Case Study: 99 Cents Only Stores' Efficient IT Infrastructure (
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99 Cents Only Stores' low-budget roots are supported by a highly efficient IT infrastructure that helped them earn $863 million in sales in 2003, up 21 percent over the previous year, while spending less than $5 million on IT. Their strategy? Cutting-edgeAvis Walton is used to being told where to go and what to do once he gets there. As a "picker" for 99 Cents Only Stores, Walton spends his 5 a.m.-to-3:30 p.m. shift cruising around a 750,000-square-foot distribution center in Katy, Texas, in an electric cart responding to a stream of spoken instructions. "Go to row 12, section 8, bin 31," an authoritative woman's voice in his ear commands, and Walton zips to row 12. Blip-blip. He scans the bin tag with a wireless handheld computer to confirm he's arrived at the right place. "Pick two cases plus four items," the voice continues. Beginning to break a sweat, 24-year-old Walton lifts two cases of vinyl tablecloths onto a pallet, rips open a third box and removes four more tablecloths. "Confirm pick," he says into his microphone, thus prompting the voice to send him zipping off on another assignment. Doesn't her bossiness get annoying? "Nah, she's cool," Walton says. "She tells me what to do and I tell her when I do it."
Perhaps if this voice were that of a human, Walton might take offense. But the "she" that he and his 15 fellow pickers interact with throughout their shifts is actually the computer-generated voice of the distribution center's warehouse-management software. Like a digital flight controller, the as-yet-unnamed voice sends squads of pickers scurrying to gather the items needed by individual stores, all the while quietly calculating the most efficient routes that will also prevent them crashing into one another. At the same time, the voice tells the pickers which bins need replenishment and where they can find the stock to do so. Roaring away overhead is a mechanized conveyor system worthy of any airport's luggage- handling operation. Pickers run along four levels of a massive series of racks, each shoving cases of product into the conveyor system; laser scanners read box tags to verify that each case is following the correct path to the waiting pallets below.
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It's not exactly what you'd expect to find behind the scenes at a retailer so frugal that it sells everything for the same rock-bottom price of 99 cents. Expensive computer gear and cutting-edge automation would seem anathema to a company totally driven by the bottom line. Yet the combination of up-to-date technology and a keen eye on expenses has been part of the secret to success for 99 Cents Only Stores. And the company has been mighty successful. Since going public in May 1996 at a split-adjusted $3.12, the company's shares climbed as high as $36.22 this past July, then fell below $25 in mid-December before recouping to a recent $27. The company consistently outranks its peers in the dollar-store retail niche in such measures as sales per square-foot and net profit margins. In 2002, net profit margins were 8.3 percent, which may not sound spectacular, but consider this: In the same period, Kroger Co., the supermarket chain, had net margins of only 2.1 percent, while margins at the super-efficient Wal-Mart Stores Inc. came in at just 3.1 percent.
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