4000 Union Pacific Avenue
99¢ Only Stores is dedicated to providing exceptional value. The Company's strategy is to consistently offer a wide selection of name brand value priced, consumable merchandise. The Company strives to provide its customers with a wide variety of first quality merchandise that exceeds the customers' expectations of the selections available and the quality of name-brand consumable products available that can be purchased for only 99¢. The Company believes that its name-brand focus on food and other everyday household items increases the frequency of consumer visits.
Operator of a fast-growing chain of stores, 99¢ Only Stores buys merchandise from suppliers getting rid of excess, discontinued, or expiration-dated inventory and sells the products in a chain of retail outlets, pricing every item at $.99. Most of 99¢ Only's merchandise consists of name brand products and nearly half is consumable goods. The company's stores--numbering more than 60 units during the late 1990s--were large, brightly-lit, and filled with shelves displaying household, staple merchandise, attracting largely middle-class customers who patronize the stores on a weekly basis. All of the company's stores during the late 1990s were located within 50 miles of downtown Los Angeles, but as the decade drew to a close there were signs of much broader geographic expansion. In November 1997, the company acquired 48 percent of Universal International, Inc., owner of a Minnesota-based deep discount chain with 49 stores in the upper midwestern United States and in Texas and part owner of a closeout retail chain with 22 stores in upstate New York. In February 1998, 99¢ Only announced a proposal to acquire the balance of Universal International, which was expected to be concluded by mid-1998. In addition to its chain of retail outlets, 99¢ Only also operated a wholesale business named Bargain Wholesale, which distributed discounted merchandise to retailers, other distributors, and exporters.
The founder of 99¢ Only, David Gold, most likely drew his inspiration for the deep-discount chain he created from an epiphany decades before he opened his first store. While Gold was working at a liquor store he co-owned with his brother-in-law, he reportedly noticed that bottles of wine priced at $.99 sold better than bottles priced just a few pennies more. The allure, he knew, was more psychological than financial, a ploy on the minds' of consumers that was universally effective. He vowed to open his own store one day that offered a full gamut of merchandise all priced under one dollar, but for years his entrepreneurial plan remained on the drawing board. Before putting his plan into action, Gold, the son of Russian immigrants, established himself in a business that required many of the same talents he would need to make his dream a reality. Gold began as a wholesaler, starting his own operation in 1976 that purchased and sold name brand, closeout merchandise. It was Gold's responsibility to locate the best bargains and then find retailers willing to purchase the merchandise, a task that he executed with skill. One of Gold's competitors would later note as much, remarking that Gold was "the best merchant I've ever seen." Other observers directed more praise Gold's way, with one of his retail customers describing a particular talent that was indispensable in the discount business arena. "He has a retentive, calculator mind," the candy retailer explained, referring to Gold. "He will remember the price of something you showed him a year or two earlier, even if he didn't buy it." His native inclinations served him well in the wholesale business, but always in the back of Gold's mind was the desire to open his own "dollar store." It took until Gold was in his 50s to finally put his liquor-store observations to the test, but when he did take that first fateful step, his seasoned experience as a bargain hunter bred instant success.
"I talked about opening a store that would sell only name brands and everything for a dollar for 20 years before I did it," Gold said, explaining his latent foray into the retail world. "Finally my wife said, 'Why don't you just do it'." Gold made his move in August 1982, when he opened his first 99¢ Only store in the Los Angeles area. Opening day was an unqualified success, with long lines of eager customers waiting to see what they could purchase for $.99. News cameras appeared as well, arriving to record the event and feed the public's curiosity, which added to the panoply of the grand opening.
The excitement generated by the first store opening set a precedent, demonstrating to Gold the importance of starting out with strong publicity. As other 99¢ Only stores opened in the wake of the first store's success, grand opening promotions served as an effective tactic to draw attention to a new location. One favorite grand opening gimmick used by Gold repeatedly was offering a 19-inch television for $.99 to the first nine patrons at a new location. When news of the offer spread, it was not uncommon for people to stand outside the doors of a new 99¢ Only for as long as two days to secure one of the coveted first nine places in line.
The fascination surrounding Gold's dollar store concept, particularly as introduced into the sophisticated Los Angeles area, was difficult for some industry observers to comprehend. In fact, the concept had existed for years and had reached its peak in popularity decades before Gold opened his first 99¢ Only store. However, there were several unique characteristics of Gold's retail business that partly explained the attention it attracted. Perhaps most important, Gold filled his stores with name brand merchandise, such as housewares and household staple items, rather than an eclectic assortment of odds and ends from obscure, or anonymous, manufacturers. Moreover, the stores themselves were different from the typical deep discount store. They were large--and would increase substantially in size as the concept flowered into a full-fledged chain--and brightly lit, with attractive interiors that belied the fact that every item was available for 99¢. The manner in which the merchandise was displayed was different as well. Instead of lumping merchandise in bins, the store's inventory was displayed on color-coordinated shelving, with each color denoting a particular product category. The store's product mix was different too; instead of the trinkets that filled most dollar stores, 99¢ Only stores carried a substantial percentage (40 percent of product mix) of consumable items, such as packaged foods and beverages. Further, company executives and store managers established a policy of carrying at least one item from each product category, striving to maintain a consistency of product availability. "They (99¢ Only customers) can't walk in and think 'maybe they've got toothpaste and maybe they don't," explained the company's chief financial officer, "because if that's the case then they're going to shop you like a treasure hunt."
Thus, 99¢ Only Stores presented themselves as the equivalent of supermarkets, minus fresh produce, meats, and dairy goods, but with one enormous advantage: everything inside the store was priced 20 to 80 percent lower than similar items at conventional stores. The trick to filling stores with name brand, staple items at dramatically lower prices was locating the wholesale bargains in the first place (a duty that fell to Gold as the company's chief buyer) and then possessing the purchasing power to acquire merchandise in large volumes, thereby reducing the price of the wholesale merchandise. Gold was a proven bargain-hunter, and his purchasing power was augmented by keeping his wholesale business, Bargain Wholesale, running, which gave him the purchasing might to buy in great quantities. As the chain of retail stores grew larger, it developed its own ability to acquire in bulk, but with the wholesale operation always in support, the two entities formed a wonderful synergy that greatly enhanced Gold's ability to purchase in volume.
With a sound business strategy underpinning the success of the first 99¢ Only store, Gold moved methodically forward with his expansion plans. He gradually opened additional units, locating each within a 50-mile radius of downtown Los Angeles and selecting locations whose demographics conformed to his criteria. "We like to be where families are largest, because they buy the most consumables," Gold noted, explaining part of the company's site-selection process.
As expansion moved forward, Gold was careful not to accumulate any debt, and never did--even when the chain numbered more than two dozens units. As the chain grew, it developed a particular clientele, attracting middle class patrons who frequented a 99¢ Only store more than once a week. This was another characteristic of the company's stores that strayed from convention, which dictated that dollar stores generally attracted poorer clientele who visited the stores once a month and purchased decorative or nonessential items. Gold's customers used his stores as they used drug stores or supermarkets. Everyday, staple merchandise attracted a regular and loyal customer base, and it was this strength that spurred Gold forward with his expansion plans. By the mid-1990s, he was ready to significantly increase his pace of expansion.
1996 Public Offering Fuels Expansion
By 1996, there were more than 30 99¢ Only stores scattered throughout the Los Angeles area, with annual sales topping $150 million. The company was debt-free, and Gold intended to keep it that way, but he also wanted to accelerate expansion, so in May 1996 he offered a piece of ownership in the company through an initial public offering (IPO) of stock. He sold one-third of the company to the public in the IPO, with Gold family members, who occupied most of the company's top executive posts, retaining ownership of the balance. With the proceeds raised through the IPO, Gold opened a number of new stores before the end of the year, giving the company a total of more than 40 stores as it entered 1997.
The growing chain was supported by the addition of a new 840,000-square-foot warehouse in the City of Commerce, near downtown Los Angeles, that served as the nerve center for the company's operation. From this warehouse, merchandise could be quickly shipped to each of the company's stores, all clustered around downtown Los Angeles. The logistical abilities of the warehouse would be taxed in 1997, as Gold established ten additional 99¢ Only stores during the year, giving him a total store count of 52 by year's end.
Aside from opening ten new units in 1997, company executives busied themselves during the year by completing an acquisition. In November 1997, 99¢ Only acquired 48 percent of Minnesota-based Universal International, Inc. for $4 million in cash and merchandise. Universal, for years a wholesaler, operated a chain of discount stores named Only Deals, 49 of which were scattered throughout eight upper Midwest states, with another eight stores in Texas. Three months later, in February 1998, 99¢ Only announced a proposal to acquire the remainder of Universal International, a deal that would also give the company control over the 40 percent stake Universal held in Odd's-N-End's, a 22-store closeout retailer operating in upstate New York. The transaction was expected to be concluded by mid-1998 for approximately $17 million.
As details of the Universal International acquisition were being released, 99¢ Only was posting record financial totals and attracting the attention of investors, who had nothing but praise to heap on the company. "Forget everything you know about 99 cent stores," one analyst remarked, adding that 99¢ Only Stores "has some of the characteristics of a drug store with the price point of a dollar store. It's big and clean and merchandised like a full-priced drug store ... and the lighting is good and people walk around the store to help you." Another analyst envisioned the proliferation of Gold's concept throughout the country, projecting that if 99¢ Only extended its presence into other major markets, there was room for 4,000 or more stores. Gold distanced himself from that claim, stating, "I don't think that far ahead. If you do," he warned, "you just get into dreaming."
With his mind focused on the near future, Gold set the pace for 99¢ Only's expansion during the late 1990s. The company was gearing towards a 20 percent annual growth rate in terms of its physical expansion, with 12 new stores slated to open in 1998. One of the new stores in 1998 was scheduled to open in the San Diego area at roughly the same time the Universal International acquisition was consummated. While some industry observers regarded the new San Diego store as the beginning of a nationwide expansion program, Gold was unwilling to entertain speculation about his company's ultimate expansion plans. What was known as the 1990s drew to a close was the encouraging success the company had recorded in the Los Angeles area, and that, should expansion into other major markets occur, results were likely to be as profitable as the company's past achievements.
Principal Subsidiaries: Bargain Wholesale; Universal International Inc. (48%).
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