Case Study 99 Cents Only Stores: It Infrastructure on a Budget

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Case Study 99 Cents Only Stores: IT Infrastructure on a Budget 99 Cents Only Stores is one of the leading retailers in the deep-discount sales industry. The first 99 Cents Only Store opened in 1982, and the company now operates 194 retail locations, including 150 in California, 19 in Texas, 15 in Arizona, and 10 in Nevada. The stores carry mostly name-brand general merchandise, including food and beverages, health and beauty aids, cleaning supplies, house wares, hardware, stationery, toys, gifts, pet products, and clothing. The chain makes purchases from over a thousand suppliers, including such notables as General Electric, Colgate-Palmolive, General Mills, Johnson & Johnson, Procter & Gamble, Kraft, Nabisco, and Unilever. Stores cover an average of 21,500 square feet, and those stores that were open for the entire year in 2003 averaged $4.9 million in net sales per store. Overall, 99 Cents Only Stores experienced a 21 percent company-wide increase in sales in 2003, totaling $863 million. The majority of products can be restocked regularly. 99 Cents Only Stores also feature close-out merchandise, which is not available for reorder. The deep-discount industry is characterized by the purchase of close-out and special opportunity merchandise at costs below wholesale. Deep-discount retailers pass the savings on wholesale from these purchases to customers, who are able to buy products at prices that are well below retail. There is increasing competition with other deep-discount retailers for this special-situation merchandise, and some competitors have more financial resources and buying power than 99 Cents Only. 99 Cents Only Stores’ recipe for continued growth is to open more stores while expanding same-store sales and trying to wring more out of each dollar to keep profit margins higher than competitors. The company has set a target of expanding its store square footage by 25 percent every year and believes that the states in which it already operates have the potential to support over 400 stores. Approximately half of the new stores launched in 2004 are in Texas. These stores will be serviced by a 741,000-square-foot distribution center near Houston that the company purchased for $23 million in 2003. How does 99 Cents Only Stores manage its widespread chain of stores while keeping down costs? The answer is, with information technology, but on a budget. In 2003, despite opening 38 new stores and beginning operations in the new distribution center in Texas, the company’s IT budget did not surpass $5 million. Although David Gold, 99 Cents Only’s founder, chairman, and CEO, resists computer technology in his own office, he knows that computers have played a large role in enabling his company to grow. Gold introduced Radio Shack TRS-80 personal computers to the business in the 1980s. Gold’s son, Jeff, now a senior vice president, programmed the company’s first order-entry and warehouse inventory systems on those computers. Today the company obviously requires far more computing power. The task of choosing and implementing that power without breaking the bank falls to Robert Adams, vice president of information services for 99 Cents Only Stores. 99 Cents Only Stores is not a typical single price point business. The average 99 Cents Only Store is about five times larger than the industry standard and generates approximately five times more in sales than its competitors ($4.8 million to $1 million). 99 Cents Only Stores also differs from its competitors in its target customer demographic, even pursuing locations in high-income areas. David Gold says, "Rich people like to save money too, and they do it in higher volumes.” With these factors in mind, Robert Adams continues to improve and expand the company while keeping the clientele satisfied and not spending too much money. For example, he saved the company tens of thousands of dollars on database management...
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