The rat infestation at Family Dollar's distribution center is unsurprising, a retail consultant says, after witnessing the chaotic inventory pile-up at its parent company's stores
Insider/Brittany Chang
- FDA inspectors found a rat infestation at one of Family Dollar's distribution centers.
- This led to Family Dollar closing more than 400 stores.
- A retail consultant told Insider that inventory pile-ups and staffing shortages could be to blame.
Family Dollar closed 404 stores this week after a US government agency investigation found 1,000 rodents at one of its distribution centers in Arkansas. The company on Friday announced that it was gradually reopening some of the stores.
According to the US Food and Drug Administration, inspectors reported finding live rodents, dead rodents in various states of decay, rodent feces, and dead birds in the building. Recalls were issued on certain items sold at its stores that were serviced by this distribution center; days later, these stores closed altogether.
News of these infestations didn't come as a surprise to everyone, however. Scott Mushkin, CEO of consultancy firm R5 Capital, told Insider that his team's recent visits to more than 50 of Family Dollar's parent company's stores, Dollar Tree, highlighted issues with chaotic backrooms and inventory pileups that could lead to rodent infestations.
"To call it chaotic is an understatement, there were inventory mountains," he said on a recent call. "I've never seen anything like what we witnessed in those back rooms ... there was plenty of cover for rodents to move around."
Mushkin's team created a report after visiting 50 Dollar Tree stores, which was shared with investment analysts and reviewed by Insider. The report shows stacks of boxes piled high in stock rooms at various Dollar Tree stores across the US.
Dollar Tree did not immediately respond to Insider's request for comment.
"Store after store there were piles of inventory. In our opinion, there is a very low probability that the company fully understands its inventory position at the stores," the report said.
This paints a similar picture to what Insider found during store visits to two of Dollar Tree's Brooklyn locations in 2022 and 2018 where boxes were stacked up in the middle of the store or left to be unloaded on abandoned crates.
Mushkin said the inventory pile-ups he witnessed could be down to supply chain challenges and stock arriving all at once or staffing issues because of the labor crunch.
Gabriella Santaniello, analyst and founder of retail research firm A-Line Partners, echoed these sentiments.
"The stores are understaffed, sometimes with only two people working, so it isn't unrealistic that things like a rat infestation might go unchecked for a long time. They just don't have the bandwidth to deal with it. It's a sad reality," she said.
It's not only the Dollar Tree group that has issues with unsafe box stacking in its stores (and a lack of staff to deal with it). Its main competitor, Dollar General, has faced over $3.6 million in proposed penalties from the Department of Labor's Occupational Safety and Health Administration since 2016 over issues of worker safety in its stores.
OSHA said in a press release this week that inspectors found examples of "willful violations" of employee safety at some of its stores last summer including stacking boxes in "an unsafe manner" and blocking exit routes.
While untidy stores haven't discouraged shoppers so far – dollar stores continue to grow at a rapid rate in the US and thrived during the pandemic – analysts say that recent reports of pest control issues are likely to be more damaging.
"The low price proposition of Dollar Tree and Family Dollar does result in trade-offs. No one expects the stores to be luxuriously appointed, to have fantastic merchandising, or to offer top-notch service," Neil Saunders, managing director of GlobalData Retail, said in a note to Insider.
He continued: However, basic hygiene, including pest control, is an expectation. I think most shoppers will find the latest headlines distasteful, no matter how low the prices or how low the discounts are."
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