Tight Economy Squeezes Inventories At Resale Stores

September 1, 2008       Tom Pope      

In a struggling economy many resale stores are finding sales increase as the public seeks bargains. This boom gives The Salvation Army a nervous headache.

“Sales are up around 3 to 5 percent,” said Maj. George Hood, national community relations and development secretary for The Salvation Army National Headquarters in Alexandria, Va. “Donations (of items) are down around 20 percent and that could pose a problem for our inventory.”

That 20-percent drop is compared to figures from one year ago and the trend has been happening for the past six months. Usually a surge in donations arrives with the spring time cleaning. That didn’t happen this year.

“We assume that the people who did donate items are now going to eBay, Craigslist, or more garage sales,” he said. “The economy is so tight people try to gain some money from those items.”

Resale is one of the fastest growing retail segments, witnessing an overall 5 percent growth per year, according to the National Association of Resale and Thrift Shops (NARTS) in St. Clair Shores, Mich. NARTS represents more than 2,500 stores in a multi-billion dollar resale market. That trend is a contrast to a slower 3.5 percent growth for the entire retail sales area.

To counter the inventory problem, Hood is developing a campaign to raise the awareness level to pick up those needed donations. The campaign focuses on how the thrift store aids alcohol and addiction programs.

“Focus groups recently showed us they know little about what happens in our rehab programs,” Hood said. “We have to stress that when they give a donation, lives are being saved.”

The Salvation Army previous didn’t engage in a high level of marketing. “Typically we had more (donations) than we could handle,” he said. “In the last six months, we have had to be more disciplined.”

The change in the message since July featured some lines in bright red colors that say, “Free someone from the bonds of addiction,” or, “You just bought someone hope,” or, “Money is only one of the things you saved.” The type of language “aims to educate donors and shoppers,” Hood said.

Meanwhile, Goodwill Industries of Denver is also taking an aggressive approach to seeking donations. An effort began in February to identify certain neighborhoods around stores that have a potential to increase the donations. The added reminder has resulted in donations going up 3 to 7 percent each month during the past couple of months.

“People have a tendency to hold onto possessions for a longer time in the downturned economy,” said Ric Berninzoni, vice president of retail operations for Goodwill in Denver. Goodwill’s advertising reminds people that when it’s time to clean closets to think of Goodwill. “Business donations go up in the summer and decrease in the winter,” he said. “If stores don’t have enough inventory to carry through the entire year from the summer, the sales could be hurt.”

Goodwill tries to put stores in locations to encourage drop offs rather than sending pick up teams. This system saves the organization transportation costs, especially gasoline. A Goodwill store in Fort Collins, Colo., emerged because of its position in a growing market, rather than because of the declining overall economy. “We decided we weren’t getting enough donations from a northern store,” he said. “While we thought that was a one-store market, it appears to be a two-store one,” said Berninzoni.

Now the new store is reaping high quantities of donations so the organization is able to take excess donations to support other stores. “Those donations were going somewhere else,” he said. “Now the convenience of the location means people don’t have to take their donations to many smaller remote mountain towns.”

Habitat for Humanity (HFH) of Wake County in Raleigh, N.C., is trying to create inventory from a marketing approach called the Kitchen Campaign. The objective is to collect and sell 40 kitchen cabinet sets between January and December 2008. Homeowners who remodel a kitchen will hopefully bring the old cabinets for donations to HFH. The concept helps create a sense of urgency and links the current national elections with the people, according to Woody Yates, executive director and CEO of the HFH affiliate in Raleigh.

“This gives people an idea of the importance of their material donations by equating the value of their gift toward the construction of a home,” he said. One home could be valued at $70,000. The concept helps supply Habitat’s Restore outlet that sells building materials along with furniture.

“We’re well ahead of schedule,” he said. “We’ve completed half the goal in a little over four months.”

Yates markets to contractors who know which homes are being restored and from where kitchen sets might be obtained. The HFH campaign increased activity around 10 percent. “We’re using the homebuilders to send the message about the Kitchen Campaign,” he said. “We realize that the association was the key area because they work with remodelers along with a segment of interior designers.”

The recent mortgage crisis results in many people opting to restore part of a present home instead of buying a new one. “The downward spiral of the economy affects how we market,” Yates said. “The affiliates run marketing separately and usually marketing isn’t a big item.” The Kitchen Campaign has evolved into a constant feeding source of inventory for the restore operation. “We’ve never seen this amount of steady product coming in before,” he said.

“Typically the donations are on and off and it’s hard to predict the timing of new house jobs Ð now we have a consistent pattern with the campaign.”

The mortgage crisis has a negative affect for some areas of HFH. More people have less money to spend on fixing up their present homes, according to B.J. Perkins, development manager of HFH International’s ReStore program in Austin, Texas. This prompts HFH to have special training across the country.

“We’re focusing on how to increase sales in a declining economy,” Perkins said. “Sometimes people have to think out-of-the-box and check prices so they are in line with the market, or increase in-store advertising, and use other messages to engage the public.”

Engaging the public means attracting more, younger buyers to Goodwill Industries of Denver. Starting this past April, a Pick of the Week Shopper has posted key items of clothing on Goodwill’s Web site. The thrift outlet’s sales are up compared to last year, although Goodwill declined to disclose how much. The effort of engaging more through social media was explored during the last year and now the organization seeks to obtain more merchandise for the increased sales.

“We’re becoming more hip and friendly to the environment,” said Kristen Blessman, vice president of marketing at Goodwill. “We’re using the Web site and social media more to target the younger people.”

Goodwill also maintains a presence on eBay with the Pick Of The Week Shopper. She puts an item up for sale on eBay with the idea of attracting other audiences. Those audiences can come from Craigslist, MySpace, and Facebook along with LinkedIn. You can now see on YouTube the image of Goodwill next to for-profit giants such as SONY.

“We don’t have to spend $1 million on television when we have an outlet like that,” she said. “People can see our image where they couldn’t before.”

In one example of the shopper, one trendy T-shirt that would have sold for $75 appeared at Goodwill for $3. “We’re all even now because a big shift in marketing to social networking means a big opportunity to compete,” Blessman said. “We once thought the people with the largest ad budget were the winners. Now Goodwill has just as much opportunity because of the social media.”

More people are flocking to the clearance area of the Samaritan Center’s thrift store in Ooltewah, Tenn., than the usual thrift area. Instead of shopping for $2.99 an item, they are seeking a clearance for 50 cents.

“It’s a larger volume of people with a lot more foot traffic of people who haven’t shopped before,” said Tony Dahlberg, director of the center. The social service nonprofit near Chattanooga helps around 2,700 people a year.

The store contains four operations under one roof that includes a toy area for kids, a high-end knickknack section, a thrift shop, and a clearance store.

Media exposure with timing and television helps the marketing. “In the past year, we have used a person who developed more exposure in the local media,” he said. One spot on the 5:30 p.m. news about the economy focused on how people could stretch a budget. Samaritan’s marketing was tied to the news.

The drive to pick up donations with a truck at a local university on the last day of school accomplished more than obtaining just the donations. The media picked up the event and there was television footage of the center’s activities.

“Getting the message out on television can be more effective than a radio ad,” he said. “You have to see which are the hot buttons and does the mission have an impact in the form of a news release.”

The younger demographics of the college audience is important, according to The Salvation Army’s Hood. “We see spiked sales when students arrive and when they leave, donations go up,” he said.

Catering to the younger people who want trendier clothing has benefits and drawbacks, according to Goodwill’s Berninzoni. “Even some middle-aged people like trendier items because they are more fashionable,” he said. “That can be a problem in increasing that type of inventory with this economy as people are holding onto the merchandise longer.”

Nonprofits have to look beyond the immediate, according to Hood. “We can’t be caught by surprise,” he said. “We have to look for a long-term growth because the reality is that the economy will show a slow growth for the next decade.” NPT

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

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