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Yet, even with sales of $863 million for the fiscal year that ended December 2003 (up an impressive 21 percent over the previous year), IT investments at 99 Cents Only Stores, based in City of Commerce, Calif., are as spare as Robert Adams, vice president of information services, can make them. Even with the high-end automation installed at the new Texas distribution centernot to mention the cash registers, wireless LANs, Internet hook-ups and back-office computers needed for each of the 38 new stores it opened last year 99 Cents Only spent less than $5 million on IT in 2003.
In fact, the prospect of doing nothing but cutting corners is what prompted Adams to turn down his current job the first time it was offered to him, seven years ago, when he was director of IS at Associated Truck Parts Inc. But when the job opened up again, two years later, 99 Cents Only asked Adams to reconsider. After some hesitation, the veteran of IT at retailers The Wet Seal Inc. and J. Crew Group Inc. decided to take the risk. "My biggest fear coming in here was that they wouldn't be willing to do a lot with technology because they would naturally be cheap," he says. "I shouldn't have worried."
How does 99 Cents manage to spend so little? Like the company's founding family, Adams knows how to squeeze every dollarmake that 99 centsuntil it bleeds. When he needed ten database-management system licenses, he didn't just slap down the $16,000 per seat that his usual supplier demanded. Instead, Adams surfed over to PriceGrabber.com and found the same software at another reseller for $6,000 per seat. How quickly did he get approval to switch to the cheaper company? He didn't have to seek approval. It was his decision to make. "That's one of the beauties of working with a family-owned operation," Adams says. "There's a real small power base within the company, decisions are made quickly and our whole life cycle of projects is much, much shorter."
The dollar-store industry as a whole has been slow to adopt modern systems, according to senior retail analyst Mark Mandel of the brokerage firm Blaylock & Partners LP. "It's a fairly simple format, and the cost-benefit analysis has not pushed the players into investing in modern systems," Mandel says. But many chains in the industry are slowly beginning to move that way. "All of them are trying to enhance their technology so that they can improve their profitability and ordering systems," says Todd Hale, senior vice president at ACNielsen Consumer Insights. "A lot of dated material used to move through this channel, so there wasn't much incentive to modernize, but now a number of manufacturers are making products specifically for this channel."
Mandel does note, however, that 99 Cents is not a traditional single-price retailer. Other dollar stores typically sell their wares in 4,000- to 6,000-square-foot stores, each of which grosses around $1 million a year; a typical 99 Cents Only store is about 19,000 square feet and brings in $4.8 million. And where other dollar stores target low- to moderate-income neighborhoods, 99 Cents looks for areas with a high-income demographic. "Rich people like to save money too, and they do it in higher volumes," says founder David Gold. Case in point: The 18,000-square-foot 99 Cents Only store adjacent to Beverly Hills rakes in the chain's highest annual gross, averaging $10 million. And, unlike competing retailers in the dollar-store industry, the company can re-order up to 60 percent of its inventory; the remaining items in each store are one-time-only close-outs.
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