Why Goodwill is the now and future king of thrift

On a recent weekday, Nick Adams, senior director of retail for Goodwill-Easter Seals Minnesota , the St. Paul-based affiliate of Goodwill Industries, showed me around the organization's brightly painted, two-story local flagship store. "Our average price is under $4," he said, pausing by a bundle of back-to-school items, including a book bag, rugby shirt, jeans and hiking boots. "Have you seen what the price of a new backpack is these days?"

It's typically a lot more than $3.99 , and that's one reason Goodwill Industries, with 3,200 stores in the US and Canada, is booming. In 2021, those stores and a growing e-commerce platform generated revenues of $5.47 billion from donated goods, according to Bill Parrish, a senior consultant at Goodwill Industries International.

The St. Paul-based retail operation, which includes 48 stores as well as an e-commerce facility, earned net retail revenues of $47 million in 2021 . So far in 2022, revenues are up in Minnesota and elsewhere, with no sign of the slackening that's hurt other retailers.

It's been a long journey. For modern consumers, secondhand has long been associated with second best. That image was the natural outgrowth of a consumer culture that markets the value and status of new and upgraded.

But it also developed, in part, due to a long association between used clothing and donations for the poor. Goodwill, founded in 1902, started out collecting clothes to teach Boston's underprivileged the art of mending.

In time, the flood of stuff — not just clothes — flowing from middle-class homes became so great that Goodwill and other charities shifted into selling used goods outright. But Goodwill's focus on preparing people for employment didn't change.

These days, according to the company's 2020 annual report, its retail revenue funds a sprawling social-service network responsible for placing one of every 600 US hires. The St. Paul-based affiliate, one of 156 local Goodwill organizations in North America, was responsible for 725 job placements in 2021 .

The operation isn't cheap, and keeping it running is what motivates Goodwill's management to innovate, boost efficiency and outcompete other discount retailers. "We really rely upon proceeds from retail to support our programs," Adams said. "If retail drops off, it makes things harder."

Transforming yesterday's thrift shops into attractive, hyper-efficient, omnichannel retailers required time and experienced retail managers. Before he came to Goodwill, Adams was director of sales operations for the Richfield, Minnesota-based Best Buy Co. Inc., where he oversaw retail at the company's big-box and mobile-specialty stores. As he walks through the St. Paul flagship store, he speaks fluent retail.

"DVDs and books are super hot," he said as we pass shelves full of media. So are kids' shoes during the back-to-school season. The proof is a half-full rack of them. "I hate empty racks," Adams said. But he brightens at the sight of a Halloween costume stashed in the boys' clothes. Halloween is the thrift industry's biggest holiday. "A costume at a pop-up shop from another retailer will run fifty to seventy bucks. Here, it's fifteen."

Making that low price happen isn't easy. For starters, Goodwill needs donations. So long as Americans continue buying stuff, that shouldn't be a problem. During the 2020 lockdowns, Goodwills around the country were so overwhelmed by goods excavated during home cleanouts that many stores rented extra space to stow it all.

Adams said there's been no drop-off since. Donations also surged after each of the Covid relief payouts, likely from consumers looking for room to put their new purchases. Goodwill also experienced a jump in sales.

Of course, charitable donations aren't the only way people can lessen the burden of excess stuff. Garage sales, eBay and a growing ecosystem of apps like the RealReal, Poshmark and Mercari offer the opportunity to monetize rather than donate.

But Adams said he's not threatened since Goodwill, unlike most of the online secondhand market, doesn't rely on higher-end brands that sell for more on the apps. It can survive and thrive on lower-end items, such as used private-label Target apparel that sells for $1.99 and isn't worth the trouble to list on Poshmark. "The focus is turning product, all things being equal," Adams explained. "It's not squeezing out the extra dollars from a Lululemon top."

As a nonprofit, Goodwill isn't publicly traded. But it has a bigger impact on the online secondhand market than any of the public companies that seek to displace it. In part, that impact can be measured in the volume of donated goods that it handles.

Goodwill diverts around 3 billion pounds of goods from landfills into retail and recycling annually. That's roughly 3% of the furniture, apparel and other durables that Americans tossed out in 2018 (the last year for which data is available).

Those collections, in turn, serve as low-cost inventory for flippers who monetize their more valuable finds online. If there were no Goodwill, many sellers who fuel the online apps would find themselves struggling to purchase inventory.

At just the Minnesota-based Goodwill-Easter Seals, the volume of product to turn is extraordinary: over 75 million donated items in 2021 alone. "The more donations we receive, the better quality of product we put out," Adams said. It doesn't all have to be put on sale immediately, either. Halloween costumes are received all year long, but are stored until after back-to-school ends.

To manage these inventory challenges, the charity employs teams of sorters experienced in everything Americans buy, from apparel to video games. Much of that merchandise hits the retail floor, but that isn't Goodwill's only sales channel anymore.

For example, goods that don't sell there are typically diverted to outlets colloquially known as the "the bins," where they're sold by the pound. Goodwill-Easter Seals operates three outlets in the Twin Cities area, where they've become popular with younger customers who flip their finds via online apps.

Elsewhere, collectibles, jewelry and other high-end branded items are sent to a centralized e-commerce facility where they're priced and listed on shopgoodwill.com. The online platform was created in 1999 by the Goodwill of Orange County, California; according to data provided to me by the charity, it currently manages around 14,400 transactions per day for 139 regional Goodwill affiliates.

Between 2020 and 2021, sales generated by the site grew from $216.1 million to $302 million. By comparison, ThredUp Inc., the high-profile, publicly held secondhand and thrifting app, reported 2021 revenues of $251.8 million , up from $186 million in 2020.

At Goodwill-Easter Seals, e-commerce sales have grown 134% over the last three years, and will represent roughly 14% of overall retail revenue in 2022. Business is good enough that the charity recently opened a new 100,000-square-foot facility for goods listed on shopgoodwill.com. It's the final piece to transforming Goodwill into an omnichannel sales force capable of competing against any discount retailer, especially in the secondhand sector.

Younger consumers keen to embrace lower-cost and — if it's priced right — more sustainable consumer models have known about Goodwill's shift for a while now. "Gen Z shops different," Adams told me. "This younger generation saves money first."

Now, because of inflation, they're not alone. Older consumers, families and anyone else strapped due to rising prices have a reason to at least consider the thrift store's racks. A generation ago, that might've been a much less attractive and fruitful visit. "Inflation is a way to tell our story," Adams told me as the day's first customers begin browsing the St. Paul apparel racks.

The Real Success Story

But it's not the only story, or even the most important one.

After leaving the retail outlet, I drove a mile west to a warehouse where a group of young men were building a plywood-framed structure in the parking lot. Inside, Cassandra Avery, senior manager of workforce development for Goodwill, provides me a tour of a sprawling job-training site.

There's a classroom where students are repairing automobiles on lifts and an area where the plywood-framed structures are in various states of construction. There are also offices for counselors and computer labs.

Recently, the facility started offering training for the Securities Industry Essentials (SIE) exam, a gateway into the finance industry. "Some of the first students are starting to take their exams and have offers," said Avery, who has worked for 14 years at Goodwill. She has no formal association with the retail operation, but as she walked me through the facility, she emphasized the connection: "We get grants, but retail is more reliable. It's consistency and reliability in our funding."

It isn't cheap to do what the charity does. Last year, 4,819 people received services from St. Paul-based Goodwill-Easter Seals, at a cost of $35.6 million . To give strapped individuals and families incentives to get job training, the charity often helps out with wages, assistance in securing child care and even gas money to ensure the training is completed. The results are worth it: The average participant saw a $26,452 boost in earnings last year.

This outcome isn't the reason that inflation-savvy consumers are shopping at America's most-overlooked retail chain. But it is precisely the kind of long-term solution to squeezed family budgets that Goodwill represents.

Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement.