consultant jargon and impractical, idealistic models, strategy clarifies how companies (1) create value for customers and (2) differentiate themselves from competitors. Both of these essential principles are quantifiable, understandable, and actionable. Otherwise, “scaling meetings” devolve into operational problem-solving, finger-pointing, and diluted ambition.

Fundamentally, Five Below centers its long-standing mission to be "the cool store for kids, the yes store for parents" when making AI investment decisions. These business process choices empower store associates to enhance customer experience and significantly reshape corporate staff responsibilities toward more strategic focus. Plans and metrics follow accordingly.

2. Protect digital strategists. Five Below partnered with invent.ai, an innovative AI decision-making platform that helps retailers grow revenue and margins through actionable sourcing, pricing, and merchandising insights. Specifically, their proprietary algorithms forecast store and product sales across millions of SKUs and various product lines to maximize inventory turnover, minimize overstock, and importantly, drive sales.

Beyond just cost management, Five Below CEO Winnie Park sees how smarter inventory selection empowers store staff to elevate customer experience. She explained during the Q1 2025 earnings call, “Getting traffic into the store is one thing; getting them to convert is another. We've also seen strong progress in terms of conversion. Customers are greeted with fresh new products they can see — we did a much better job wowing our customers compared to last year. The investments in store experience including increasing labor and simplifying processes are paying off.”

Operational efficiency serves as a means to enable Five Below to invest further in customer experience, including increased staffing hours and streamlined store procedures. When employees aren’t bogged down by inventory issues, they can concentrate on customer engagement that boosts foot traffic and increases transaction size and volume.

“Our crew is now better positioned to assist customers while ensuring our shelves are stocked with trend-right products. We remain committed to making the store easier and more enjoyable for our customers,” Park emphasized.

3. Fix a critical value chain issue. Five Below pinpointed inventory management as its key business constraint. Forecasting errors come at a high cost — stockouts lead to significant lost sales and frustrated customers, while overstock consumes valuable capital and reduces margins. Additionally, inefficiencies often result in corporate bloat as headcount expands to mask poor performance and resolve avoidable mistakes.

Tav Tepfer, invent.ai’s chief revenue officer, contrasted her client’s approach in a recent Philadelphia Inquirer interview, explaining, “Five Below’s transactions involve lower price points. Trying to apply the same rules across all categories — phone chargers, candy, home goods — was a challenge. A rigid system simply couldn’t handle that.”

She added, “Initially, Five Below started hiring smart people to implement more rule-based strategies behind the data. They brought in data scientists, which meant lots of manual work for planners — entering data into spreadsheets, formatting it, then re-importing it. That takes time. But candy melts in a distribution center — you can’t let it sit forever.”

Five Below’s chief strategy and analytics officer Graham Poliner immediately recognized the partnership's benefits, noting how AI “helps us optimize inventory levels, reduce stockouts and overstocking, while ensuring each location has the right products at the right time.” This translates directly into improved cash flow — and enhanced employee productivity.

“They achieved 80% higher efficiency for their planners. You could say they gained back four days a week due to the reduction in manual tasks,” Tepfer emphasized. This allows high-value talent to be more strategic and enjoy greater job satisfaction — with plenty of squishmallows to delight customers.

4. Demand accountability through real business metrics. Five Below doesn’t just evaluate AI success through technical benchmarks. Their investor relations page highlights key performance indicators tied directly to sales growth, margin improvements, and cash flow. The company reports an impressive one-year payback period for new stores. To sustain this physical expansion, executives must understand how AI investments support growth.

As the retailer doubles its footprint, adaptive AI tools will be essential to reconfigure inventory distribution tailored to its expanding geographic reach, ensuring trendy products reach its target demographic. Its Q1 2025 results reflect this momentum. New stores exceeded targets and comparable sales rose despite broader retail industry challenges.

Outgoing CFO Kristy Chipman, remarked enthusiastically, “Total sales in the first quarter of 2025 increased 19.5% to $971 million. Comparable sales increased 7.1%.” This is concrete, compelling evidence that customers are supporting the company’s strategy with their spending.

Premium Thinking

Companies have an underappreciated leadership responsibility to provide high-potential talent with the necessary resources to achieve top performance. Five Below recently fulfilled that obligation for its newly appointed board chair and CFO. Who’s AI strategy is bargain basement?

The above is the detailed content of Five Below Solves AI Strategy With 4 Smart Steps. For more information, please follow other related articles on the PHP Chinese website!