Printed for personal use only

The Price Is Right

Why Wall Street loves Dave Gold's 99 Cents Only empire

THERE MAY BE NOTHING MORE revealing about a culture than the harebrained schemes and failed gewgaws of its people, most of which will one day turn up in your local 88, 97, or 98 Cent store. Generally speaking, such places are dark and orderless, with stock that changes every day. The most arcane are located in Koreatown, where a recent trip yielded Funky Supreme dishwashing detergent, which was sandwiched between tamale husks and a Chinese Hula Hoop with scalloped edges to massage the organs as one twists. But in the hierarchy of dollar stores, or deep, deep discounters, or "extreme-value retailers," as they are referred to on Wall Street, the 99 Cents Only chain is the Cadillac.

The 99 Cents Only stores, of which there are currently 112 in California, Nevada, and Arizona, with ten more due by the end of the year, are supermarket sized and stupefyingly bright. They have a deli section with Oscar Mayer sliced ham and Sugardale bologna and Mrs. Paul's fish sticks and Pillsbury muffins and Jell-O pudding. They sell merlot and mousetraps, Gruyere cheese and power-steering fluid, Queen Amidala underwear and multivitamins. There are cookie aisles, pet food aisles, cosmetics aisles, and baby aisles with five different baby bottles, four types of nipples, powders, rattles, diapers, and teethers. Some people buy their condoms there. All of these products are always displayed in thin, ankle-to-neck-high vertical bands of contrasting color that make the whole store hiss and vibrate if you shop there too long.

The closer we teeter to recession, the more people will shop at the 99 Cents Only stores. And the more the cash register chings, the greater grows Wall Street's love for Dave Gold, the former liquor store owner turned folk hero whose fantasy of opening a store in which everything costs 99 cents birthed a bargain behemoth that did half a billion dollars in sales last year, employs 5,000 people, has $125 million in cash, and carries absolutely no debt. Dan Wewer, senior retail analyst for Deutsche Banc, says NDN—the company's ticker since going public in 1996—"has the best unit growth potential in value retailing and possibly all of retailing."

As if Wall Street's imprimatur weren't enough, the art world has deemed Gold's trademark displays so noteworthy that the Museum of Modern Art in New York recently exhibited a mammoth photograph of a Sunset Boulevard store. Taken from a ladder overlooking the candy aisle, Andreas Gursky's photograph immortalizes the confetti-color overload of the 99 Cents Only stores for those who've never been in one. But for those of us who live here, it's Gold's window displays that have insinuated the stores into our consciousness. Had you driven by the Wilshire Boulevard store in early April, for instance, you would have noticed a glowing mass of 9 Lives cat food arranged in the style of Warhol's Campbell's soup. That is to say, six cat food boxes high by eight boxes wide, flanked by similar displays of Fiddle Faddle, Faultless spray starch, Reynolds Wrap, Armor All, Downy, Champion raisins, and Heinz catsup, all stretching off toward Beverly Hills. Had you driven north or south or east you would have noticed the exact same cat food displayed in the exact same fashion in the windows of the hundreds of 99 Cents Only's copycats that have cropped up in this town since Gold opened his first store 19 years ago.

That his displays have been imitated so many times that they're now synonymous with bargain closeouts the way striped poles used to connote haircuts doesn't bother Dave Gold in the least. "I don't think about it", he says. "The worst thing is when a person has too much time to think. You start feeling sorry for yourself."

This feature was originally published in the August 2001 issue of Los Angeles magazine

GOLD IS 69 YEARS OLD, HAS long frizzy gray hair, sad eyes, a perpetually dreamy expression, and a borderline Elmer Fudd voice. He wears jeans to work, is a history buff and would never sell cigarettes, on account of big tobacco's politics. He is also the 37th-richest man in Los Angeles, a fact he seems genuinely embarrassed by. Lest the public mistake him for one of those greedy, heartless tycoons, he tells each person who interviews him that he drives an old car, has no parking space at the office, lives with his original wife (in the same house they've lived in for 39 years), and gives stock options to all employees after they've been there six months.

The company's headquarters in the City of Commerce seem specially designed to convey bleakness. The ceiling is low, the carpet stained, the light unflattering, the furniture old or plastic, and some woman is always on the PA system shouting for some person to move some car off the loading dock. The walls are plastered with Gold's collection of historic newspaper front pages, in no particular order. O.J. Simpson's giant face hangs between a 1937 zeppelin crash and NIXON QUITS, and everywhere one turns there are products, starting with a massive display of beverages in the starting room. There's M*A*S*H 4077 beer in a camouflage can, a bottle of Grateful Dead "Dead Red" de-alcoholized wine, a bottle of Chateau Du Golf wine with a golf ball and tees floating in it, and a bottle of Canadian bamboo-flavored water. One of Gold's more noteworthy failures, the bamboo water had to be marked down from two for 99 cents to four for 99 cents and then 24 for 99 cents just to move it out. "People didn't care for it," Gold says.

For a man who's made millions off of other people's gaffes, Gold is still disturbed by poor packaging and ill-conceived products. When one of Gold's buyers enters his pile-filled office with a ready-to-eat chocolate pudding sample, Gold looks up from a foot-high mound of checks and winces. "That's a terrible color—what is it, purple?" He pulls a box of Orville Redenbacher cheese-flavored microwave popcorn from a drawer. "Look," he says, pointing to what appears to be a series of cheese clots printed on the package. "This should have been popcorn, but it's cheese. The person that designed it probably was a person who gets a lot of bucks, but you wouldn't even know it was popcorn if you walked by it quickly. There should have been popcorn kernels, it would have been a lot better."

A product that should never have been invented can be heartbreaking. "I don't care when the large companies lose, but when the small individuals do it's a different ball game," Gold says. "What happens is, someone will get an idea, and they ask their friends about it, and the friends are too embarrassed to say it won't sell so they give their encouragement rather than tell them it won't sell, and they take their hard-earned money and in some cases lose a large portion of a lifetime. So it's sad." Gold's son-in-law, Eric Schiffer, who is president of the 99 Cents Only stores, adds: "Dave likes people to save money, even people he doesn't know."

For this and other reasons Wall Street regarded Gold as something of an enigma when he decided to go public in 1996. According to Jeff Holmes, whose then firm, Everen Securities, managed the initial public offering, when Gold met with investors he wore a bright yellow suit that looked like it had been slept in. But what sticks most in Holmes's mind is Gold's insistence that, whatever the public offering be, it end in 99 cents. "People thought he was kidding," Holmes says. "You'd never price a deal at a decimal. We weren't even sure that the FTC would allow it. But he dug in his heels with all the hotshot bankers and he never backed down. That's Dave. You've never seen anyone extract the last penny like this guy."

This feature was originally published in the August 2001 issue of Los Angeles magazine

ON A RECENT TUESDAY, AN enormous crowd filled the waiting room down the hall from Gold's office. Tuesdays and Fridays are open buying days, meaning that between 8 a.m. and 1 p.m. any person with any product can walk in off the street and present it to one of the eleven 99 Cents Only buyers without an appointment. Only 5 percent of the chain's merchandise is purchased this way, but Gold maintains this long outmoded retail tradition and serves free coffee and bagels on the off chance that someone will bring in something truly incredible. Sometimes a hundred people show up, primarily Jewish salesmen in their seventies and Chinese or Persian or Armenian men in their forties. Bill Ostroff, a 90-year-old candy broker in a polka-dot tie, had come to sell taffy and peaches. His business card read CANDY IS DELICIOUS FOOD and STILL SELLING CONFECTIONS AFTER 62 YEARS, with a 7 typed over the 2. In the corner Ed Feldman, who customarily sells sardines, pickles, and nondairy creamers but needed to unload some masking tape, sat bickering with a large man named Al Silverberg, who was peddling "genuine leather belts out of New York." Silverberg claimed he'd once sold Dave Gold 4 million pieces of A Bug's Life merchandise, where-upon Feldman shouted, "You're embellishing!" and Silverberg shouted back even louder, "You're just jealous because you never did it!" and then, "Go ask Dave Gold!" whereupon Feldman shrugged in disgust and waved a purchase order. "Seriously," he said, "this is the Holy Grail. You leave here with one of these, you've hit the jackpot."

The lore of the 99 Cents Only empire goes like this: Gold's father, a Russian immigrant, opens up a liquor store in downtown's Grand Central Market in the '40s. Gold works there as a child, then inherits the place as an adult. In the store there is a Wines of the World section, where Gold does a bang-up business on 99-cent specials, and he dreams of a store where everything costs 99 cents. His wife, Sherry, thinks it's a terrific idea. They tell only their dearest friends, and 15 years later, in 1982, Gold opens his first 99 Cents Only on La Tijera Boulevard, by the airport. The grand opening is an enormous to-do because Gold, who adores hoopla, makes anonymous calls to all the local television and radio stations to say that a nut is opening a store where everything costs 99 cents and is selling nine 19-inch televisions to the first nine customers for 99 cents, and microwave ovens to the next nine. The event is so well publicized that three days before the ribbon cutting, a mob begins sleeping on the sidewalk in front of the store. The grand-opening antics, which continue to this day, have since been augmented by full-page, cornball ads in every Tuesday's Los Angeles Times announcing a sale on Viagra water, a 99-cent bridal registry, or a Father's Day special on a Menendez brothers biography.

The 99 Cents Only chain is the third of three bargain closeout empires to rise in Los Angeles. The first was the Akron, which opened in 1948 and sold everything from handkerchiefs to fire hydrants to motorcycles to live Mexican monkeys until Thrifty drugs bought owner Hyman Fink out in 1978 and closed all 36 stores for good. The second was Pic 'N' Save, which Art Frankel and Bill Zimmerman opened in the '50s and sold to Consolidated Stores in the '80s. Its 170 stores continue to focus on everyday household goods.

Gold's first store was a radical departure from the random and messy world of its predecessors. First, there was the single price point. "No one had ever done this before!” Hyman Fink barked recently over the phone from Beverly Hills. It's hard to fathom now, Fink says, but before Gold opened his La Tijera store there were no "mom-and-pop" 99-cent stores. Nor did the generic term "99-cent store" exist. Gold's second departure was to go after the brand names. In those days the big manufacturers customarily dumped or donated their new product displays after a trade show ended rather than pay for shipping back to headquarters. So Gold bought the Bic razors, lighters, and pens; Hanes underwear; Hershey's chocolate; and whatever else was in the trade show booths. Most important, Gold's closeouts didn't look like closeouts. He placed them in a pristine, well-organized store. "So clean you could eat off the floor," Fink says. Then he lit them like superstars. To drive by one of his glowing windows at night is to hear the castoffs cry, "We are wholesome, we are plentiful. We did not fall off a truck."

Eric Schiffer, Gold's son-in-law, says they did not expect to stay in business more than a year. When we opened the first store it was the end of Jimmy Carter's years, the beginning of Ronald Reagan, and inflation was about 20 percent. We thought there's no way we'd be able to get the goods. But we've found that during high inflationary times the cost to carry merchandise for manufacturers is very expensive, so more deals become available." Which is why Schiffer has no worries about the current downturn. "If there was crazy inflation like Germany after World War I, we could always have a $1.99 section, but that's a last resort."

This feature was originally published in the August 2001 issue of Los Angeles magazine

IT IS NO COINCIDENCE THAT THE RISE of the 99 Cents Only stores, and of Ross Dress for Less, which opened the same year, parallels the mergers and acquisitions of the '80s and the rising dominance of Wal-Mart, Kmart, and Target. Mark Mandel, senior retail analyst for stock brokerage firm Robinson-Humphrey, says that as the smaller retailers fell by the wayside, skittish manufacturers began overproducing. "You don't keep Wal-Mart happy by saying you don't have enough product," Mandel says. "They'll call someone else." Since the "Big Three" cancel an average of 2 to 3 percent of their orders, just because they can, an alternative channel has evolved for brand-name merchandise. Not that manufacturers would like this to be known. "If you call up Procter & Gamble and say `I'd like to speak to the person in charge of closeouts,' they'll tell you `We don't have closeouts,'" Schiffer says. "It's something they try to keep very discreet." So discreet that 99 Cents Only is often not allowed to advertise many of the brand-name bargains they sell. "The best deals in the store are the ones we can't advertise."

So much merchandise has become available that the 99 Cents Only chain buys only one of 12 products it's offered, and fewer and fewer are closeouts. These days 55 percent of its merchandise is "reorderables," bought directly from manufacturers on a regular basis, which lure shoppers back week after week. Reorderables look, on the surface at least, exactly like their supermarket counterparts but weigh less, such as a box of Swiss Miss cocoa with six packs instead of the usual eight, or the Hex shampoo with 11 ounces instead of 15. The Wrigley's gum and lemon-scented Joy are exactly the same as those at Ralphs but sell for less because Gold, with his $125 million in cash, can leverage better deals. Whatever he doesn't sell in his own stores he wholesales out to the copycats through his Bargain Wholesale division, which is why this town was lousy with cat food the first week in April.

THE WINNING RATIO OF BRAND names to closeouts to reorderables has proved so successful that Gold has never once needed to borrow money. He did once, after the bankers told him he had no credit and he'd better establish some. "They loaned us money on a Friday," Gold says, "and we really didn't need it, and I thought about it all week-end and said, `This is silly.' So we paid it off on Monday. I have a theory about credit. I think it's bad for the country."

Hyman Fink of the Akron calls Gold "the greatest merchandiser of them all." "Can you imagine how much easier it is to negotiate with a vendor when you've got that 99-cent ceiling?" he asks. "They know they can't ask for $1.10." But Fink says he liked his own business model better. "You never knew what you were going to get in those days. You had to drive around all the time with a truck. They were putting the freeway through Pasadena, and some orchid company had to move, so we paid 50 cents apiece for the orchids. This one time a lady bought a monkey from us and it caught a cold and died, and we had a guarantee that, if you're not happy with the merchandise, you have 14 days to return it. So she puts the monkey in a paper bag and comes into the store on Sepulveda and takes it to will-call and they give her credit. A few hours later the manager gets a call from the secretary in will-call. `What do you want me to do with this monkey?' she says. And he says, `Restock it.'" Back then, Fink says, everything had a story.

Gold's closeouts have a story, too. You just have to dig deep in The Wall Street Journal to find them. The cat food in April, for instance. To cut costs, 9 Lives had downsized its 19.2-ounce package to 16 ounces, and since the two sizes couldn't coexist on the same shelves, Purina sold 220,000 of the old size to 99 Cents Only at fire-sale prices. The Pacific Life soy and rice milk were priced at two for 99 cents, as opposed to the $1.49 to $1.99 they normally go for because Pacific Life's parent company, Novartis, merged with Gerber and was dumping the label. The Grateful Dead de-alcoholized wine was a failure because that target audience doesn't cotton to "unwines." There are hundreds more reasons a product is cast off. A company goes under, a warehouse is purged, a label changed, an item discontinued, a fire sale held Monday to make quarterly numbers on Tuesday. Or, in the case of Hershey, your celebrity spokesman crashes and dies on the last lap of the Daytona 500, which is how the 99 Cents Only stores acquired all the Dale Earnhardt/NASCAR Kit-Kats, Almond Joys, and Reese's Peanut Butter Cups the last week in March.

This feature was originally published in the August 2001 issue of Los Angeles magazine

Michelle Zwick, who got the call from Hershey, is the 25-year-old candy and pet food and baby products buyer for the 99 Cents Only chain. If her office wasn't wall-to-wall candy and pet food and baby paraphernalia, including a massaging pet brush and a Dr. Pepper baby bottle with a nipple on it, she could very well pass for an agent. She is dressed to the minute, drives a BMW, and brokers deals on the telephone all day. The same morning she bought the Earnhardt chocolate and the 9 Lives, she purchased 60,000 cases of soon-to-expire Laura Scudder's potato chips, as well as a load of Guadalajaran caramels from Bill Ostroff, the 90-year-old candy salesman, who left her office triumphant and beaming. Zwick started at the 99 Cents Only chain one week after she graduated from USC with a degree in public policy and management and a minor in business. Her first month there she accidentally bought seven years' worth of Pringles. "I went home and I was, like, `I am so fired,'" she recalls. "But Dave's not like that. I wanted to be a Nordstrom buyer. But you know what? Glamour's not where it's at. In this industry you have a chance for opportunity and advancement much quicker than you do in any other business."

While Zwick was speaking, vendors were getting impatient in the waiting room outside her door. Among them they had chocolate-covered cherries from Hungary and hacksaws, vacuum cleaner bags, fingernail brushes, lemon cough drops, children's sandals, spatulas, knit hats, hot sauce, earphones, oven cleaner, and Pokemon figurines. They were milling around chatting about skin cancer and Bill Ostroff's recent birthday party and telling jokes when Dave Gold wandered into the throng and held up an enormous poster of the Andreas Gursky photo. "Look," he said, "it's in the Modern Art Museum in New York." Everyone gathered around and peered at Dave Gold's Sunset Boulevard store. "This'll be a closeout some day," he said. They all nodded with awe.


This feature was originally published in the August 2001 issue of Los Angeles magazine