Dollar Tree
by Philip Mattera
With its 2015 acquisition of its larger rival Family Dollar, Dollar Tree jumped from third place to first (based on the number of outlets) among the deep-discount retailers known as dollar stores. Dollar Tree is now also running neck and neck in terms of revenue with Dollar General, which had long been the undisputed sector leader.
Dollar Tree's new stature may make it an even bigger target for regulators and litigators, which have brought numerous cases against the company for violations of laws regarding product safety, workplace safety and overtime pay.
History
After building K&K Toys into a successful 136-store chain, J. Douglas Perry, Macon F. Brock Jr. and H. Ray Compton decided to try something new. In 1986 they entered the dollar-store business with the establishment of Only One Dollar, which initially had five stores selling closeout merchandise in Virginia, Georgia and Tennessee.
In the early 1990s, the partners decided to offer a wider range of merchandise but still keep prices to no more than $1. To achieve this they started buying directly from foreign manufacturers and worked with U.S. suppliers to get customized packaging. They also started siting their stores in strip malls anchored by supermarkets or mass merchandisers such as Kmart, Target or Wal-Mart that they would undersell.
The chain grew rapidly, surpassing 300 outlets in 1993, the year the company was renamed Dollar Tree Stores. In 1994 the founders sold a 50 percent interest to the SK Equity Fund, and the following year the company went public on the NASDAQ. In 1996 the company acquired the Dollar Bills chain, which added 136 additional stores, many of them in urban areas Dollar Tree had previously avoided. In 1998 it took over the 98 Cents Clearance Centers chain in California and Nevada. During this period Dollar Tree expanded the geographical scope of its purchasing from Asia to countries such as Mexico, Argentina and Brazil. It also built a new headquarters in Chesapeake, Virginia.
Over the following decade, Dollar Tree continued to grow by purchasing other deep discounters such as Only $ One, Dollar Express, Greenbacks Inc. and Deal$ stores. By the time the Great Recession started in 2008, it had more than 3,400 stores in 48 states and annual revenues of $4.6 billion. Subsequent years saw continuing growth, including entry into Canada with the 2010 acquisition of the Dollar Giant chain.
Dollar Tree's biggest move came in 2014, when it proposed to acquire its larger rival Family Dollar for more than $8 billion. Industry leader Dollar General made a more generous competing offer, but the board of Family Dollar resisted, saying that deal would not pass antitrust scrutiny. Dollar Tree completed the acquisition in July 2015, increasing its collection of stores to more than 13,000 and its combined revenue to about $19 billion.
The Family Dollar chain dated back to 1959, when Leon Levine opened the first store in Charlotte to serve lower income customers. Focusing on the South, Levine expanded the chain to more than 50 stores by the time he took the company public in 1970. Over the next 30 years the chain expanded to nearly 4,000 stores and more than $3 billion in revenue.
In 2007 Family Dollar got a black eye when it was accused of backdating executive stock options and had to pay more than $5 million to settle shareholder lawsuits. In 2011 it thwarted a takeover move by activist investor Nelson Peltz, and prior to the deal with Dollar Tree it was being targeted by another activist investor, Carl Icahn.
Recalls and Product Safety
April 2014: Dollar Tree removed foam toy darts called Clingy Darts from its shelves after New York State asked federal officials to institute a recall because the darts contained high levels of diethylhexyl phthalate (DEHP), which is known to have adverse reproductive and developmental impacts in animals.
July 2011: Dollar Tree and the Consumer Products Safety Commission recalled about 117,000 glass votive candle holders because of fire and laceration hazards.
October 2010: Dollar Tree and the CPSC recalled about 682,000 children's Halloween battery-operated lanterns because the bulb could overheat and cause a burn or fire hazard.
October 2010: Dollar Tree and the CPSC recalled about 275,000 children's projector flashlights because of fire and burn hazards.
February 2010: The Attorney General of Vermont announced that Dollar Tree would pay $100,000 to settle allegations that it violated the state's Consumer Fraud Act by selling products containing high levels of lead and cadmium. The case arose out of reports of high levels of the dangerous metals in jewelry sold by the chain. As part of the settlement, Dollar Tree agreed to suspend its sale of all jewelry in the state.
December 2009: Dollar Tree and the CPSC recalled about 204,000 tool bench utility knives because of a laceration hazard.
February 2009: Amid reports of a salmonella outbreak, Peanut Corp. of America recalled some of its canned and jarred peanut products sold only in Dollar Tree and other dollar stores.
April 2008: Dollar Tree and the CPSC recalled about 300,000 Chinese-made plush insect toys because they contained small parts that could come loose and create a choking hazard for small children.
January 2008: Dollar Tree and the CPSC recalled about 253,000 glue guns which could short circuit and create a fire hazard. The recall was later expanded to about 470,000 units.
December 2007: Dollar Tree and the CPSC recalled about 300,000 units of several types of Chinese-made toys because they contained excessive levels of lead.
October 2007: Dollar Tree and the CPSC recalled about 198,000 units of Chinese-made children's jewelry because the products contained excessive levels of lead.
August 2007: At the urging of Illinois Attorney General Lisa Madigan, Dollar Tree announced plans to remove two toys featuring rare-earth magnets from its stores and put orders for more of the toys on hold pending an internal investigation of potential hazards.
August 2006: Dollar Tree and the CPSC recalled about 600,000 Chinese-made counterfeit extension cords because they contained substandard insulation and thus created overheating and shock hazards.
March 2006: Dollar Tree and the CPSC recalled about 580,000 units of Chinese-made children's jewelry because the products contained excessive levels of lead.
February 2005: Dollar Tree and the CPSC recalled about 147,000 units of Chinese-made electronic musical toys because of a piece that could break off and create a choking hazard for small children.
February 2004: Dollar Tree and the CPSC recalled about 68,000 candles with glass holders because the paint on the surface of the candles could ignite and create an excessive flame.
April 2003: Dollar Tree and the CPSC recalled about 407,000 plush bears and 221,000 snowman dolls because the buttons on the jacket of these toys could be pulled off, posing a choking hazard to young children.
October 2002: Dollar Tree and the CPSC recalled about 310,000 stuffed polyester pool animals because the seams could separate, exposing the polyester stuffing and foam beads and creating a choking hazard to young children.
July 2002: Dollar Tree and the CPSC recalled about 294,000 kitchen range drip pans that posed a fire hazard.
March 2002: Dollar Tree recalled about 165,000 Chinese-made paperweights because they leaked a potentially hazardous and flammable petroleum substance.
July 2000: Dollar Tree and the CPSC recalled about 700,000 doll feeding sets because the bibs had snaps that detached, presenting a choking hazard to young children.
Family Dollar had numerous similar recalls prior to being acquired by Dollar Tree, most notably a case in May 2010 in which Family Dollar and the CPSC announced a recall of 1.8 million Chinese-made toy dart-gun sets sold exclusively at the chain that had been linked to several asphyxiation deaths. The importer of the toys, Henry Gordy International, had resisted issuing the recall and later agreed to pay a fine of $1.1 million to settle CPSC charges that it delayed reporting the hazard for several years.
Family Dollar had also been fined by the CPSC: $75,000 in July 2009 for selling children's toys that violated the federal lead paint ban and $100,000 in June 2006 for failing to notify the agency in a timely manner about electric blankets that could overheat and catch fire.
Environmental Issues
In 2015 Dollar Tree agreed to pay $2.7 million to settle a lawsuit filed by county prosecutors in California alleging that the chain failed to dispose of hazardous materials through required procedures and instead put the waste into regular trash bins.
In 2008 the Environmental Protection Agency announced that Dollar Tree would pay a penalty of $120,000 for selling a product called Zany String containing an ozone-depleting substance banned by the Clean Air Act.
In May 2010 the Massachusetts Department of Environmental Protection assessed a $10,000 penalty on Dollar Tree for failing to perform a timely clean-up of a spill of hydraulic oil outside one of its stores in Worcester.
In 2014 Family Dollar paid a fine of $602,438 in connection with EPA allegations that it violated the Federal Insecticide, Fungicide and Rodenticide Act by selling two misbranded antimicrobial bleach products.
Overtime Litigation
In 2001 Dollar Tree was sued in state court in California by a former store manager alleging that he and others in his position were improperly designated as exempt and denied overtime pay. The company settled the case for $7.6 million in 2005.
In 2006 the company was sued in federal court in Alabama by a former store manager who claimed that she and others in her situation should have been designated as non-exempt and thus receive overtime pay. Another manager case was filed in federal court in California, and others followed in additional states during the next few years. The company managed to get some of these cases dismissed, while others are still pending.
Dollar Tree is also facing a collective action involving a group of more than 4,000 hourly employees who allege that they were compelled to work off the clock. The case, originally filed in federal court in Illinois in 2011, was later moved to federal court in Virginia at the request of the company, which unsuccessfully sought to have the case decertified. The matter is pending.
In 2001 a lawsuit was filed in federal court in Alabama charging that Family Dollar improperly denied overtime pay to store managers by classifying them as exempt employees. By the time the collective action went to trial in 2005, there were more than 1,400 plaintiffs. The jury ruled against the company, which was hit with a judgment of more than $30 million. Family Dollar appealed the verdict all the way to the U.S. Supreme Court but was unsuccessful and had to pay the judgment. Additional suits on this issue were subsequently filed in both federal and state court in various parts of the country. The company has fought these vigorously and has succeeded in numerous cases. However, in a case filed in state court in Missouri, Family Dollar settled for $2.5 million.
Occupational Safety and Health Issues
Dollar Tree has been cited repeatedly by the Occupational Safety and Health Administration for endangering employees by allowing boxes to be stacked too high and for blocking emergency exits. Here are some examples:
May 2015: $121,000 in proposed fines at two Chicago-area stores;
April 2015: $116,200 in proposed fines at a Houston store;
December 2014: $103,000 in proposed fines at a store in New Castle, Delaware;
July 2014: $177,800 in proposed fines at a store in Braintree, Massachusetts; and
June 2014: $217,000 in proposed fines at a store in Missoula, Montana.
According to the Violation Tracker database, Dollar Tree and Family Dollar have together paid more than $2.1 million to OSHA (after negotiated reductions in proposed fines) since the beginning of 2010.
Workers Compensation
In 2008 Dollar Tree bowed to public pressure and paid death benefits to the family of an African-American employee who was stabbed to death while working at one of the company's stores in California. Dollar Tree initially tried to avoid making the payment by claiming that the slaying was race-related.
Employment Discrimination
In 2008 a complaint was filed in federal court in Alabama charging Family Dollar with discriminating against female store managers in its pay practices. The district court denied class certification, so the plaintiffs went to the U.S. Court of Appeals, which remanded the case to the district court, which was told to allow the complaint to be amended. The case remains unresolved.
In 2012 the Equal Employment Opportunity Commission announced that Family Dollar would pay $45,000 to settle sexual harassment charges involving a store manager in Virginia. That same year, the company signed a national agreement with the EEOC to mediate future discrimination charges.
In 2018 Family Dollar paid $45 million to settle a class action lawsuit alleging that it paid female managers less than their male counterparts.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Campaign for Healthier Solutions
Center for Study of Responsive Law
Key Books and Reports
A Day Late and A Dollar Short: Discount Retailers are Falling Behind on Safer Chemicals by the Campaign for Healthier Solutions (February 2015).
Last updated August 1, 2020