KPCC's business analyst Mark Lacter talks about about the competitive bids for 99 Cents Only Stores; he also talks about how, for the first time, California State University students will pay more for tuition than the universities receive from the state.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, I see the bidding has gotten intense for 99 Cents Only Stores.
Mark Lacter: Yeah, for a lot more than 99 cents, as you might guess Steve – and it tells you a little something about how hot these dollar stores have become. Earlier this year, it seemed as if 99 Cents Only was ready to be bought by an L.A. investment firm called Leonard Green & Partners and then taken private (the deal was valued at about $1.3 billion). Now comes word that another investment group plans to make its own offer, and there might be still other bidders in the bushes.
Julian: Is there a deadline for all this?
Lacter: Company is apparently talking about this week – maybe it’ll be Leonard Green, maybe one of these other firms. However it goes, this is quite the success story – 99 Cents Only, which is based in the City of Commerce, was started in 1982 by a fellow named David Gold (he was the co-owner of a liquor store and he noticed that the discount wines he was selling for 99 cents were going faster than the ones prices a few pennies more – that’s how all this got started). Today there are around 270 locations, zero debt, and an sophisticated distribution system that can track merchandise from any point. Total sales last year were $1.4 billion, which is actually smaller than the three biggest dollar stores – Dollar General, Family Dollar, and Dollar Tree – and just to give you an idea of the attention this business is attracting, last week Warren Buffett invested $48 million in Dollar General.
Julian: The customer base for dollar stores is still made up mostly of low-income shoppers, isn’t it?
Lacter: Yes, but the demographics are changing. Many more middle-class customers are coming in on a regular basis – folks who are worried about holding onto their job or their home or those who just like the idea of paying way less for a gallon of bleach than they would at Ralphs. All these chains have been taking business away from the likes of Wal-Mart and Target, not only because of lower prices but also greater convenience. Dollar stores, as the name implies, sell merchandise in smaller amounts, which are sometimes more appealing than those 30-roll packages of paper toweling.
Julian: Mark, the scale has tipped at state universities in California in how they fund their operations.
Lacter: That’s right - this year, for the first time, students are going to pay more for tuition than the universities receive from the state. This is a very big deal for a state that historically has kept down tuition costs – much more so than other state schools. But California’s budget has been slashed so sharply that undergraduates will now be paying more than $13,000 in tuition and fees this coming school year, and when you include room and board, the figure could top $30,000. This presents many California families with some difficult decisions on what they can afford in a college education.
Julian: And even if students or their parents can eke out enough money for the higher tuition, how do they pay for a new car or eating out?
Lacter: They might not. So the restaurant owner and the car dealer are losing business – and maybe they’ll have to make adjustments as well. You know, when the state went through the first wave of budget cuts in 2008, it didn’t generate all that much pushback among voters – perhaps because a lot of the cuts, to be quite candid, involved reductions to social services like Medi-Cal that cater to the poor. Now that the UC system is being smashed to smithereens, more folks are paying attention.
Julian: How is fundraising?
Lacter: Very strong – gifts and pledges for the just-completed fiscal year totaled almost $480 million, which is up about $100 million from the previous year. Thing is, a lot of that money is coming from the school’s high rollers who want their money to be spent their way, which could mean research and new buildings – not necessarily lower tuition. So it’s a whole new world for the state university systems – and it’s going to be around a while.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.