David Gold, Founder of the 99 Cents Only Chain, Rejects High Pay, Prices
By DEBORAH BELGUM
It’s open-vendor day at the offices of 99 Cents Only Stores Inc., the place to unload items that never hit it big or at least big enough to be snapped up in a Ralphs or a Target.
The place has the vague look of a doctor’s waiting room: Salespeople clutch samples or haul them around in small suitcases on wheels. The store’s buyers pop into the office of David Gold, the 70-year-old founder and chief executive, to get his approval.
“Twice a week we allow vendors to come in and show us what they have,” explains Gold, who walks through the crowd and greets regulars and newcomers alike.
With salt-and-pepper hair and curls well passed his ears, the 70-year-old Gold needn’t be kibitzing this way. Gold and his family have a net worth of $650 million, according to the most recent Business Journal estimate thanks to a stock that, in spite of recent Wall Street skittishness, is nearing a 52-week high. He opened his first store 20 years ago on La Tijera Boulevard near Los Angeles International Airport and has grown the concept to more than 130 locations.
But Gold just doesn’t operate like a big-money guy. Son of Russian immigrants, he still reports to his City of Commerce office every day between 4 a.m. and 5 a.m. (the best time to get things done before the chaos begins, he says). He and his wife have lived in the same house for 38 years, and he has just turned in his 1993 Oldsmobile for a Toyota Prius, a hybrid car that gets great gas mileage.
Plus, at a time when executive compensation abuses have become standard-issue, Gold is content with a relatively modest salary of $181,000 in 2001, up from $168,000 the year before. He has not received a bonus in the last three years.
“We have enough already. I’m overpaid,” he says.
Family members and company executives take seven of the 12 board seats, but the four-person compensation committee is made up of outside directors.
“All CEOs are overpaid,” Gold snipes. “Executives are supposed to be drawing a salary for doing a good job. That’s the reason for a salary. They shouldn’t get benefits when the company does poorly.”
In a notable departure from many a public company these days, all full- and part-time are eligible for stock options except the executive team, which is made up of members of the Gold family.
Options, he notes, only should be available to those at the manager level. “Retail is typically poor paying,” he says. “If the company does well, we thought our employees should participate.”
In between vendor pitches the other day, Gold laid out how he runs the place.
Question: Do you shop at your own stores?
Answer: Sure. We buy whatever we need, paper products and soaps. We shop there all the time. A lot of the people at the stores don’t know us. So we go in and shop and observe and see how it is run. Normally we shop at the one at Wilshire Boulevard and Fairfax, which is close to where we live.
Q: Why did you decide to go public six years ago?
A: All the assets we had were in the business. Then I heard about the 55 percent inheritance tax and that the government won’t take Ajax cleanser to get paid. If something happens to my wife or myself, my family would be forced to sell the business to pay the inheritance tax. It also gave us a chance to give a little bit back to the employees that had been with us. We have several truck drivers who bought homes for cash with their stock options.
Q: Your business generates a tremendous amount of cash. Have you ever borrowed money for operations?
A: About 15 years ago, a person at the bank told us we had to establish a line of credit since we never borrowed money. So we borrowed money on a Friday, and all weekend long I kept thinking, “Why did I borrow this money?” We didn’t need it and we had to pay interest on it. On Monday morning we paid it back. I don’t remember how much it was.
The stores pay for themselves very quickly, which is how we accumulate money. We lease most of our locations and the company owns eight or 10 stores.
A company buyer walks in with an attractively packaged box containing a simple wooden incense holder. “Look at this,” she says. “I thought the packaging was kind of nice. The guy wants to sell them for 70 cents each.”
Gold is skeptical and advises her to get them for a lower price. “This from a guy who hates incense,” he says.
Q: Have there been items that were really bad buys?
A: We bought sleeves, just plain sleeves that were not with anything else. You could zip them onto your jacket, but you had to have a jacket they could zip on to. Eventually they sold to roofers, who bought them to wear so they wouldn’t get sunburned. That was about two years after we had them.
Then about seven years ago we purchased this Aqua Vie product, a bamboo-flavored soda. It did not sell. We wound up selling a whole case of 24 bottles for 99 cents and it cost much more than that. We make mistakes once in a while.
Q: What’s it like to work around here?
A: We try to have a lot of fun. No one here has secretaries, and no one has private parking places. We try the run the business like you run a household. Yesterday we were in Sacramento, where we went to the grand opening of our store, and we all stayed at Motel 6. It was clean, and right across the street.
Another buyer walks in to talk about buying about 38,000 cases of packaged beans for 20 cents a pound. “That’s a good deal,” Gold says. “They sell for $1.29 at Vons. Make sure they’re fresh.”
Q: Who develops your funny advertising campaigns?
A: We do it in-house. We have no advertising agency. We have no public relations firm. We have been public for six years and we don’t have anyone going out doing public relations.
Q: Is the humor important?
A: It keeps you going. People are afraid to do anything out of the ordinary, and quite often if you have a political statement or a funny statement in the ad they feel that’s not the place for it. When the Dodgers lost 99 games in 1992, we said in our ads, “Congratulations Dodgers on losing 99 games.” The one we got probably the most attention for was a product we sell called Niagara Water. So we misspelled it on our ads, putting in a V instead of an N.
The one we really got in trouble for was selling the Lyle Menendez book as a Father’s Day special.
A third buyer walks in with a navy blue plastic photo album with an American flag on the front. He wants to know if Gold is interested in purchasing them. “It’s not a bad album,” Gold says, removing the plastic shrink wrap and flipping through the plastic pages. “There is so much patriotic stuff around. George is going to have to start a war to get rid of this stuff. Only kidding.”
Q: What is your expansion plan?
A: We have been expanding toward Northern California. In Central California we have opened up in Porterville, Clovis, Fresno and Lodi, little towns where we have done really, really well without any advertising. We are in San Diego with eight stores, eight stores in Phoenix and seven stores in Las Vegas. In 2003 we will open 40 in northern California. In 2004 we are going to Texas and open 99 stores.
Q: What do you look for in a location?
A: I don’t think location is that important. You can take the best shopping center and there are some people who won’t make it. And you can take the worst shopping center and some people will make it. You have to have something to offer. We really like visibility, but as far as location, people will drive to our business.
Q: Which is your best location?
A: Our best store is the one on Wilshire Boulevard and Fairfax Avenue. We have higher and lower income customers there. Our average store does $4.6 million in sales. The Wilshire store does twice that. The average dollar store does less than $1 million.
Q: Who is your typical customer?
A: We have people who are extremely wealthy and people who are very, very poor. I don’t know if there is a typical customer. The hardest thing for us to do is get an educated person in the store the first time. But after we get them in, they become some of our best customers.
A fourth buyer walks in with a handful of plain baseball caps, wanting to know if Gold is interested. “I don’t think these would be perceived as good value,” Gold says. “I think they need some kind of logo or team name on them to sell.”
Q: How have your stores changed over the last 20 years?
A: They haven’t changed much. We have better values now than 20 years ago and better variety. The first store was 2,500 square feet and now we have stores between 18,000 and 20,000 square feet.
Interview: David Gold
Title: Chairman and chief executive
Organization: 99 Cents Only Store
Born: Cleveland, 1932
Education: Attended Los Angeles Community College and California State University Los Angeles
Career Turning Point: Deciding to make a chain out of the 99 Cents Only Store concept
Most Admired People: In his youth, Cesar Chavez. “Now I can’t think of anyone.”
Personal: Married, three children