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Using the “99 Cents Only Stores” case study, write a 3–4 page paper (not including title page), in which you discuss the company transition from Stages I through IV. To do so:

· Analyze how the needs of the company prompted the transition at each stage.

· Evaluate how management facilitated the transition between stages.

· Evaluate how one success and one area of improvement impact each stage of transition.

· Justify which stage of organizational growth was most challenging with relevant examples.

Case Example of Growth from Stages I to IV: 99 Cents Only Stores

This section presents a case example of a company from its inception as a new venture through its transition to become an entrepreneurially oriented, professionally managed company. The company is 99 Cents Only Stores.

Origins of 99 Cents Only Stores The late Dave Gold and his wife, Sherry, are a classic American entrepreneurial success story. In 1945, Dave’s father, an immigrant from Russia, opened a tiny liquor store in downtown Los Angeles. In 1957, Dave’s father received an offer to sell his store for $35,000, but he sold it instead to Dave and his brother-in-law for $2,000 as a down payment, with the rest being paid with no interest over a long period of time. Copyright © 2016 John Wiley & Sons, Inc. 66 Identifying and Surviving the First Four Stages of Organizational Growth

The Precursor to 99 Cents Only Stores

In 1961, the two entrepreneurs opened another liquor store nearby in the Grand Central Market of downtown Los Angeles. As did other, similar stores, they sold beer, wine, and hard liquor for a variety of prices. As part of the process of doing business, they noticed that items priced at 99 cents were selling so fast that they could not keep them in stock. They decided to experiment with pricing, selling all wines priced between $0.89 and $1.29 at a fixed price of 99 cents. They advertised: “Wines of the world for 99 cents.” The experiment was a great success. They found that those items formerly sold at 89 cents sold more when priced at 99 cents! Dave Gold had some additional insights from this experiment: (1) Customers preferred the digit 9 in pricing, and (2) customers prefer fewer digits in the price. Dave Gold had a natural genius for business. He did a number of unorthodox things that worked quite well. For example, he advertised certain products as “the world’s worst.” He advertised cigarettes as “the world’s worst cigarettes for 99 cents.” People bought the cigarettes to see how bad they really were! He also advertised certain wines as “the world’s worst wine for 99 cents,” and people bought those, too, to see just how awful they were.

The Next Phase

In 1972, the two partners divided the business, with each receiving two liquor stores. Now Dave could go his own way. He could buy as much as he wanted and experiment however he wanted.

The Opportunistic Buyer. Dave Gold was an aggressive buyer. He was confident he could sell what he bought, and he was willing to buy in large quantities, including things he had never sold before. In 1973, Dave bought a supermarket that was going out of business at an auction. The purchase included many items that Dave had never sold before. He then purchased a general merchandise store in the Grand Central Market in Los Angeles near his liquor store. This was the beginning of a diversification of his business, and it ultimately led to the development of 99 Cents Only Stores. Another example of Dave’s willingness to buy occurred in 1976. Kimberly Clark, manufacturer of Kotex, had overproduced the product. Dave purchased six truckloads of Kotex. There was, however, one little problem: there was no place to store all of this merchandise. At the time, Dave’s father owned an old garage located in Skid Row in Los Angeles. He let Dave use it as a warehouse to store the product, and there was also space for more storage of products.

Diversification. After a few months, small retailers began coming to the warehouse to purchase products. This led, in turn, to the creation of a business unit (which still exists today) called Bargain Wholesale, which sells merchandise at below-normal wholesale prices to retailers, distributors, and exporters.

The Genesis of the Concept of 99 Cents Only Stores

It has been said that success is the result of preparation meeting opportunity. One of Dave Gold’s greatest strengths as an entrepreneur was his willingness to experiment and take risks. He learned from both successes and difficulties encountered. Since his original experimentation with selling Copyright © 2016 John Wiley & Sons, Inc. Case Example of Growth from Stages I to IV: 99 Cents Only Stores 67 wines and cigarettes for a fixed price of 99 cents, Dave had been flirting with the idea of creating a store that would sell everything for 99 cents. His belief that this would be a good idea was enhanced by an experiment that he conducted at trade shows. It is a common practice at trade shows for exhibited items in a booth to be sold at deeply discounted prices rather than being carted back after the show is over. Dave tried an experiment. Instead of selling the products he brought to a trade show at a variety of prices, he separated his products into three tables with three price points: $1, $2, and $5. The experiment had two significant outcomes: (1) total sales exceeded sales of previous years where things were sold at a wide variety of prices, and (2) the “$1 table” sold the most. Dave was still not ready to launch his idea of a “99 Cents Only Stores” concept. The idea would, however, continue to intrigue him. Stage I: Accidental Launch of 99 Cents Only Stores

Dave had been talking about this idea for a very long time with a number of people, including an old friend named Jimmy Wayner. One day in 1982, while driving near the airport, Dave and Jimmy spotted a store for lease. His friend said, “I am sick of you talking about your 99 cents idea. You either rent this building, or you never talk about this with me anymore!” Dave rented the 3,000-square-foot facility and 99 Cents Only Stores was born. This first store would be the initial seed of the company that would ultimately become 99 Cents Only Stores. Such was the accidental launch of the 99 Cents Only Stores concept—the first of its kind in the United States.

Stage II: Expansion of 99 Cents Only Stores

Dave and Sherry acquired a warehouse to store merchandise and proceeded to expand the business by opening more stores. Dave and Sherry traveled to trade shows and auctions to find products, which they purchased for 50 cents per unit; they had a van or truck there so they could ship everything back to Los Angeles. The company was aided in its development of the business by a great deal of free publicity. Because the concept was novel, the media were interested. The Herald Examiner, a Los Angeles newspaper, put the company on the front page with a story. The company also received coverage from various local channels, as well as CNN. Dave and Sherry raised three children: Howard, Jeff, and Karen. In 1984, Dave and Sherry opened their second store. All of Dave and Sherry’s children were involved in the business from an early age, and all occupied important positions in the firm. By 1996, 99 Cents Only Stores had a total of 36 stores—all in Southern California. In May of 1996, the company did an IPO and became a public company on the NYSE, trading under the symbol NDN. One long-time observer of the company expressed the belief that a major reason Dave Gold took 99 Cents Only Stores public was to give employees a chance to participate in the value created by the growth of the company. In fact, the company launched a stock option program in which employees can participate. Even after going public, the members of the Gold family were committed to the success of NDN. In addition, the family knew a great deal about the business from its many years of involvement. Copyright © 2016 John Wiley & Sons, Inc. 68 Identifying and Surviving the First Four Stages of Organizational Growth For almost a decade after the IPO, family members continued to be the driving force in the business. By 2004, the company had grown very large and more complex. It now had more than two hundred stores and was operating in four states (California, Nevada, Texas, and Arizona). Like all companies experiencing rapid growth, NDN was beginning to experience some of the classic growing pains that will be described in Chapter 5. Management focused on dealing with the company’s growing pains and preparing to take NDN to the next level of success. The company added new members to its board, added additional depth to its management team, initiated a new process of strategic planning, developed more sophisticated supply chain operations, revised and upgraded its operational systems, and put into effect a number of other initiatives designed to strengthen the company and build on its existing strong foundation. In doing so, the company applied many of the concepts and tools presented in this book.

Stage III: Transitioning to Professional Management

By 2005, under Dave Gold’s leadership, 99 Cents Only Stores had grown to 225 stores and almost $1 billion in revenues. The innovative business concept pioneered by Dave Gold had also spawned a number of imitators and, in fact, had created a new business category: the $1 store concept. After more than 50 years of involvement in the business and its precursor, Dave Gold made the decision to retire on December 31, 2004. This led to a management succession at the executive levels of the company. Dave Gold continued as chairman of the board. His son-in-law, Eric Schiffer, who holds an MBA from Harvard Business School and joined the company in 1991, became CEO. Dave’s son, Jeff Gold, who has been involved in the business for many years, became president and COO and took over responsibility for day-to-day operations. Howard Gold, also involved in the business for many years, became executive vice president (EVP) for special projects. In addition, the company hired a new CFO and created the position of EVP for supply chain operations. It also recruited experienced professionals in several other areas of the company, including human resources.

Stage IV: Consolidation

Under the new leadership of Eric Schiffer and Jeff Gold, the company developed a culture statement to formalize the values that had been underlying its operation for many years.

Conclusion

The inception, growth, and transition to professional management of 99 Cents Only Stores is truly an impressive business success story. The company created its business concept and defined a new business space. The company successfully made the transition from a family-driven business to a publicly held, professionally managed enterprise. In 2012, the company went private, in a purchase by Ares Management and the Canada Pension Plan Investment Board as well as the Gold-Schiffer family in a deal valued at $1.6 billion. At the time of the buyout, the company had approximately $1.5 billion in revenues. The company still operates throughout several western states as well as its home state of California. Copyright © 2016 John Wiley & Sons, Inc. Notes 69 Summary This chapter presents a framework to help senior managers understand and guide organizations at different stages of growth and development. It describes the first four major stages of organizational growth, from the inception of a new venture (Stage I) to the consolidation of a professionally managed organization (Stage IV). It examines the degree of emphasis that must be placed on each level of the Pyramid of Organizational Development at each stage of growth. It also examines the differences between an entrepreneurial and a professionally managed organization and describes the steps that must be taken to make a successful transition from one stage of growth to the next. In the next chapter, we examine the remaining three stages of growth comprising the organizational life cycle: diversification, integration, and decline-revitalization.

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