A fraction of a penny is amounting to one big headache for 99 Cents Only Stores.
Two years ago, the City of Commerce retailer — faced with rising inflation and higher costs — raised the top price of its goods to 99.99 cents from 99 cents. Company executives thought it was a clever way to increase sales while staying loyal to the chain's love for the number 99.
But the move seems to be riling some customers who say they weren't aware of the nearly one-cent increase and felt duped into believing they were still paying 99 cents "only." Because U.S. currency makes it impossible to pay 99.99 cents for an item, shoppers are essentially paying $1 plus tax at the cash register.
Now the company faces two class-action lawsuits that were filed in Los Angeles County Superior Court this month. The complaints allege unfair and deceptive business practices and misleading advertising.
"If they call themselves 99 Cents Only, it should be 99 cents," said Dan Callahan, an Orange County lawyer. "We had a survey done before we filed the lawsuit to see how many people thought they were paying 99 cents, and it was just about unanimous that nobody realized that they were paying more than 99 cents. The people who go to that store are typically lower income or seniors, so the people they're taking advantage of are the ones least able to discern the difference and least able to afford it."
The lawsuits are asking for unspecified monetary compensation and contend that 99 Cents Only should have been more clear in its advertising. A judge will decide whether the cases can proceed as class-action suits.
Eric Schiffer, chief executive of 99 Cents Only, said in an interview this week that he didn't believe there was any wrongdoing by the chain, which he said "took every possible effort and avenue to basically bombard the consumer about our increase."
"We changed all the signs, we have a large poster in the window of every store explaining the increase, we put it in our ads in the newspaper, we put it on the radio," he said. "Never mind the fact that the price increase was a very tiny amount, as we all know. So I don't think consumers were misled."
With commodity prices rising, the complaints seem "pretty ridiculous," said Joan Storms, an analyst at Wedbush Morgan Securities.
"As long as they offer the best value in the marketplace, then who cares?" she said. "And where else are shoppers going to get a product for 99.99 cents?"
99 Cents Only opened its first store in Los Angeles in 1982 and has since expanded to about 275 locations, mostly in California but also in Nevada, Arizona and Texas.
When the chain announced in September 2008 that it would increase its prices by nearly a penny, Schiffer estimated that it would bring in an extra $12 million annually, which "will give us plenty of breathing room."
The strategy has worked for the company so far, but Schiffer said this week that he didn't rule out more price increases in the future. "Retailing is a fun business, but it's a tough business," he said, "and it's something we're always looking at."