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WIKI ANALYSIS
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99 Cent Only Stores is an extreme value retailer with stores in 4 US states selling brand-name items from groceries to housewares, all of which cost only $0.99. In 2008, 99 Cents Only changed its fiscal year end date; thus, the company's 2008 fiscal year began in March 2007 and ended in March 2008. [1] From fiscal year 2006 to fiscal year 2008, net sales increased 17.2%, from $1.02 billion in 2006 to $1.2 billion in fiscal year 2008.[2] Over the same period, net income decreased 75%, from $11.4 million in 2006 to $2.9 million in 2008, due to increased costs in fiscal years 2006 and 2007.[3]
Since 2006, inflation and general increases in manufacturing and transportation costs resulted in increased costs to the company.[4] From 2006 to 2008, total operating expenses have increased by $95.7 million. [5]The company's efforts to expand the chain met with difficulty in Texas, where net sales per store in 2008 were about half of net sales in stores elsewhere. Texas stores averaged $2.4 million in net sales, while other stores averaged $4.8 million.[6] The company has benefited, however, from growth in the deep discount industry as a whole--from fiscal year 2006 to fiscal year 2008, 99 Cents Only's retail sales have grown 18%.[7]
Company Overview99 Cent Only is the nation's oldest chain of single-priced general retailers, founded in 1982.[8] 99 Cents Only has 277 locations nationwide; 70% of their stores (193) are located in California, 17% in Texas (48 stores), 9% in Arizona (24 stores), and 4% in Nevada (12 stores.) [8]. Like other single-priced general retailers in the market, all items in store locations cost only $0.99, regardless of the product type or item being purchased.[8] Retailers which operate under this $0.99 price point are often commonly referred to as "dollar stores."
Despite an "extreme value" approach to pricing merchandise, 99 Cents Only cultivates a vendor relationship with many familiar companies, including Hershey's, Dole, Heinz, Johnson & Johnson, Arm & Hammer, and Coca-Cola, among others.[2] By buying in bulk quantities and taking advantage of closeout and newly discontinued merchandise, the company offers customers brand-name products for the same stated price of $0.99.[2]
Business and Financial Metrics
Since 2006, net sales from all business segments of the company increased 17.2% from $1.02 billion in fiscal year 2006 to $1.2 billion in fiscal year 2008. [2]. Over the same period, net income dropped 75%, from $11.4 million in 2006 to $2.9 million in 2008. [2]. Between fiscal year 2007 and fiscal year 2008, net income decreased from $9.8 million to $2.9 million, primarily due to increased costs in fiscal years 2007 and 2008. Between 2006 and 2008, total operating costs increased by $95.7 million. [9] Average net sales per square foot of retail store locations in 2008 was $263, an increase from $254 in 2007.[10]
In fiscal year 2008, the 39 99 Cents Only retail locations in Texas averaged $2.6 million of sales per store compared to non-Texas locations, which averaged $4.9 million of sales per store. [6] In fiscal year 2007, the company's 36 open locations in Texas performed similarly in comparison to the average of locations outside Texas--Texas stores averaged $2.4 million in sales, while other locations averaged $4.8 million. [6]
In the 2008 fiscal year, a considerable majority of sales came from grocery and food products, with 52% of total sales by product type.[2] General household and housewares comprise the next largest category of total sales at 15%. [2]Product categories which each comprise less than 10% of total sales include health and beauty care, stationery and party merchandise, seasonal and holiday wares, and hardware. [2]The "other" category, a catch-all for any products which do not fall into the other delineated categories, comprised 12% of all total sales across all active locations.[2]
Business Segments
Trends and Forces
Inflation results in difficulty sticking to dollar price point.In 2008, vendor prices, labor, energy, and fuel costs all increased as a result of inflation and other market forces, resulting in higher costs to retail stores and the company at large. [4]The company's business model did not permit the increased costs to be passed along to the customer because 99 Cents Only retail stores cannot raise prices above 99 cents, regardless of company costs. 99 Cents Only have previously had to pull certain items from stock due to vendor price increases; 2008 was the first year the company attributed such increases to inflation. [11] From fiscal year 2006 to fiscal year 2008, the company's total operating expenses increased by $95.7 million. [12]
The "deep discount" market is a quickly growing one, particularly in rough economic climates.The deep discount industry is, across the board, seeing a greater level of activity from consumers of varying incomes. As of September 2008, 99 Cents Only's retail stores made $307.4 million in net sales, an increase from the $280.6 million in net sales made in September of 2007, the fiscal year prior. [13]In August and September of 2008, when most retailers reported a drop in sales, many deep discount industry companies reported modest gains--Family Dollar Stores, a very similar company to 99 Cents Only, saw an increase in same-store sales of 3.6% and 5.6% in August and September 2008, while average sales across all retailers, including discount stores, only rose 2.0%[14] In the second quarter of fiscal year 2008, Dollar Tree Stores had a profit gain of 15%.[14] From fiscal year 2006 to fiscal year 2008, net sales in 99 Cents Only retail stores grew by 18%. [7]
Competition from established value retailers proves an impediment to geographic expansion.99 Cents Only's stated goal of eventually expanding nationwide has already hit a regional roadblock. In fiscal years 2007 and 2008, net sales in the company's Texas stores were about half of net sales in stores located in other states.[6] In 2008, two stores in Houston were closed for underperformance.[6] Texas as a whole has a large number of retail stores operating under the dollar price point or similar discount pricing strategies. Family Dollar Stores has 817 locations throughout the state, Dollar Tree Stores operates 212 stores in the state, and larger competitor Walmart has 444 stores in Texas locations.[15][16] [17]99 Cents Only's experience in Texas shows that the company's retail stores will not necessarily succeed in all areas of the nation, particularly in areas with large numbers of competitor stores already open.
Competition99 Cents Only's major price-point competitors are two other public companies--Dollar Tree Stores and Family Dollar Stores. In addition, the company competes with Big Lots and Walmart, two other national discount chains.
| Fiscal Year 2007 | Net retail sales (in millions) | Number of retail locations | Average annual sales per store (in millions) |
| 99 CENTS ONLY STORES (NDN)[28] | $1,064.5 | 251 | $4.5 |
| Family Dollar Stores (FDO) [29] | $6,800 | 6,438 | $1.1 |
| Dollar Tree Stores (DLTR)[19] | $3,969.4 | 3,219 | $1.3 |
| Wal-Mart (WMT)[30] | $344,992 | 6,779 | n/a |
| Big Lots (BIG)[31] | $4,656.3 | 1,353 | n/a
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