Spending More In A Down Economy

April 1, 2009       Tom Pope      

How can a nonprofit retail operation rack up an 18 percent sales increase compared to the previous year and right after a 65 percent jump? What economic downturn?

That’s exactly how the Habitat’s ReStore performed in Gaithersburg this past November and December. The ReStore is part of Habitat for Humanity of Montgomery County, Maryland, Inc., an affiliate of Habitat for Humanity International.

The answer is that some nonprofits are targeting customers with high-end merchandise and then carefully focus advertising and marketing to pull in the customers.

“We ran a targeted campaign, aggressive ad campaign in the Potomac-Chevy Chase area because of the potential from the affluent area,” said Adeela Abbasi, marketing and communication manager for the ReStore. Furniture, kitchen cabinets and appliances started flooding into the ReStore’s inventory. “Those are our best sellers and we can charge a decent amount per item,” she said.

The staff is picky. They reject items that aren’t what Abbasi called, “good quality.” That approach helps boosts sales. “Now we’re targeting those items more than others when we solicit corporate donations,” she said.

The economic crisis has hurt many commercial retailers. Abbasi explained that many people can’t afford to remodel their homes so they seek the ReStore to obtain something comparable. The Habitat ReStore gets its inventory from donations by local retail businesses, building contractors, suppliers and individuals. The items are made available to the public at around 50 to 75 percent less than retail prices.

Targeting affluent areas started midsummer. The organization has also changed the advertising approach. At one time 75 percent of the ReStore’s customers heard of the store through word of mouth. “Now we’re seeing an even distribution between word of mouth and online,” she said. “We’re getting a lot of online customers who tend to be more affluent.” Advertising was not cut back because of the economic decline. “We started to advertise more in other areas because of the hard times,” she said. “We’re playing off what’s going on — letting people know you don’t have to break your bank (account).”

Another example of a high-end approach to retail helped Thistle Farms products grow to $300,000 during 2008 from $180,000 the previous year.

The Nashville, Tenn.-based nonprofit offers natural sea salts, oils, and handmade bath and body products that are sold in stores such as Whole Foods and on the Web. The products support the Magdalene House, a two-year residential recovery program. Part of the mission aims to help women gain job skills while the product emphasizes the tagline that, “Love heals.”

“We don’t have our own retail store, although we aim for high-end stores to sell our products,” said Rev. Becca Stevens, executive director of Thistle Farms. For example, Stevens’ products also appear in Cokesbury Bookstores. “We’re now in 100 stores,” she said.

“Even though people are cutting back on buying products, they want certain items like soap,” she said. “They’re flocking to all-natural products and are willing to use disposable income for those items.”

Stevens started the process to engage Whole Foods this past July and sent the first order in September. “Once people see we’re in Whole Foods, others will be interested,” she said. Besides the Whole Foods effort in one Nashville store, Stevens aims to link up with other branches in the country.

The reason sales are expanding is that Thistle offers a three to one advantage, according to Stevens. “You get something good for the environment, help a cause, and it’s good for the body,” she said.

“It’s a tupperware party with a conscious. Women come in recovering from the street and make hand-poured items while they tell their stories,” she said.

If the high-end products help retail, the exact opposite gives life to the Waste Not Center in Columbus, Ohio. Almost a landfill in a warehouse, bins are filled with thousands of pins, beside old campaign buttons, or ribbon spools.

While not a usual retail outlet, the nonprofit charges $60 a year for membership so people can load up on the odd items. That fee has translated into serious money, according to Neil Drobny, general manager. From 300 members three years ago Drobny has watched membership almost triple. He wants that to reach 10,000. “There’s enough stuff in Columbus to support 10,000 members,” he said.

He stands around 4-inch neon plastic rings and Styrofoam disks painted to look like peppermint hard candy or fluorescent light covers, picture frames and ancient wallpaper-sample books. Many of the center’s customers are artists or teachers who sift through red ribbons or jingle bells to use in classes. One teacher used foam disks to make African-style masks.

Drobny isn’t really targeting people, although the word of mouth from members naturally flows to other teachers or creative people. Drobny started to use a listserv to increase the size of his inventory and base.

Lack of a focus for a product or funding customer base leaves an organization to rely on the usual funding. Collaboration Works, a North Kansas City, Mo.-based medical supplies and equipment nonprofit, seeks to aid the uninsured and underinsured. The audience served can’t be the funding support system, so founder and director Peggy Smith tried to see how a coffee company called the Grocery might develop a brand for the nonprofit.

“We thought of the coffee just because it would help with the funding,” she said. “We wanted some unrestricted income.”

Collaboration Works provides items often not covered by Medicare or Medicaid, such as incontinence products the nonprofit obtains at cost. Durable medical equipment, such as hospital beds, walkers, canes, or wheelchairs are products from $4 million of in-kind donations.

The organization assisted an estimated 10,000 people in 2008 according to Smith. Around 2,000 diabetic patients received supplies estimated at 25 percent of retail cost. The organization is able to offer the products below retail prices through a special agreement with corporate donors.

Smith is frustrated because funding is eluding her. “More people are seeking grants and many foundations in the area require a great deal of interaction with the board,” she said. “I don’t have time to meet people on a regular basis because of our mission.”

Smith only received government funding once and that is coming to an end. Many private funding has changed focus, leaving her nonprofit to fend for funds.

Smith pursued the coffee concept but ultimately passed because of up-front costs. “We now have a Web site designed by a client,” she said. “We want to be active and that’s why we thought of a coffee product.”

Developing nonprofit retail requires the fine tuning and targeting shown by organizations like Habitat, according to Abbasi. “In bad times, we have to reach out to the affluent areas,” she said. “If you have to spend money, spend it on reaching out to attract the people.”

Tom Pope, a New York City-based journalist, writes about management issues.