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99 Cents Only rethinks its pricing scheme

August 09, 2008|Tom Petruno | Times Staff Writer

Would shoppers be willing to pay more than 99 cents for something at the 99 Cents Only Stores chain? Or would breaking a buck induce customer mutiny -- or maybe even cause the Earth to spin off its axis?

Squeezed by a higher minimum wage and soaring commodity prices, the City of Commerce-based retailer late Thursday reported its second consecutive quarter of red ink -- a loss of $1.5 million, or 2 cents a share, for the three months that ended June 28.

Given the hard times many American consumers are facing, you'd think 99 Cents Only would be packing them in. The company told analysts that although last quarter's sales ($305 million) "grew slightly more slowly than anticipated," same-store sales were strengthening toward the end of last quarter and "have continued strengthening" in the current quarter.

Still, one analyst wanted to know whether the company would consider giving itself more pricing flexibility, presumably to improve the bottom line. The retailer already charges less than 99 cents for some stuff. But what about charging, say, $1.09 or $1.29 for certain items?

If you know the chain, you know that sounds like heresy. As its website proudly proclaims: "STILL nothing over 99 cents, ever!"

Yet Chief Executive Eric Schiffer said the idea was "definitely on the table. That is something we're looking at . . . in the future for us. We're looking at doing some experiments. Obviously one way [is that] you can start selling things for $1.05, $1.09, $1.15 and other ways. You could have more of a break between your 99 cents price point and the next price point."

Schiffer also addressed the question of whether prices above 99 cents for some goods would alienate the 26-year-old chain's loyal customers. Not surprisingly, he said the issue should be whether a price provides "great value," not whether it was 99 cents.

The possibility of more cash going into the registers didn't hurt the company's shares, which rose 51 cents, or 7.6%, on Friday to $7.57. The stock is up 29% from an 11-year low of $5.85 on July 15.

Maybe the chain's shoppers should begin to mentally prepare themselves: Schiffer sounded as if a new pricing scheme was inevitable. "With the way that the cost structures are for our company and for just the economy and the environment, there's no question we're going to need to do something," he said.


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