Everyday AI Value: Five Below’s 4-step AI blueprint drives 19.5% sales growth

Discount retailer Five Below has cracked the code on AI strategy implementation, demonstrating how thoughtful artificial intelligence deployment can drive both operational excellence and customer satisfaction. While many retailers struggle to move beyond AI pilot programs, Five Below has systematically integrated AI-powered inventory management across nearly 1,800 stores, generating measurable returns that support aggressive expansion plans.

The Philadelphia-based chain, which targets tweens and teens with trendy products under $5, exemplifies how retailers can leverage AI as a transformative business tool rather than merely an efficiency Band-Aid. With revenue exceeding $4 billion and plans to add 150 new stores in fiscal year 2025, Five Below’s AI strategy offers a blueprint for sustainable growth in the notoriously challenging retail sector.

The company’s approach centers on inventory optimization—a critical pain point for retailers where forecasting errors carry steep costs. Stockouts frustrate customers and generate immeasurable lost sales, while overstock consumes precious capital and erodes profit margins. Five Below’s systematic approach to AI implementation provides four key lessons for executives seeking to transform AI investments into competitive advantages.

1. Prioritize strategy over technology scaling

Five Below’s AI journey begins with crystal-clear strategic priorities rather than technology-first thinking. The company frames every AI investment decision through its core mission: being “the cool store for kids, the yes store for parents.” This strategic lens prevents the common trap of implementing AI for AI’s sake.

Many retailers get caught in what executives call “scaling meetings”—sessions that devolve into operational troubleshooting and blame-shifting rather than strategic decision-making. Five Below avoids this pitfall by consistently asking how AI investments support customer value creation and competitive differentiation.

The strategic focus manifests in practical ways. Rather than using AI primarily to cut costs, Five Below deploys it to free store associates from inventory management tasks, enabling them to focus on customer experience. This approach transforms AI from a cost-reduction tool into a customer satisfaction enabler.

CEO Winnie Park explained the philosophy during the company’s Q1 2025 earnings call: “To get the traffic across the threshold is one thing and to get them to convert is a second. We’ve seen really nice progress in terms of conversion. Customers are greeted with fresh new products that they can see, and we did a much better job wowing our customers compared to last year.”

2. Partner with specialized AI platforms

Five Below partnered with invent.ai, an AI decisioning platform that specializes in retail inventory optimization. Rather than building AI capabilities in-house, the company chose a vendor whose proprietary algorithms forecast sales across millions of SKUs (stock keeping units—individual product variations) and diverse product categories.

This partnership approach offers several advantages over internal AI development. Specialized platforms bring deep industry expertise and proven algorithms, while allowing retailers to focus on their core competencies. For Five Below, this means investing energy in merchandising and customer experience rather than machine learning engineering.

The invent.ai platform analyzes Five Below’s complex product mix—everything from phone chargers to candy to home goods—and applies sophisticated forecasting models to each category. This capability is particularly valuable for Five Below because their low-price-point transactions create unique inventory challenges that generic retail systems can’t handle effectively.

Tav Tepfer, invent.ai’s chief revenue officer, highlighted this complexity in a Philadelphia Inquirer interview: “Five Below’s transactions have lower dollar amounts. When you try to take all the categories the company has—phone chargers, candy, home goods—it was a challenge to apply the same rules to each of those products and make sense of it all.”

3. Address critical business constraints systematically

Five Below identified inventory management as their most vital business constraint and attacked it systematically rather than pursuing multiple AI initiatives simultaneously. This focused approach allows for deeper implementation and clearer measurement of results.

Before implementing AI, Five Below’s inventory management required extensive manual work. Planners spent significant time manipulating data in spreadsheets, creating rules-based strategies, and managing exceptions across product categories. This manual approach was particularly problematic for time-sensitive inventory like candy, which can deteriorate in distribution centers.

The AI solution transformed these workflows dramatically. According to Tepfer, Five Below achieved “80% higher efficiency for their planners. You could say they got four days a week back for them because of all the manual work they didn’t have to do anymore.” This efficiency gain freed high-skilled employees to focus on strategic work while improving job satisfaction.

Graham Poliner, Five Below’s chief strategy and analytics officer, emphasized the business impact: The AI “helps us optimize inventory levels, reduce stockouts and overstocking while ensuring that each location has the right products at the right time.” This optimization directly translates to improved cash flow and customer satisfaction.

4. Measure success through business metrics, not technical performance

Five Below avoids the common mistake of measuring AI success primarily through technical metrics like algorithm accuracy or processing speed. Instead, the company tracks AI performance through fundamental business indicators: sales growth, profit margins, and cash flow generation.

This business-focused measurement approach provides clear accountability and demonstrates AI’s contribution to company performance. Five Below reports achieving a one-year payback period on new store investments, a remarkably fast return in retail expansion.

The company’s Q1 2025 results validate this measurement approach. Total sales increased 19.5% to $971 million, with comparable sales (a key retail metric measuring performance at stores open for at least one year) growing 7.1% despite broader retail sector challenges. Outgoing CFO Kristy Chipman noted that new stores consistently outperformed targets.

These results provide compelling evidence that customers embrace the improved inventory management through their purchasing behavior. Better product availability and selection directly translate to higher conversion rates and transaction values.

Strategic implications for retail executives

Five Below’s AI implementation offers several lessons for retail executives considering similar investments. First, successful AI deployment requires clear strategic frameworks rather than technology-first approaches. Companies must articulate how AI supports core business objectives before selecting specific tools or platforms.

Second, partnership strategies can provide faster, more reliable results than internal development for most retailers. Specialized AI platforms bring proven capabilities and industry expertise that would take years to develop internally.

Third, focusing on critical business constraints rather than pursuing multiple AI initiatives simultaneously allows for deeper implementation and clearer success measurement. Five Below’s inventory management focus created measurable improvements across multiple business metrics.

Finally, measuring AI success through business outcomes rather than technical performance metrics ensures that investments contribute to competitive advantage rather than merely operational efficiency.

As Five Below continues expanding toward its goal of doubling store count, the company’s AI-powered inventory system will face new challenges across wider geographic markets and diverse customer demographics. However, their systematic approach to AI strategy implementation provides a strong foundation for scaling these capabilities alongside business growth.

For retail executives evaluating AI investments, Five Below demonstrates that thoughtful strategy development, focused implementation, and business-oriented measurement can transform artificial intelligence from an experimental technology into a core competitive advantage.