Investigations

Dollar Stores Reap 'Super-Profits' By Exploiting Their Own Workers

A growing group of chain-store corporations that cater to America's poor are the top link in the sweatshop chain.

Abel Lopez was a busy man. The El Paso resident’s job with Family Dollar, Inc. averaged 60-80 hours a week. A former graphic designer and ad man from neighboring Ciudad Juarez, Mexico, Lopez spent his days unloading trucks, processing freight, scouring toilets, running cash registers, cleaning, shelving, changing prices, doing inventory, and covering for other employees. As a bonus, he was even held up by armed robbers.

Like others at Family Dollar who wind up spending most of their time doing grunt work, Lopez bore the title of manager. He contends that the company routinely classifies regular workers as managers in order to categorize them as exempt employees and in doing so ensure they are not subject to the overtime provisions of the 1938 Fair Labor Standards Act (FLSA).

Family Dollar is one of a growing group of chain-store corporations that cater to America's poor by selling cheap goods, many imported from sweatshops in low-wage countries including China and Mexico.

Critics of the two largest dollar store chains, Family Dollar and Dollar General, contend that the companies extract super-profits from the uncompensated labor of overworked store “managers” and other employees. 

“It’s corporate theft,” asserted Alabama attorney Lance Gould, whose firm represents some of  [Dollar General’s] managers. “All these dollar stores, their company structure is the same. Their largest controllable expense is their labor budget.”

Last April, after more than seven years on the job, Abel Lopez was fired. Family Dollar blamed him – unjustly, the worker says -- for bad upkeep of the store. Recently, he and a small group of supporters conducted roving pickets at different Family Dollar stores in El Paso. One day he stood outside a store wearing a T-shirt that read: “Family Dollar: Exploited Manager,” while an El Paso police officer warned the group not to leaflet on company premises.

“We’re being misclassified as store managers to avoid paying overtime,” Lopez charged. “I think the profit is made out of the hours they don’t pay the managers. ...They give you a payroll, and actually most of the time the payroll doesn’t cover you,” Lopez said, adding that managers were forced to do the jobs of workers they could not afford to staff.

Stout and straight-talking, Lopez resumed picketing as the mid-day traffic picked up and the hot sun blazed the pavement of the border city.

Pennies on the Dollar

Pay for Family Dollar managers like Lopez starts off around $550 per week but the long hours required result in some employees barely earning above minimum wage, Lopez says. At the opposite end of the company’s income spectrum, Family Dollar CEO Howard Levine enjoyed an annual compensation package of $5.38 million in 2010--part of a five-year bundle valued at $14 million, according to Forbes.

Based in North Carolina, Family Dollar began in 1959 with one store in Charlotte. More than 40 years later, the chain has more than 6,700 stores in 44 states with 45,000 employees. Earning nearly $7.9 billion in revenues for fiscal year 2010, Family Dollar recorded nine consecutive quarters of double-digit earnings per share growth through the summer of this year. The chain “significantly expanded operating margins and improved inventory productivity” while continuing to return “excess cash” to its shareholders, according to a company statement.

For the first three quarters of fiscal year 2010, Family Dollar paid out approximately $58 million in dividends.

While Family Dollar raked in profits, Lopez scrambled to make ends meet. With mortgage payments, as well as a wife and three young daughters to support, he did what so many other workers are forced to do by the Great Recession: dip into his 401(K)3.

As the months dragged on, Lopez waged a battle on two fronts: out on the streets and inside state unemployment offices, there he eventually prevailed against Family Dollar’s initial rejection of his claim, he said.

Abel Lopez is not the first company manager to challenge the North Carolina-based retailer. In 2006, more than 1,400 former and current company managers won an Alabama lawsuit alleging FLSA overtime violations and seeking compensation. Agreeing with the plaintiffs, a federal jury ordered the company to pay $35.6 million. Family Dollar appealed.

Family Dollar chairman and CEO Howard Levine praised the hard work of his employees but insisted they were exempt from laws requiring overtime pay. “We believe we are correct in classifying our store managers as salaried managers, and we intend to continue to fight for what we believe is right,” Levine said in a statement.

In 2008, the 11th Circuit Court of Appeals disagreed and upheld the judgment against Family Dollar. The Fortune 500 company did not respond to several requests for comment on the current complaints against the company.

The Inflation of Dollar Stores

Rising from the U.S. Bible Belt, the dollar store trend began back in the 1950s. Today, three Fortune 500 companies compete for the title of Old King Buck--Dollar General, Family Dollar, and Dollar Tree. The corporate chains appeal to legions of economically stressed shoppers, with Dollar General even sponsoring an advice-column blog authored by “Ms. Cheap.”

Unlike many retailers, the dollar store industry is thriving in these hard economic times. At the top of the heap is Dollar General. Beginning as a family business in Springfield, Kentucky, it expanded into a huge company that was eventually taken over in 2007 by affiliates of corporate raiders KKR and Goldman Sachs.

Publicly traded since 2009, Dollar General counts more than 9,000 stores, 72,000 employees and sales in the neighborhood of $11.8 billion. Like some Family Dollar stores, Dollar General accepts food stamps and goes beyond the buck-an-item model by also featuring grocery aisles. While checking the weekly coupon stand, customers can browse tabloids with headlines like “Michael Jackson Seen Alive.”

Dollar General faces the same overtime issues as Family Dollar. The “majority of [mangers'] work is the same as hourly employees,” said Gould, an attorney for Beasley-Allen, the Alabama-based law firm that since 2004 has handled thousands of employee complaints against Dollar General. Unlike actual executives, Gould charged, Dollar General’s managers must defer to district bosses for significant decisions. The approximately 750 cases pending in various U.S. courts make overtime lawsuits filed by managers of retail outlets “one of the fastest-growing areas of litigation,” said Gould.

A spokesperson for Dollar General said the company does not comment on litigation.

True to its name, Dollar Tree does indeed offer mostly very cheap goods. As the night of witches and goblins approached, El Paso shoppers were greeted with a gaudy “Halloween Headquarters” stocked with $1 candy bags, “boneyard” skulls, black crows and other apparitions of faux terror.

For a mere buck, borderland children can play at killing with toy assault rifles and grenades, the make-believe images of real-life weapons used every day just across the river in violence-torn Ciudad Juarez, Mexico. They can also pretend to ply the tools of the trade of returning Iraq and Afghanistan war veterans stationed at El Paso’s Fort Bliss in ever increasing numbers.

Boasting more than 3,900 stores in 48 states, Dollar Tree traces its evolution to the Ben Franklin variety store in Virginia. Changing into a publicly-traded company decades later, Dollar Tree has recently busied itself buying up similar retailers in different states. During the second quarter of 2010, Dollar Tree opened 56 stores and closed only five.

Between Wal-Mart and a Garage Sale

“Dollars may not grow on trees but outlets of Dollar Tree’s stores seem to,” noted Hoover’s.

“Customers are responding in record numbers to our outstanding values and fun shopping experience,” said president and CEO Bob Sasser, who presumably also finds fun in a four-year compensation package Forbes estimated at $9.42 million. 

Filled with the products of the world’s low-wage manufacturing centers, the dollar store industry occupies an economic niche somewhere below Wal-Mart and K-Mart, and somewhat above the weekend garage sale. They fill store fronts in moribund cities and strip malls around the country, as in economically depressed Barre, VT, where a Family Dollar displaying cheap items in bright colors nestles next to a nail emporium, a Chinese restaurant, a basic Radio Shack, and a long-empty storefront.

Dollar stores are also fixtures of immigrant communities. In New Mexico, west Texas and elsewhere it is common to find them near indoor flea markets, pay-day lenders and other manifestations of what Eric Murillo of the El Paso-based Retail Workers Rights Committee (RWRC) called the brave new world of the “predatory economy."

Organizing for Fair Treatment

Organized this year to support Abel Lopez and other workers, the Retail Workers Rights Committee is laying the groundwork for a fresh burst of labor activism in an industry that is notoriously anti-union.

 

The new group demands a halt to the misclassification of store managers, an end to threats and intimidation of employees, and an increase in workplace security and no-retaliation pledges.

 

Founder of El Paso’s Border Workers Association, Guillermo Glenn, noted that the Family Dollar battle has special resonance in a city where retail jobs are one of the few options left. After NAFTA and other free trade pacts were implemented, nearly 40,000 manufacturing jobs were demolished in what Glenn termed a Katrina-like economic storm.

 

Unpaid overtime is a major problem in the retail and fast food industries of his city, Glenn maintained. Worse yet, he said, is weak Texas labor law that gives employers the power to fire even “if they don’t like your shoes.”

Ironically, in El Paso’s shops now, gadgets and gizmos made in China and other low-wage havens compete with cheaply produced Mexican goods. If workers’ grievances are as severe as they appear to be, it poses the question of whether retail stores are the sweatshops at the top of the sweatshop chain.

Added Glenn: “I see the movement of the retail workers as very important because there is [so much] sub-employment in this area-part-timers and people that don’t work sufficient hours.”

Backed by allies from different social movements, the RWRC is planning an October 16th national day of action against Family Dollar in cities such as El Paso and San Antonio. Organizer Eric Murillo said Family Dollar employees across the country were in the same boat. “We feel if we keep this pressure up, we’ll get other Family Dollar workers and perhaps other retail workers involved in this struggle as well,” Murillo said.

Kent Paterson is a freelance journalist who covers the southwestern United States, Mexico and Latin America. He is an analyst for the Americas Policy Program at americaspolicy.org.