Never underestimate the number of places to spend a buck.
Dollar World, Eighty Eight Cents and More, Just 99 Cents Store, One Dollar Mas o Menos, Chavez Store 89 & Up they’re all merchants trying to cash in on the fixation among shoppers to find merchandise of all conceivable sizes, shapes and varieties at $1.00 or less.
“People were afraid to go into the store because if it was 99 cents, you had to have junk, not quality,” said dollar kingpin David Gold, who started 99 Cents Only Stores Inc. two decades ago. “It was more of an educational job than it is now. And we did far less business back then.”
Gold has since become a major success story, last year racking up $816 million in revenues. But in searching out consumers looking to save a buck or more he’s been joined by a string of businesses, from mom-and-pop stores to discount chains to public companies, all nipping at Gold’s heels.
“With California’s significant population and with the demographics we have, and the significant middle class and economically challenged people, there really is an opportunity for the dollar stores,” said Aubie Goldenberg, a partner in the retail group of Ernst & Young in L.A. “Because we’re over-stored, any time a new retailer comes in, it’s additional competition.”
Much of the dynamic involves newly arrived immigrants who have opened 99 Cents-type knockoffs in lower-income neighborhoods.
Javier Garcia, the manager of Ruben’s 96 Cents & Beyond on Whittier Boulevard in Southeast L.A. said he and his brother, Ruben, opened their store four years ago to make more money than what their minimum-wage jobs as railroad workers provided. With $30,000 in savings, they launched their first business where they live.
“I’m a Mexican,” he said, “and in this area, this is East L.A., we have a lot of stores. But the Chinese people are in the retail business, but no Mexicans. I talked to my brother and said, ‘These guys are making a lot of money from my people.’ So we put up a business.”
But even big discount retailers such as Target Corp. and Kmart Corp. are getting in. Target is rolling out a One Spot dollar aisle in most of its stores this fall. Then there’s Wal-Mart Stores Inc., whose supercenters have threatened dollar stores outside Los Angeles.
Gold called Wal-Mart, which recently announced plans to open its first supercenter in Los Angeles County, a “tough competitor.” But he noted the 99 Cents stores near Wal-Mart’s regular stores in Lancaster and Palmdale do well because they take advantage of foot traffic.
“Truthfully, (dollar stores) probably can go for longer than people think,” Goldenberg said. “As long as the manufacturers and distributors feel pressure and need to sell off inventory or continue growing, they’ll take the opportunity to sell to 99 cent stores and dollar stores.”
Striking gold
Fueling the rise of the dollar store phenomenon at mom-and-pops as well as about half a dozen major chains are mainstream retailers looking to rid their shelves of excess inventory and manufacturers of top brands seeking to shed old product lines. They include Suave shampoo, Brawny paper towels, DVD cases, Star Wars toys, bamboo mats, cookies and even bananas.
For much of the last two decades, 99 Cents Only has shrugged off the competition, but its core market is now being targeted.
Dollar Tree Stores Inc. has been opening stores around the edges of the county since it bought its way into the market with the 1998 purchase of Step Ahead Investments Inc., owner of 98 Cent Clearance Centers. Dollar Tree, which had focused its expansion on the East Coast, now has 12 stores in L.A. County.
The company plans to open two more stores locally and expand an existing store by the end of the year, said spokesman Adam Bergman.
“When we acquired our way into California, we simultaneously gained both a store base and a distribution center, rather than doing one first and filling it in behind,” he said. Unlike 99 Cents Only, Chesapeake, Va.-based Dollar Tree does not carry perishables like milk and eggs.
Bergman said Dollar Tree looks for a minimum of 20,000 potential customers within a five-mile radius. Stores should be in middle-income areas with low crime statistics, as well. Most of Dollar Tree’s Los Angeles stores are in suburban areas such as Palmdale, Lancaster, El Monte, Pomona, Rowland Heights and Montebello, and it has targeted Norwalk and San Dimas for its new operations.
The business models for the dollar stores vary starting with how the merchandise itself is selected and bought.
While 99 Cents Only and other large chains snap up overstock merchandise, odd lots and items whose seasons have passed, Garcia’s purchasing program is less formal. Many of his products come from Mexico, including wicker baskets, cookware and pi & #324;atas. The balance comes from local warehouses.
“The driver knows those places,” he said. “When we have to go over there, the people, they don’t tell you nothing about it.”
Because they lacked a track record in business, it was hard to find a landlord willing to lease them space. Garcia finally convinced a landlord he had enough money in the bank to make payments.
Gold brushed off the competition from the mom-and-pop shops, saying that the quality of their items is poor because they do not buy directly from major manufacturers. What’s more, he said, “They’re not the nicest, cleanest stores you ever saw.”
None of the players in the dollar store sector are immune to competition, and Garcia said his lone shop has already felt the pinch from nearby Target and Kmart, which have lured business with the ability to exchange items.
“This is the problem for my store we don’t have the idea if we put the store close to big companies, like Kmart or Target, the sales will be less,” he said. “This is my first business. We opened it, and we don’t have experience.”
