Gold's Mine

TIMES STAFF WRITER

Cereal bowls. Contadina pasta sauce. Legg's socks. Johnson & Johnson cotton swabs. Ghirardelli chocolate. Aspirin. A flashlight with batteries.

To the average shopper, these things have little in common. But to entrepreneur David Gold, they are all exactly the same--worth just 99 cents.

The son of a Russian peddler, Gold got the idea for his chain of 99 Cents Only Stores in the early 1960s while operating a small liquor stand in downtown Los Angeles' Grand Central Market. When he priced bottles of wine at 99 cents, they sold so quickly--much better than wine priced at $1.01 or even 98 cents--that Gold dreamed of owning an entire store where everything would be 99 cents.

"We didn't laugh in his face--but we were skeptical," said Larry Borenstein, who started working for Gold when he was 12, delivering wine to the flophouse hotels that then dotted Bunker Hill.

"We didn't see how you could sell everything for 99 cents and still make a profit. But he was right then, and he's still right," said Borenstein, now vice president of operations at Gold's company.

The 99 Cents Only chain has 46 brightly lit stores with neatly stacked wall-to-wall merchandise, all within 50 miles of downtown L.A. This week it will open a store in Glendale, and an additional store will open in North Hollywood in June.

Last year the company reported a 43% boost in profit and a 20% increase in sales to $183 million. Its stock price has risen more than 30% since it went public last year on the New York Stock Exchange.

Like the five-and-dimes that were once a staple of Southern California, discounters such as 99 Cents Only Stores are becoming essential bazaars for a whole generation of shoppers.

Part of a growing and profitable industry trend, these value retailers offer everything from food to household goods at rock-bottom prices. Most of the retailers target low-income shoppers for whom every penny counts, the people whom giants like Wal-Mart Stores Inc. have moved away from. Although these discounters don't have the food counters or the feel of the old 1940s dime stores, for many urban dwellers this is the new neighborhood shopping experience.

"This is the new model of the variety store--they're small, neighborhood-oriented and the customers come frequently. They're the kind of customers who often will say hello to the store manager," said Barbara Miller, a retail analyst in New York.

"This could be the return of the old five-and-dime for a whole new generation of people," said William H. Crookston, a professor of entrepreneurship at USC's Marshall School of Business, who was born in Los Angeles 61 years ago. "The place where it was a treat to go with your granddad. These places always have a lot of children, and they have those impulse items."

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Besides the 99 Cents Only Stores in Southern California, Dominguez-based Mac Frugal's Bargains Close-Outs Inc. operates 320 retail stores in 18 states, selling wares at as much as a 70% discount under the names Pic 'N' Save and Mac Frugal's. The company, started in 1971, saw its sales increase nearly 20% in February and March over the same period last year.

What's driving these stores? Demographic trends such as immigration, more elderly people on fixed incomes and more people earning $25,000 or less a year. And shoppers who just like good deals.

"Saving money is in," said Neil Watanabe, chief financial officer of Mac Frugal's.

Although some national discounters such as Everything's a Dollar and All for a Dollar have gone out of business or filed for bankruptcy protection in recent years, many others are thriving.

Everything is just $1 at Dollar Tree Stores' 767 outlets, mostly on the East Coast. (None is in California.) Despite the successful growth since the Norfolk, Va.-based chain was started in 1986, CEO Macon Brock said the company still learns from 99 Cents Only.

"David Gold, I have to give him credit for starting this one-price- point concept in recent decades," Brock said. "I admire what they've done."

In 1982, Gold and his wife, Sherry, took a chance on their cherished dream of opening a 99 Cents Only store in Los Angeles after they sold their downtown liquor store. Lines of people were wrapped around the building when the first store opened near Los Angeles International Airport on Aug. 13, a Friday.

Now they are in the midst of an expansion, with plans to open seven stores in the Los Angeles area this year. There are also plans to expand to San Diego, Arizona, Las Vegas and possibly New York through acquisitions.

"They remind me of a young Wal-Mart," said Bob Buchanan, a retail analyst at NatWest Securities in New York, a firm that took 99 Cents Only public last year. "Basically, they are the originator of the concept, and they are the best at it."

Innovative marketing techniques have given the chain an irreverent identity well-suited to Southern California. At store openings, new 19-inch color TVs are often sold for 99 cents to the first nine shoppers. The company's bridal registry, which was started as a joke, has since become a popular feature, allowing people to give $9 store certificates as gifts.

The company's clever ads (on April Fools' Day it advertises "Everything for $99") have helped it increase name recognition, as have promotions such as selling O.J. Simpson's book, "I Want to Tell You" (original price: $17.95) for just 99 cents.

Gold, a Los Angeles native, attributes the company's success to its focus on quality name-brand items from a wide range of industries.

"People think there must be something wrong with a product if it's for sale for 99 cents," said Gold, 64. "But these are quality products; some are test items, some are discontinued, others are for worldwide markets," with, for instance, packaging in Spanish.

Gold says he takes only about 10% of his goods from foreign countries, instead focusing primarily on name-brand suppliers that have made too much of a new product or discontinued one because of a change in style, color or packaging. Sometimes, he said, firms must get rid of inventory quickly to meet quarterly earnings numbers and report good news to shareholders. Firms that once donated excess products to charity or food banks now sell to discounters to meet analysts' sales predictions.

"See this Vaseline Intensive Care body wash?" Gold said on a recent visit down the bright aisles of his Wilshire Boulevard store.

"The only reason we got this is that it's a test item they aren't going to go with. And these Sucrets, see--the reason we got this is that it's 24 in a tin pack, and now they are selling 18 in a plastic pack."

So far, all the 99 Cents Only stores are in densely populated, demographically diverse neighborhoods. The bulk are in Los Angeles County; five are in Orange County and one is in San Bernardino County.

With almost no long-term debt, the company is doing as well as or better than most of its competitors in the discount retailing industry, said analyst Buchanan. For instance, Pic 'N' Save has, on average, $107 in sales per square foot, whereas 99 Cents Only has $302, he said.

In the parking lot of the 99 Cents Only store on Wilshire, brand-new Lexuses and Jaguars regularly line up next to old wrecks with plastic sheeting covering missing windows. The stores have the excitement of a garage sale or really good flea market, shoppers say. It's never certain what products you'll find, but some of them might be priced at less than half what you'd pay in other stores.

Anthony Mitchell, 65, says he goes to 99 Cents Only at least three times a week for the bargains and sometimes finds "once-in-a-lifetime deals." The retired federal government worker says he looks for name brands and avoids products that might be made in other countries.

Jane Lee, 24, said she started shopping at 99 Cents Only with her friends while she was an undergraduate in biochemistry at UCLA. Now getting ready for graduate school in the fall, she still does.

"I buy mostly paper products, scrubbers--for 99 cents, you can't beat it," she said.

If customers get to the store even as much as 15 minutes before it opens, employees are instructed to let them in. And if someone wants to shop a few minutes after the posted 9 p.m. closing time, employees are told not to bother that person for at least 15 minutes.

Cashiers have it fairly easy. The registers have only two keys: taxable and tax-free.

It's a family-dominated business. Gold's wife is a co-owner, and his sons Howard and Jeff are senior vice presidents of distribution and real estate. Son-in-law Eric Schiffer is a vice president of finance and operations. All three are on the company's board.

"They work hard, and we have fun," said Gold, who is chief executive.

Known for long hours and his feeling that no job is beneath him, Gold gets in every morning at 5:30 and parks in the back of the firm's Commerce headquarters, leaving the front parking spaces for customers and visitors. He drives an Oldsmobile and still lives in the Mid-Wilshire neighborhood where he grew up.

"As a corporate officer, I'm not supposed to get out here and dust the shelves, but the further we get away from our customers, the less in touch we are," said Gold, busy stocking the pastry shelves and asking employees why one product was missing a "Get two for 99 cents" sign.

To differentiate itself from the other discount stores, he says, the company focuses on keeping its outlets clean and bright.

As a rash of under-a-dollar stores began appearing, he worked hard to explain to suppliers that his chain was different. Gold said he takes pride in emphasizing quality first but that merchandising is a close second. Take the stacks of products displayed in brightly lit windows that look as if they could be in an Andy Warhol painting.

"He's a master merchandiser," said Seth Feinstein, an analyst with Crowell, Weedon & Co., a Los Angeles investment banking firm that last year helped sell the public a stake in 99 Cents Only for $14.50 a share.

As Gold's chain began to take off during the 1980s and early '90s, well-dressed Los Angeles bankers began dropping by Southern California store openings to chat with Gold and offer advice on how to take the company public.

"It's hard to know who to choose--or whom to trust," said Gold, who, with help from his son-in-law, a former venture capitalist, eventually picked a team of bankers.

The company decided to go public on the New York Stock Exchange in part to differentiate itself from other discount stores flooding the market. Being able to tell suppliers it was an NYSE company helped provide credibility, Gold said.

The company's stock price has increased steadily. It gained 75 cents Friday to close at $24 a share, a 52-week high.

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These days Gold is a long way from his Grand Central Market liquor stand draped with flags from all over the world and shelves stacked so high that he used a ladder. It looked like a library of liquor, Borenstein remembers. Gold bought his discount wares in bulk, sometimes at pennies on the dollar, in close-out sales, bankruptcies and even from liquor stores damaged in the Watts riot.

Gold still thinks of each store as a little like that stand, and seemed momentarily puzzled when reminded that he runs a chain now.

"I guess you can say we are a chain, and we are a chain, but we don't think of ourselves that way. We are just a bunch of small businesses," he said.

And what about 99 cents? How long can he keep selling at the same price? Isn't he worried about inflation?

"When we started off there was 18% or 20% inflation, crazy inflation, and I thought we'd last a year or two at 99 cents," Gold said. "But right now, I think we can stay at these prices for the foreseeable future."

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