Business

Family Dollar’s ‘scheme to kill’ Charlotte retailer cost thousands of jobs, suit says

In the latest twist in a long-running dollar-store drama, the Charlotte-based retailer Dollar Express is suing Family Dollar and parent company Dollar Tree for setting out to “kill Dollar Express” and ultimately putting the new chain out of business. This store on East Sugar Creek Road was among those slated to become a Dollar Express. Now it will carry the Dollar General banner.
In the latest twist in a long-running dollar-store drama, the Charlotte-based retailer Dollar Express is suing Family Dollar and parent company Dollar Tree for setting out to “kill Dollar Express” and ultimately putting the new chain out of business. This store on East Sugar Creek Road was among those slated to become a Dollar Express. Now it will carry the Dollar General banner. Observer File Photo

In the latest twist in a long-running dollar-store drama, the Charlotte-based retailer Dollar Express is suing Family Dollar and parent company Dollar Tree for setting out to “kill Dollar Express” and ultimately putting the new chain out of business.

Dollar Express is the chain started by private equity group Sycamore Partners when it bought more than 320 stores from Matthews-based Family Dollar in 2015. Family Dollar had to sell the stores for antitrust reasons when it was acquired by Virginia-based Dollar Tree.

In its suit, Dollar Express alleges that Dollar Tree and Family Dollar sabotaged the chain of stores that it sold to Dollar Express by hiring and promoting unqualified workers and opening new Family Dollar-branded stores in close proximity to Dollar Express stores – using Dollar Express’ confidential information.

In late March, Sycamore abruptly laid off Dollar Express’ employees and sold the stores to Tennessee-based Dollar General because it could “no longer operate as a viable standalone business.” The suit filed Thursday in Delaware Superior Court is the first time Dollar Express has laid out its reasons for abandoning the new retail venture less than 18 months after it started.

The legal dispute between the companies actually began Thursday morning with an opening volley from Dollar Tree. The Virginia-based retailer filed suit against Dollar Express under seal in Delaware for “non-payment of goods and services provided and other matters,” according to Dollar Tree spokesman Randy Guiler. The suit will likely be unsealed sometime next week, he added.

In its suit filed hours later in the same court, Dollar Express said it had been trying to start a viable business but was thwarted by a “scheme to kill Dollar Express” by Family Dollar and Dollar Tree.

As a result of Dollar Express shutting down, nearly 3,000 workers – including 110 in the Charlotte corporate office – are losing their jobs.

“Dollar Express saw these stores as an exciting platform opportunity to create a nationwide discount retailer, and its plan was to grow by opening numerous Dollar Express-branded stores throughout the country,” the suit states.

Instead, the company is now winding down all 323 stores and seeking damages from the company from which it acquired them.

“Had Dollar Express known defendants’ true intentions, Dollar Express never would have purchased the stores,” the suit reads. “Similarly, defendants’ false representations enabled them to obtain the pre-merger approvals from the (Federal Trade Commission) required to consummate the merger.”

Guiler, the Dollar Tree spokesman, said it’s the company’s standard practice not to comment on pending litigation. Dollar Express’ suit does not name any individual executives.

‘Widespread’ damage

The dollar-store takeover drama dates back to 2014, when Dollar Tree made a bid to buy Family Dollar, the retailer founded in Charlotte in 1959 by Leon Levine. Dollar General followed with its own offer for the discount retailer, but Dollar Tree ultimately prevailed, buying Family Dollar for about $9.1 billion in July 2015.

Before the deal closed, Family Dollar, which was then under the leadership of Leon’s son, Howard Levine, agreed to offload some of its stores to New York-based Sycamore Partners in order to receive FTC approval for its sale to Dollar Tree. Sycamore, a private equity firm that specializes in buying retailers, also acquired Charlotte-based Belk in 2015.

Since buying the Family Dollar stores, Sycamore had quietly built up Dollar Express’s headquarters in a nondescript office park off East Independence Boulevard with retail industry veterans such as CEO Bruce Efird, an Albemarle native and former CEO of Fred’s, a Tennessee discount retailer. Other corporate employees had been brought in with their families from as far as away as California.

In its suit, Dollar Express says the damage sustained by the company has been “widespread,” including lost sales and profits, lost investments in establishing a standalone business, diverted shoppers and supplier penalties.

In one example, according to the complaint, Family Dollar approved opening a new store in Memphis, Tenn., across the street from a profitable Dollar Express location in an effort to reclaim customers and “deprive such stores of their profitability.”

Knowing that it would have to divest stores, Family Dollar diverted some of its managers to stores it was keeping – “leaving behind managers at Dollar Express stores who ‘didn’t make the cut,’” the suit says. Family Dollar also “poached” employees from Dollar Express locations, causing significant turnover, according to the suit.

The complaint accuses Dollar Tree and Family Dollar of breach of contract, fraud, unfair competition and deceptive trade practices, among other allegations. The conduct was also “causing significant harm to competition, local communities, employees and consumers,” the suit states.

Dollar Express seeks damages to be determined at trial, including punitive damages, the suit says.

Since buying Family Dollar, Dollar Tree has laid off 370 employees at Family Dollar’s former Matthews campus while moving forward with plans to add space at its Chesapeake, Va., headquarters. Howard Levine stayed on as Family Dollar’s CEO after the merger, but left that post in January 2016 and the Dollar Tree board in April 2016.

In its quarterly earnings report Thursday, Dollar General said that it plans to convert the Family Dollar-branded stores it is acquiring from Dollar Express into its own Dollar General-branded stores by the end of November.

Katherine Peralta: 704-358-5079, @katieperalta

Dollar-store drama

▪ July 2014: Virginia-based Dollar Tree makes $8.5 billion bid for Matthews-based Family Dollar Stores.

▪ August 2014: Tennessee-based Dollar General makes rival offer for Family Dollar.

▪ January 2015: After bidding war, Family Dollar shareholders approve sale to Dollar Tree for $9.1 billion.

▪ May 2015: Dollar Tree reaches an agreement to sell 330 Family Dollar locations to private equity firm Sycamore Partners to receive regulatory approval for its Family Dollar deal. The sold-off stores are to be run by a company called Dollar Express, based in Charlotte.

▪ July 2015: Dollar Tree officially completes its purchase of Family Dollar.

▪ November 2015: Sycamore completes deal to buy 330 Family Dollar stores, which are eventually to be renamed Dollar Express.

▪ March-April 2017: Dollar Express says it’s closing its stores, which never opened under the Dollar Express name. The company also says it’s laying off its employees and selling the chain to Dollar General.

▪ June 2017: Dollar Tree sues Dollar Express for “non-payment of goods and services provided and other matters.” Dollar Express sues Dollar Tree and Family Dollar for an alleged “scheme to kill” the company.

▪ November 2017: Dollar Express stores acquired by Dollar General expected to open under the Dollar General name.

Rick Rothacker

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