THE FIVE BELOW PARADIGM

(Caption: Five Below's e-mail circulars explode with mini luxuries at unbelievable prices scaled to a typical tween's allowance. Photo: Five Below)

Shopping with kids isn't fun. You get tired of hearing yourself say it: No. No! No, you can't have it. No, it's too expensive. No, we can't afford it. Nooooo!

The worst part of it: Sometimes they're actually listening to you. "Mom," my friend Abby's young son piped up plaintively as they passed a department store drinking fountain toward the end of a grueling shopping trip, "can I have a drink of water? Or is it too expensive?"

David Schlessinger and Tom Vellios noticed that a store that sells kid stuff starts out at a significant disadvantage if it's always forcing moms to choose between giving their kids what they want -- or keeping a roof over their heads and food on the table. Schlessinger and Vellios had left Zany Brainy, the creative toy store that Schlessinger had founded and where Vellios had been CEO, and were looking around for a new venture. What if they could come up with a kids' store that moms could drive their kids to with a clear conscience, and without endangering the grocery budget?

Another thing they noticed: Kids are getting older younger. In the 1990s, Vellios says, the average American 9-year-old girl had 6.5 Barbie dolls. Now she's too sophisticated for dolls. Somewhere around 2002/2003/2004, he says, the age of the prime Barbie customer fell to 5 1/2 or 6 years old.

So what do you sell kids once they start to lose interest in toy stores? Things that entertain them. Things that allow them to participate in trends. Things that exude that magical quality: coolness. Things that telegraph attitudes and opinions and interests. Things that let them say who they are.

According to Schlessinger, Five Below, the "extreme value" store he and Vellios built for kids, pre-teens and teens, offers "the first chance for kids to show who they are by what they buy." Hey, it's the American way.

At Five Below, kids buy iPod speakers and Hannah Montana T-shirts. Cool socks from Puma and Adidas. Spaulding basketballs. Bead-weaving kits. Cell phone cases. Movie DVDs. Mirrors and wall pockets and faux street signs (e.g., "Princess Parkway") for their rooms. Swim goggles and hand weights and yoga mats. Cute $5 plastic knock-offs of Marc Jacobs' mouse shoes. Wii accessories. Boogie boards. Flip-flops. Kooky Klickers collectible character pens. Frisbees. Bike helmets. Arizona Iced Tea. And "lots of sports stuff."

And, at Five Below, all these things are priced at $5 or under. Which means that, besides selling kids entertainment and lifestyle accessories, Five Below is selling them empowerment and self-determination: The kids decide what they want, and they pay for it out of their allowances or their birthday money. They don't always have to be saying, "Mom, can I have ...?"

Vellios came to the U.S. from Greece when he was 15, and fell in love with Woolworth's. "I remember going into that store," he says. "There was a lot of stuff I could choose from, a lot I could afford."

He wanted Five Below to replicate that experience for kids today: "We wanted to build the 'yes' store, a store everybody could afford, a store mom would have no problem saying yes to."

But it wasn't enough for the merchandise to be affordable. It had to be cool and high-quality and trend-right. It had to be stuff kids wanted, not old calendars and outdated macaroni like you find at a dollar store.

Five Below, Vellios says, "is so, so not a dollar store" -- even though nothing costs more than $5.

Schlessinger says they're inspired by retailers like Trader Joe's in groceries, Steve & Barry's in fashion, Costco in general merchandise: "We apply the same quality/value/adventure equation." The idea is to sell "great stuff at great prices" in a setting that makes shopping fun.

"The primary thing," Schlessinger says, "is having the right stuff, then at the right price. Items have to pass muster."

Five Below's buyers present their finds -- whether a trio of fruit-flavored lip glosses or a canvas shoe with skateboard overtones -- to a jury of 15 or so of their peers before they ever get to a store.

"Is it exciting, new, valuable?" Vellios asks. "If not, they don't buy it."

They go for licensed things, brands kids have heard of, things associated with hot trends.

"We'd love to be able to sell the iPod and the Wii," Schlessinger says, but there's no way to do that under $5, so they sell accessories, iPod cases and speakers, Wii add-ons.

This not only delivers stuff kids with iPods and Wiis want, it scales up the store's identity by linking it to solid-gold trends.

They keep things under $5 by seeking out and eliminating unnecessary cost factors -- like high mall rents.

Vellios offers another example: A typical toy store or athletic supplier sells basketballs optimally inflated and presented in colorful boxes. The boxes are expensive to print and dye-cut and add cellophane windows to, and then score for folding, and then assemble. The balls are made somewhere else, shipped to another location to be pumped up and packaged, then re-shipped to a distributor, and then shipped yet again to the store.

Five Below buys deflated balls direct from the factory. They take up a lot less room on the truck that way. And what kid really cares about the box?

As the economy slows and consumers tighten their holds on their pocketbooks, Five Below's 68 stores -- they'll add 20 more this year -- in Pennsylvania, New Jersey, Delaware, Maryland and Virginia are doing just fine. It's no surprise given their value orientation. According to a recent Wall Street Journal story, many luxury retailers and fashion labels are finding that their "lower-end factory-outlet stores" have been outperforming their tony full-price stores.

So: Is the not-quite-recession drawing more adult customers to Five Below than Schlessinger and Vellios expected? They're not sure, but they say the store does have stuff for grown-ups.

"We're a party store for parents," Vellios says.

"Come to our store, spend a few dollars, you get fantastic party favors," Schlessinger says.

"You can get a lava lamp for $5," Vellios offers. "You can be the cool and hip mom who changes the paradigm of what you can expect in a goodie bag."

COPYRIGHT 2008 PATRICIA MCLAUGHLIN