Closeout Chic

Brandweek, August 9, 1999 by T.L. Stanley

CLOSEOUT OPERATORS NO LONGER ARE PULLING IN JUST CASH-STRAPPED SINGLE MOMS AND SENIOR CITIZENS, BUT ALSO UPPER-INCOME URBANITES SPURRED BY A SENSE OF TREASURE-HUNTING ADVENTURE. FOR DISCOUNTER 99 CENTS ONLY, IRONY-INFLECTED GUERRILLA MARKETING HELPS LEAVEN THE EXPERIENCE.

Armando Palomo had his eyes on the prize. The 19-year-old Los Angeles resident had been camped out on a Hollywood sidewalk for 45 hours waiting for the opening of the neighborhood's first 99 Cents Only Store. And because he was first in line, he would cart away a Sharp 19-inch color television for 99 cents, plus tax, as part of the chain's promotional hype around new stores. "I don't have a TV," said Palomo, who had wrapped himself in a heavy jacket and blankets to stave off the April chill. "My friends told me about this. I'll never do it again, but it's worth it."

Behind Palomo in line were about 200 people who'd waited varying lengths of time for the store opening. Their rewards also varied: the first nine, including two of Palomo's friends, got the TV, the next nine, a full-size Sharp microwave oven, and the following 99 got sets of steak knives. Other opening days have doled out glass bowl sets, fire extinguishers, sport radios and $2 bills. Everyone at the spring launch in Hollywood got first dibs on rows arid rows of freshly-stocked merchandise, and a free snack on the way out. The loss-leader promotion, now a hallmark of the Southern California-based deep discounter, serves several key purposes: it introduces the store, in a splashy way, to its new area; it engenders goodwill; and, perhaps most important, it generates free publicity for a retailer with a paltry advertising budget and boatloads of product to move.

While a small player in the category, the chain is set for rapid growth; it's gone from one to 73 stores since the early '80s, and plans to expand from California into three other western states in the near future. It's on pace to increase its numbers eight-fold, to 400 stores, in the next few years. Analysts say the growth shows that there are renewed signs of life for deep discounters, in this post-Woolworth era, beyond the core blue collar and senior citizen crowd. Cross-shopping has caught fire with middle- and upper-class consumers, with retail analysts saying the practice is more than a passing fancy, even in flush economic times. WSL Strategic Retail, a New York consulting group, says upwards of 90% of shoppers with household incomes of more than $70,000 a year shop in discount stores. It's obviously not just single moms and inner-city residents consistently trolling the aisles at Kmart anymore. Analysts say customers also come from an unlikely quarter: while Generation Y needs its FUBU and Reebok, it also has a thrifty streak that is just as proud to get a bargain as to sport a logo. And baby boomers, many the product of Depression-era parents, also are turning to the stores as a viable way to trim costs on everyday household items.

Just as the shopper has morphed, the shopping environment itself has changed. Target has gone upscale with Michael Graves-designed housewares, and Goodwill has opened Superstores of "finer" merchandise, where credit cards are accepted and TV ad campaigns highlight jewelry and furs.

Unlike either thrift stores or mid-tier discounters such as Wal-Mart, deep discounters occupy a category without a truly national brand. Many, such as Family Dollar, are clustered in the Southeast and Midwest. The leader, with $3.2 billion in sales last year and 3,850 stores in 24 states, is Dollar General. The Nashville, Tenn.-based chain, where the mostly private-label product mix ranges from household items to clothing, concentrates its locations in small rural towns and low-income neighborhoods off the Wal-Mart and Target radar.

Conversely, the 99 Cents Only chain has gained a foothold in the sprawling Los Angeles metropolitan area, in high-traffic strip malls and busy driving corridors such as Wilshire Boulevard's Miracle Mile, a stone's throw from tony Beverly Hills. When it expands to Las Vegas and Arizona, it will open clusters of stores in the same area, to economize on advertising, and will target middle-income neighborhoods.

The company, which went public in 1996, follows this philosophy: spacious stores (average size is about 17,000 square feet), heavily stocked aisles (7,000 different SKUs), single-price concept (some items sell for two, three or six for 99 cents, but nothing ever exceeds it), and brands, brands, brands. While the "everything is a buck" concept ran into serious difficulty in the mid-'90s, it has shown a resurgence in the last few years, though many of those stores are geared toward general merchandise culled from Asia and Latin America.

More than half the 99 Cents Only products come from such blue-chip marketers as Colgate-Palmolive, Procter & Gamble, Playtex, ChesebroughPond's, Keebler, Hershey and Revlon. The other half is made up of private label and oddities, which the chain's execs believe adds to the treasure hunt aspect of bargain shopping.