Growth Strategies: Buy the Buy
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Step Ahead Investments Inc.
Say this about Gary Cino: He doesn't ask any more of his customers than he asks of himself.
Cino's company, Step Ahead Investments Inc. (#79), operates 14 retail stores in which every item sells for less than 98¢. Hard-core bargain hunters stampede through -- as many as 100,000 a week during the Christmas season -- sifting among boxes of everything from hose nozzles to brewer's yeast. "The people who come in here love to feel that they are getting more than their dollar's worth," says Cino, 34, who started the company in 1983. "They don't have to do it. They just love deals."
Cino is similarly smitten. In fact, his own ability to unearth bargains has enabled the company to grow -- with profit margins of about 3% -- despite a marketing approach that allows no room for error. With a built-in price tag, Cino can't raise prices to paper over mistakes. He has to focus on operating efficiently, whether negotiating a lease, designing a store, or buying product -- especially buying product. "We have to make deals on everything," he says.
Other retailers have adopted price caps as gimmicks to build traffic or save on labor costs (in a typical retail store, pricing can eat up as much as 50% of labor expenses), but Cino started Step Ahead with the intention of bringing unprecedented efficiency and sophistication to discounting. "While most retail businesses focus on sell, sell, sell, our profit is realized when we buy," he says. "If we buy it right, the selling takes care of itself."
That is why Cino has one employee whose sole job is to negotiate freight prices, so that transportation never runs more than 10% of inbound cost of goods -- especially challenging because Cino, who is based in West Sacramento, Calif., buys mostly from east of the Mississippi. He wrings deals out of truckers by offering them pickups from locations where they are likely to have less-than-full trucks. Cino also haggles with newspapers and radio stations, often buying ads on a standby basis. He strikes deals with landlords by guaranteeing to boost mall traffic. "We negotiate on things that most people think are nonnegotiable," Cino says. "You'd be surprised how often that works."
But perhaps Cino's biggest advantage is knowing where to get the goods, and buying them at the best price. In buying closeouts, Cino competes with similar retailers (a chain with a price ceiling of 99¢ is based in southern California) as well as wholesalers -- many of whom are likely to be comparative novices. (Cino has been closing in on closeouts since 1977.)
Cino claims his haggling with suppliers "just sort of evolved over the years." He never begins negotiations by belittling merchandise just to get a better price. And when performing the time-honored tradition of grinding a supplier down on price, "I go as far as I can without hitting their panic buttons," Cino says. "They might lose money, but they still feel that they've done a prudent thing." He'll sometimes even buy merchandise that he can't sell just to get hold of other products he wants (as a tribute, employees named their bowling team "This to Get That"). Cino will then sell the merchandise to a liquidator who can use it.
To aid him in making buying decisions, each of Cino's stores spits out weekly "hot" and "cold" lists, ranking the fastest-and slowest-selling items. Still, he admits, "a lot of this is just instinctual."
But how long before the company -- which projects revenues of $25 million by the end of next year -- outgrows his peculiar ability to buy for it? "A lot of this can be taught," claims Cino, who is now training another buyer. " With one price it's really very simple: 'Will this sell for 98¢ or not?' You ask yourself that. And one other thing: you never, ever buy anything at the normal price."
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Niche: Discount retailing with 98¢ price cap
Strategy: Do everything possible to get the best deal from suppliers so that selling takes care of itself
Headquarters: West Sacramento, Calif.
Scope: Regional (northern California) -- Joshua Hyatt