Dive Brief:
- After 42 years, 99 Cents Only Stores is going out of business. The company said Thursday it plans to close its entire store fleet — 371 locations across California, Texas, Arizona and Nevada. 99 Cents Only has tapped Hilco Global to liquidate its merchandise starting Friday, and Hilco Real Estate will oversee the sale of all owned and leased real estate.
- After years of challenges, including the COVID-19 pandemic, persistent inflation, shifting consumer demand and rising shrink levels, the California-based company said it couldn’t identify any solutions that would allow the business to continue.
- To help with the business wind-down, the company appointed Alvarez & Marsal Managing Director Chris Wells as chief restructuring officer. 99 Cents Only interim CEO and Alvarez & Marsal Managing Director Mike Simoncic will step down.
Dive Insight:
99 Cents Only spent months pursuing alternatives, but determined that liquidation was the best way to maximize the value of its assets.
"This was an extremely difficult decision and is not the outcome we expected or hoped to achieve,” Simoncic said in a statement. "Unfortunately, the last several years have presented significant and lasting challenges in the retail environment, including the unprecedented impact of the COVID-19 pandemic, shifting consumer demand, rising levels of shrink, persistent inflationary pressures and other macroeconomic headwinds, all of which have greatly hindered the company's ability to operate.”
The retailer’s origins go back to the 1960s when founder Dave Gold inherited a small liquor store in downtown Los Angeles. Gold decided to try selling bottles of wine at the fixed price point of 99 cents, and it was a success, according to the company. The first 99 Cents Only store opened in Los Angeles in 1982.
Ares Management and the Canada Pension Plan Investment Board announced in 2011 they would acquire 99 Cents Only in a deal worth $1.6 billion. Signs of financial trouble have smoldered for years. In 2019, 99 Cents Only struck a deal with its creditors and private equity owners to trade out debt for equity in the company.
In late 2021, Moody’s downgraded 99 Cents Only and lowered its outlook for the retailer, citing weaker-than-expected operating performance that constrained liquidity. Reports that the company was considering bankruptcy or liquidation surfaced in recent weeks.
99 Cents Only offers everyday household items, seasonal and party merchandise, closeouts, basic grocery items and fresh produce. Two distribution centers in California and Texas supported the stores. The company did not immediately respond to questions from Retail Dive on how many people it employs or if workers will receive any severance pay or benefits as the wind-down process begins.
High volumes and economies of scale are necessary for success in retail’s value segment, Neil Saunders, managing director of GlobalData, told Retail Dive. Unfortunately, 99 Cents Only had neither since it operated a small mainly West Coast footprint of a few hundred stores compared to rivals like Dollar Tree and Dollar General, which opened its 20,000th store earlier this year. Even Dollar Tree has felt some pain in the sector recently, though, announcing plans for 1,000 store closures in March.
“During the good economic times this wasn’t so much of an issue as growth kept the company moving forward. Growth has now become harder thanks to hard-pressed shoppers cutting back on discretionary goods. 99 Cents Only has also lost a bit of competitiveness as its prices are not as sharp as they once were, which has further deterred customers. Other issues like shrink have also hit the company,” Saunders said in an email.
Shelley Kohan, a professor of retail at Syracuse University's Whitman School of Management, told Retail Dive that in addition to pressure from discount and value segment rivals, “the growth of other discount stores like Walmart, Target and Five Below has pulled market share." Kohan also noted that inflationary pricing and reductions of government programs like the Supplemental Nutrition Assistance Program, have depressed consumer spending.
“It goes to show that even in a rapidly growing segment, failure is possible if the right business model isn't employed and financial discipline isn’t imposed,” Saunders said.
