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Dave Gold Turns 99 Cents Into Big Bucks

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Aiming4   Tuesday, 07/20/10 01:02:47 AM
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Dave Gold Turns 99 Cents Into Big Bucks

For better readability plus a couple of pictures, follow the below link to read this article... I've often dreamed of running a business this way - going against the grain can create a competitive advantage and a unique business identity... Aiming4.


Posted 07/15/2010 05:00 PM ET

Dave Gold was amazed.
Whenever he put a bottle of wine on sale for 99 cents at his two L.A. liquor stores, they sold better than when the price was 98 or 89 cents.
After 20 years of witnessing this phenomenon, Gold fantasized about opening a store that would sell goods only at that magic price.
One day in 1982 while driving with a friend, he started up yet again about his dream.
The friend exploded: "I'm sick and tired of you talking about it! Look, there's a store for rent right now. Why don't you grab it?"
He forced Gold to pull over. Gold signed a lease agreement that day.
"Usually, when you have a good idea, you see someone else beat you to it within six months," Gold, 77, told IBD. "I realized it was way past time to finally take action."
Did he ever. Today there are 276 of his 99 Cents Only Stores (NDN), which raked in $1.36 billion in sales for fiscal 2010 while profit skyrocketed from $8.5 million to $60.4 million in just one year.
The company, which has no debt, per Gold's philosophy, went public in 1996 and surged 800% in its first seven years after the IPO.
Gold started working at his parents' fruit stand in Cleveland when he was in grade school.
After moving to Los Angeles, he dropped out of college and he and his wife took over the liquor stores. He retired at 50 before launching the deep-discount chain.
Expensive Trouble In 1982
Inflation had hit 10% the year before. How could he keep his prices under a buck? Everyone told Gold that he certainly shouldn't put the price in the name of his store, in case he had to raise it.
As always, he went his own way — just as he drove hybrid cars before the public had heard of them.
Within six months of opening 99 Cents, he had proved the concept viable. The skeptics were now regular customers.
"Others do things because that's how they've always been done in an industry," said Eric Schiffer, Gold's son-in-law, who became CEO in 2005 as Gold shifted over to chairman. "Dave doesn't care what everyone else does. He looks at everything with a fresh perceptive."
One way he innovated, Schiffer says, was by designing stores as attractive as the slickest supermarkets. Gold stocked mostly brand-name merchandise when dollar stores were perceived as grungy outlets with out-of-date and flawed products (a photo of one of his colorful places is in a collection at New York's Museum of Modern Art).
"We can't afford rejects," Gold said. "Value matters more than price to customers, and we have to keep the value high."
His role model is Sam Walton. Gold's copy of the Wal-Mart (WMT) founder's autobiography is heavily underlined.
Another key to success has been that 95% of 99 Cents Only Stores' stock comes directly from manufacturers. Gold has made the process easy for vendors.
"We pay our suppliers before anyone else does, we'll take deliveries even when they're a couple of hours late, and we're probably the only company that has never canceled a purchase order," Gold said. "If we accidentally get a few extra cases, we tell them, and if we're short a case, we don't mention it. It's not just because we want to be honest; it's a very practical policy."
The Gold Rules
Instead of vendors having to get new products approved by buying committees, Gold empowers his buyers to make decisions and pays them twice the industry average because "they're not just placing reorders; they're building relationships that allow us to be ones our vendors call when they're overstocked."
His company has leveraged these links into a wholesale division that sells to other bargain stores.
"Treating others the way you want to be treated is a core value Dave has instilled in us, and you'd be surprised at how many executives have trouble with that," Schiffer said. "Anyone who doesn't live our values won't last here."
The CEO says Gold figures employees should run the business like they'd run their own households, "and you can apply a lot of lessons from there — you don't leave the lights on, you pick up the trash."
Number 9, Number 9
Employees ("99ers") get a top benefits package. And most managers and executives come from in-house, so the 12,000-member work force is loyal to the hilt, Schiffer says.
Since the company doesn't use an ad agency, workers participate in "nine sense," the humor that pervades public relations — from signage about refunds for those who aren't "99.99% delighted" to store grand openings, where a 99-year-old man will give away nine TVs for 99 cents to the first nine customers.
It's an extension of Gold, who peppers his business talk with jokes.
"Here, the best ideas, humorous or serious, win on merit, no matter who generates them," Schiffer said.
Gold says the company's philosophy of treating everyone well extends to customers, "who are really the CEOs. Without them you have nothing, so you have to look at the stores the way they do."
To serve them better, his stores open 15 minutes before the posted opening and stay open 15 minutes after the official closing time.
"We've all been frustrated by the need to get somewhere and workers won't open the doors a few minutes early," Schiffer said.
The good will at all levels translates into a gross profit of 40%, with new stores turning a profit within a year of launch, according to 99 Cents Only Stores.
Customers tend to come every week because half of each store's stock has brand-name essentials.
Gold did make a small concession to price pressure after 26 years of offering nothing over 99 cents. In 2008 he began letting some products be sold at 99.99 cents.
The recent recession was to the company's advantage, bringing in customers who might otherwise have never thought of shopping at 99 Cents Only.
Then again, the rich discovered it long ago. The store nearest Beverly Hills is the chain's highest-grossing at $11 million annually, and the parking lot is often full of luxury cars.
"Rich people love bargains," Gold said. "That's how they got rich."
He doubts that the newest customers will stop shopping at his stores if the economy keeps recovering, pointing to the lifelong psychological impact of the Great Depression.
Smart Money
He probably knows what he's talking about. So well did he do before the company went public, he spent $34 million of his own money to buy out an acquisition that didn't perform as expected and just closed it. Yet he hardly seems like a tycoon; he's laid back, in rumpled clothes and having fun.
Dave Gold simply loves to buck conventional wisdom.

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