Closeout Chic

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

"Everybody has been taught that you get what you pay for," said Dave Gold, the chain's chairman, CEO and founder. "So, it's our biggest challenge to get people to come in for the first time. Once they do, they see what it's all about."

Gold, who also operates the 23-year-old wholesale division Bargain Wholesale, recently acquired Minneapolis-based Universal International, which, operates about 70 Only Deals in the upper Midwest and Texas and Odd's-N-End's in New York. He potentially could convert those shops to the 99 Cents Only banner, spreading the formula that has been honed in Southern California.

The 99 Cents Only chain, 46%-owned by the Gold family, buys excess inventory, closeouts, products with package design flaws and items with short shelf lives. The chain buys about one in 15 items it's pitched. Most are snapped up at low cost, but buyers often take products on which the chain will make little margin, as incentive for new and repeat customers and as a relationship builder with suppliers. "We might even take an item we don't especially want, because that means we'll be able, later, to get something no one else has," Gold said.

Supplier relationships are the most vital cog in the wheel, Gold said, and require some finesse, particularly when dealing with prestige brands. Marketers are understandably protective of their brand equity, and don't want to draw attention to their stock at deep discounters. For that reason, they often prohibit 99 Cents Only from advertising their products. Some, such as Johnson & Johnson and M&M/Mars, make unannounced and unaccompanied site visits to see how their product is merchandised at various locations.

"If they don't like what they see, you'll never get their product again," Gold says. "No one wants to admit they have closeouts, but they do. They know we'll send them directly to our stores, not to any other distribution channels, and move them quickly."

Some brands, however, don't want the association with a deep discounter under any circumstances. Representatives from Sharp, which sells to the chain and can't prohibit its brand from being included in advertising, said they cringe to think that consumers take home their products for 99 cents. "It's not the image we want to convey," a rep said.

Perhaps not, hut consumers at both ends of the income scale are responding to the chain. Sales at the stores for the first six months of '99 were $193.2 million, up 43.5% over the prior-year period. Samestore sales grew 2.4%. The Wilshire Boulevard store pulled in more than $9 million last year, double that of the average store.

To build a brand image, the 99 Cents Only stores are uniform: brightly lit, with a blue and white color scheme and purple awnings and purple plastic shopping carts. The shelves are all eye-level, with the bounty of product easily visible from outside. The stores always carry certain staples--toothpaste, sponges, canned vegetables--but rotate in various health and beauty aids, tools, over-the-counter remedies, baby supplies and perishable food. Duncan Hines, Jergen's, Dr. Scholl's, Green Giant, Yoplait, Healthy Choice and Armor All products are scattered through the stores regularly.