Ross Stores Hit With $3.9 Million Federal Fine For Being Repeat Offender Of Selling Banned Children's Clothes

On Friday (June 21), Ross Stores (NASDAQ:ROST) agreed to a $3.9 million federal fine for having sold children's clothes with banned and dangerous drawstrings. But that large fine—apparently the second-largest in the history of the Consumer Product Safety Commission—was not just for having sold the banner clothes. It was for having sold the clothes—and there's almost certainly a chutzpa award awaiting Ross—after having paid an earlier penalty for having sold the illegal garments.

In other words, the chain was fined $500,000 for selling banned clothing and then didn't bother to take it seriously enough to stop selling them.

"Ross is a repeat violator. In 2009, it paid a civil penalty of $500,000 for violating the same law, Section 15 of the Consumer Product Safety Act (CPSA). Neither the fine nor the supposed remedial measures Ross implemented on its own initiative following that settlement was sufficient to prevent the continued sale of defective garments," said U.S. Consumer Product Safety Commission Chairman Inez M. Tenenbaum. "Vendors who were contractually obligated to provide compliant products continuously failed to do so. Internal policies prohibiting the purchase, inventory, and sale of garments with drawstrings were equally ineffective. Regardless of what Ross's management may have wanted to believe about the effectiveness of their policies, they clearly did not work."

In Ross' statement, it had cited the supply chain defense: "Consistent with practice in the retail industry, Ross contractually requires its vendors to supply products that comply with all federal, state, and local laws, regulations, and standards, and relies on its suppliers to provide compliant products."

Tenenbaum replied to that in the chairman's statement, saying that just because the problems came through Ross' supply chain—as opposed to its own employees—made no difference. "The fact that Ross did not design, manufacture, or import the garments did not relieve it of the obligation to ensure that they comply with all applicable safety statutes and regulations," Tenenbaum said.

The government said that the 1,125-store chain, from January 2009 through February 2012, sold 12 series of various styles of children's outerwear with drawstrings at the neck or waist—about 23,000 garments. In September 2009, Ross paid a $500,000 penalty for failing to report prohibited apparel that it sold from 2006 through 2008.

"Throughout the course of that civil penalty matter, Ross received repeated reminders about the drawstring hazards and applicable law," said the settlement filing.

Ross said that it first learned of the apparel problem when it heard from its vendors that some items were being recalled. "Ross did not file a report" to CPSA "because it believed that the Commission was adequately informed of the alleged defect, due to the Commission's involvement in the recall of these Garments."

In its statement, Ross also said that it did quite a bit to try to prevent the sales. "Upon learning in 2009 that, despite the procedures it had in place, the Children's Apparel and Byer Garments had been discovered in Ross's stores, Ross began developing new compliance measures to augment its existing policies, including a product recall inventory and sales tracking system, the creation of a dedicated product safety personnel position to address product safety compliance, training, and policy issues, increased training of personnel who order children's apparel for sale in Ross's stores and process children's apparel in its distribution centers, an enhanced distribution center review process, in which children's outerwear is audited for compliance with the Final Rule prior to distribution to stores, and a point-of-sale register lock system that prohibits the sale of recalled products. These compliance measures were implemented and refined through 2012 and will continue to be evaluated and modified, as appropriate."

For more:
- See this New York Times story
- See the Ross Stores' statement
- See the settlement agreement
- See U.S. Consumer Product Safety Commission Chairman Inez M. Tenenbaum's statement

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