August 26, 2008
Store Chain Banks on Thrift
SEATTLE - When Connie Wood's 9-year-old niece recently visited from Florida, she needed some warmer clothes for the iffy Seattle summer. In another time, Wood might have taken her to a department store. But in this cooling economic climate, she decided to try Value Village.
Wood was a first-time customer at the thrift-store chain, but she's not the only shopper turning to Value Village to stretch her dollars these days. At the Crown Hill, Wash., store, second-quarter sales grew by more than 10 percent, and across the Northwest, sales are up 7 percent.
The Bellevue, Wash.-based parent company, Savers Inc., also operates the Savers and Village des Valeurs chains, with 218 stores in the U.S., Canada and Australia. As the world's largest for- profit thrift chain (six times its closest competitor), Savers annually sells about $600 million in secondhand clothing, shoes, books, home goods and toys.
Amid the mortgage crisis, rising fuel prices and the threat of recession, a consumer-spending squeeze has toppled some national retailers - the latest is low-price clothier Steve & Barry's, which filed for Chapter 11 bankruptcy July 9 - and is squeezing others. National retail sales grew 1.3 percent in the past year, according to the National Retail Federation.
Savers, however, is expanding briskly, with 10 new stores planned by the end of the year and 25 more scheduled for 2009. CEO Ken Alterman said second-quarter sales companywide were up 10 percent over the same period last year; sales at stores open for at least a year were up 7 percent.
"These are bonanza times for Value Village," said Richard Outcalt of Seattle-based consultants Outcalt & Johnson Retail Strategists. "Not only will the nucleus of their customer base continue to shop there, but folks that otherwise would be shopping at popularly priced stores will need to discover Value Village. The combination of those two groups is huge."
Alterman was more guarded about his company's business prospects in a weak economy.
"Some of that makes intuitive sense, but you've got to earn it," he said. In a soft market, he said, customers usually spend less, but there are more of them.
Savers' growth is not propelled by lower-income "need-to" shoppers, Alterman said - they'll spend the same amount in any economic climate. They also are not the typical client for Savers, where the average customer's household income is between $40,000 and $70,000, he said.
There is more growth, he said, among better-off, better-educated bargain hunters, or "want-to" shoppers, who shop thrift stores for the thrill of the hunt as much as for the savings.
Although Savers' growth is strong in the Northwest, Northeast and Midwest, its business is flat in the areas hardest hit by the housing crunch - Arizona and Las Vegas.
Thrift retail is not recession-proof, but it is less vulnerable than other retailers, Alterman said.
Alterman sees the relationship between Savers' continued growth and the general economic turmoil not simply as more "want-to" shoppers becoming "need-to" shoppers.
The financial strain of higher fuel and food prices might not be as important as the realization that resources are not unlimited, he said, which might make people more open to secondhand products.
"I don't want to buy new stuff and be a part of all the consumerism," said longtime Value Village customer Faye Baker while shopping for shoes for her 6-year-old son and shorts for her 21- month-old daughter.
Alterman said he hopes to add 100 new stores in the United States over four years and considers eventually expanding into Western Europe.
"I think we could be a 1,000-store chain," he said. "Over the next 20 years, if we're not, I think we'd all be disappointed."
With modest cash flow, Savers' big plans for expansion have been financed by private borrowing.
Jerry Phelan, who has been analyzing Savers Inc. for Standard & Poor's, wrote in a June 13 report that he anticipated low single- digit growth in the company's cash flow. Phelan said he expected Savers' debt to remain heavily leveraged, with debt the company took on after private equity firm Freeman Spogli bought a 40 to 50 percent stake in 2006.
Alterman agreed that is the plan. Savers has $227 million in debt due in 2012.
Freeman Spogli also owns an interest in Seattle kitchenware retailer Sur La Table.
Going public is not on the horizon, Alterman said, although Savers runs its finances like a public company, just in case.
Having worked at two big public companies, Procter & Gamble and PepsiCo, Alterman said he appreciates being able to focus on long- term growth without the quarter-to-quarter pressure from shareholders.
Savers has a unique supply chain - its merchandise comes from 120 charities across the three countries where it operates. Those not- for-profits deliver donated items to Savers for a bulk rate. Savers pays the charities more than $117 million annually, or more than $1 billion over its 54-year history.
Savers then sorts through the merchandise and sells the reusable items - only about half are considered good enough to reach the sales floor. The other half, as well as anything that isn't sold after three weeks, is recycled by material wholesalers or shipped off to developing nations.
A recession might make donations harder to come by, but Alterman said he does not expect any major disruption in the supply from Savers' charity partners.
The Crown Hill store still receives three truckloads every day and puts out between 5,000 to 10,000 new items daily.
Longtime customers said that store has become more crowded recently, and they've had more difficulty finding a parking space.
Originally published by McClatchy Newspapers.
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