Many companies will raise the price of goods at retail to accommodate rising costs. But if you’re a deep-discount retailer such as 99¢ Only Stores, every penny really counts. So, faced with rising operational costs, how does the company manage to keep its prices rock-bottom?
“Whenever possible, we try to avoid passing our costs on to the customer,” says Don Arter, vice president of fresh food dstribution for the City of Commerce, CA-based retailer. “So we needed to work smarter in our warehouse.”
99¢ Only Stores offers name-brand merchandise from companies such as Kraft, Del Monte, Johnson & Johnson, Frito Lay and Kellogg’s, as well as private label products. While the stores offer a broad selection of merchandise—health and beauty care, housewares, hardware and seasonal goods—food and beverages, including produce, dairy, deli and frozen foods, along with organic and gourmet foods, account for 54 percent of sales.
The company was founded in 1982 and operates 208 stores in California, 34 in Texas, 26 in Arizona and 12 in Nevada. The stores, which are serviced by five distribution centers and two refrigerated warehouses, average 21,300 square feet. Sales are impressive—stores generate $289 in sales per square foot and the average store does $4.8 million per year in business, which the retailer claims is the highest in the dollar store industry. Total sales for 2010 were $1.36 billion.
The operations at its Commerce distribution center—a 66,000-square-foot refrigerated facility—are also impressive. The warehouse supplies refrigerated product to more than 250 stores and processes more than 150,000 cases in and out each day from 11 dock doors that service inbound and outbound fulfillment and a 25-foot wide refrigerated dock.
The DC receives and ships a total of 160 inbound and outbound trailers daily through those doors. Despite such tight quarters, the team at the Commerce facility has seen a double-digit increase in productivity in this past year while exceeding goals of 99.7 percent and 99.8 percent in daily fill rates and load ready times respectively.
While technology plays a role in these achievements, most of the results can be attributed to teamwork. Arter, a 20-year industry veteran whose previous stints include operations manager at Wal-Mart and in/outbound manager at Walgreens, joined 99¢ Only Stores in 2003. Since he’s come on board, Arter and his team have figured out ways to maximize the space at the facility and improve productivity.
For these commendable efforts, the Commerce facility for 99¢ Only Stores has been named the winner of Food Logistics’ Golden Pallet Award in the small distribution center category. The Golden Pallet Awards recognize excellence in warehousing.
Handling A Dynamic Product Assortment
While this low price points attract its customers, 99¢ Only Stores says its stores provide a “fun treasure-hunt shopping experience” that keeps shoppers coming back for more. This includes offering excellent values on a wide selection of quality food and basic household items and an exciting assortment of “wow” items.
One of the biggest challenges in the deep-discount business, however, is that you never know what’s coming next. While 99¢ Only Stores does purchase re-orderable merchandise on a number of SKUs, a significant amount of product is purchased through closeouts and manufacturer overruns at substantially below normal wholesale costs, so the product mix is comprised of a frequently-changing selection of brands and items.
Close-out merchandise becomes available for any number of reasons including a line being discontinued, a change in formulation or packaging, the reduction of excess seasonal inventory or an over-production.
Whatever the reason, the warehouse has to be ready to receive and quickly turn that product. “We’re opportunistic buyers, so we need flexibility on item receipt and how to flow that inventory through the warehouse,” says Arter. “For example, we might get a frozen dessert from a top notch vendor like Sara Lee the week before Christmas, because there’s an overstock, and we’ll buy 20 truckloads of it. It was totally unplanned, but it’s on the schedule the next day.”