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The almost 1% solution

In the midst of spiraling costs, 99 Cents Only Stores tries to buck the trend and stay true to its name.

September 10, 2008

Imagine a straight line on a graph. Another line is curving toward it. It gets closer and closer; it will, unto infinity, always get closer, until you can't see the space between them, but it will never touch the straight line. In the world of pre-calculus classes, the straight line is called a linear asymptote. In the world of retail, it's called a dollar, and the curve that draws ever closer is the 99 Cents Only Stores’ new pricing strategy.

The chain has become a reliable outlet of unmoving and unvarying prices at a time when the cost of energy has raised the price of just about everything. The bread at a 99 Cents store might not be organic or whole wheat, the sausage isn't andouille, but they fill a family's stomachs for a buck each -- or for very close to a buck, which is exactly the point.

The question of late has been whether 99 Cents, buffeted by its own rising costs, could afford to hold prices below a buck and also hold onto its name, at least with integrity. The company's solution this week: Raise all prices by nearly a penny, to 99.99 cents.

It's hard to imagine how this 1% price hike -- or rather, a price hike that approaches 1% -- will make a major difference to 99 Cents' bottom line. The company is doubly hit by the stagflation that threatens us all. Its cheap goods tend to be plastic, which is made from now-more-expensive petroleum. And they tend to be manufactured in faraway places where labor prices are rock-bottom, although the cost of global shipping makes this arrangement considerably less cost-efficient.

At the same time, the chain's typical customers are in no position to take more financial hits. They are likelier to be unemployed this year; filling the car's tank for a trip to the 99 Cents store is bad enough without spending more for a container of bottom-price shampoo.

Market analysts fret that, by refusing to break the dollar barrier, 99 Cents will face tighter limitations on what it can stock on its shelves. Maybe the six-packs of sponges will shrink to four-packs. But by keeping its prices below a dollar -- ever closer to a dollar, but just below -- 99 Cents created one tiny bright spot in the retail sector for otherwise heavily burdened folks.

The dollar cannot forever be 99 Cents' linear asymptote. There's a diminishing return to piling up the 9s after the decimal point, and what's the big difference in the end between that and, say, $1.01? Only the same psychological quirk that convinces a different stratum of customers that they're getting a cheaper luxury car for $49,999 than one for $50,000.

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