The Almighty Dollar Tree
So you don’t think money grows on trees? Then you haven’t watched Dollar Tree, Inc. spread its branches lately.
The Fortune 500 discount variety store operator, which wants to open an outlet in my little suburb of Moraga, CA, is a Wall Street darling, its 2009 net income rising almost 40 percent to $321 million on record sales of $5.2 billion. As they say, a dollar here, a dollar there, and the next thing you know you’ve got $5.2 billion. For the quarter ended May 1, 2010, revenues jumped 13 percent from a year earlier and same-store sales climbed 6.5 percent. Investors took note, raising the value of company stock recently to an all-time high of more than $44 a share.
Dollar Tree stores—there are more than 3,800 in 48 states—each sell about 6,000 items, all priced for $1 or less.* In a non-nostalgic way, they’re a throwback to the old Five & Dime stores of yesteryear, though heavy on Chinese imports. (See my previous blog posting that takes you inside a Dollar Tree store).
“We’re selling stuff that you want but don’t really need,” co-founder, former CEO and current board chairman Macon Brock Jr. told Forbes magazine a few years ago.
Now that’s inspiring. But I have to admit it works. Yet what is the real price of Dollar Tree’s success?
First, it’s an apparent tolerance for product recalls:
Dollar Tree has had product recalls so regularly in the past five years, it’s a wonder company officials can recall when there wasn’t a recall. I know I can’t recall.
In 2006, Dollar Tree had to recall about 580,000 toy necklaces and rings because they contained high levels of lead, posing a serious risk of lead poisoning and adverse health effects to young children, according to the U.S. Consumer Product Safety Commission.
In 2007, Dollar Tree once again had to get the lead out, paying Vermont $100,000 to settle a lawsuit for selling jewelry items that contained high levels of cadmium and lead. The jewelry included a necklace, digital watch, earrings and pony tail holder.
In 2008, Dollar Tree came under heat for selling glue guns that could short circuit, start to smoke and potentially posed a fire hazard to consumers. The company had to recall about 470,000 glue guns.
In 2009, guns gave way to knives, with Dollar Tree recalling about 204,000 tool bench utility knives when it was found the knives’ blades could slide past the blade support during use and pose a laceration hazard to consumers.
This year, Dollar Tree along with CVS and Rite Aid stores recalled about 324,000 bamboo torches imported from China because the fuel canister holding the wick had a sharp edge that posed a laceration hazard. Five sliced fingers, including one requiring stitches, were reported.
If the products don’t get you, the rodents might:
City health inspectors closed a Dollar Tree store in Albuquerque for nearly a week this past June when mice were found “all over the store feeding on old food under shelving,” according to published reports.
A Philadelphia man sued a local Dollar Tree store last month, claiming that a rat latched onto his right index finger when he reached into a box for ribbon he was buying to wrap his granddaughter’s birthday present.
“Not only did he sustain a nasty bite, but the rat didn’t disengage right away,” Christian C. Thompson, the man’s attorney, told reporters. “He had to shake it off.” When a store manager and assistant came over to investigate the man’s screams during the rat attack, three more rats jumped out as the assistant tried to move another ribbon box on the shelf, according to the lawsuit. I’ll bet everyone was fit to be tied.
If the rodents don’t get you, your boss might:
The Internet is loaded with worker complaints and reports of labor lawsuits against Dollar Tree. The issues include verbal abuse, low pay, long hours, lost wages, limited break periods, understaffing, threats of dismissal and unwarranted firings.
“This is the worst place I have ever worked,” wrote one employee this March on a “job vent” website with many “Hate It” reviews by Dollar Tree employees across the country. “They have 900,000 petty rules that you have absolutely no control over, each of which will get you fired. You will be scolded in front of customers…accused of being a potential thief and…never…know when you really get to leave your shift everyday.”
“As a cashier, you have far more responsibilities to keep ‘yourself busy’ and make yourself tired,” wrote a now ex-employee who quit recently. “They give out this sheet with ridiculous amounts of things to do while you’re already busy at the register lifting heavy objects and hurting yourself. I am pretty short…so how they expect me to lift large packs of soda, water and other big boxes is beyond my comprehension. I (went) home with achy legs (and) arms, headaches, back pain, cuts and bruises every single time.”
The Dollar Tree’s latest quarterly financial report notes four labor actions facing the company—two class action lawsuits concerning the job classifications of managers who might otherwise have received overtime pay, and two other lawsuits alleging gender pay and promotion discrimination against female store managers.
Not to leave out the men, Dollar Tree is being sued by a former regional manager who claims he was fired in part for trying to protect shoppers from imported Chinese goods contaminated with lead and other heavy metals. The ex-manager, who supervised some 16 stores in New England, alleges Dollar Tree executives told him to remove warning signs about the contamination on items that included dinnerware, according to recent news reports.
To be sure, some employees—the top ones—do quite well at Dollar Tree:
While most employees’ salaries hover near minimum wage—some reports say they average $29,000 a year, well below the retail industry average—the top honchos at Dollar Tree are doing fine. CEO Bob Sasser, receives total annual compensation of $4.7 million, including salary, stocks and other incentives. Other top execs at the company’s Chesapeake, VA, headquarters also earn comfortable livings.
I suppose it should be no surprise:
Dollar Tree has found a business model that works. Sell cheap stuff cheaply. Buy surplus or outdated merchandise directly from manufacturers, often for pennies per item. Use its marketing muscle as a big chain. Rely on many vendors. Lease rather than own space in bargain areas like strip malls to minimize capital investment and maximize the potential to generate high operating margins and strong cash flows. Keep overhead and salaries low. Track inventory closely.
With such tending, the Dollar Tree grows. It was begun by toy store executives in 1986 with just one outlet in Dalton, GA. Through mergers and acquisitions, Dollar Tree grew to $2 billion in revenues and 2,000 stores by 2002. It passed $3 billion in revenues in 2004; $5 billion in 2009.
Last year alone Dollar Tree added 240 new stores. Over the longer term—analysts estimate in the next decade or so—the company believes it can operate at least 7,000 stores nationwide.
Some would call this the free marketplace at its finest. Sharp executives who have developed a business that works. And who have created successful strategies to attract low-income as well as cost-conscious consumers while competing against big-box retailers like Wal-Mart and Target.
I find it a tree with troubling root rot. Even if everything costs a dollar. I guess you get what you pay for.
* The company’s 3,800-plus stores are mostly Dollar Tree stores, which sell everything at $1 or less. However, the company also operates about 150 Deal$ and Dollar Bills stores, which may sell items for more than $1.