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How to assess a ‘retail opportunity’ 2. Op Shops

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Op Shops have come into their own as a retail destination – a weekend pursuit. The customer – not the demographic you might initially expect – enjoys looking for interesting or quirky objects, for a missing part or for a value item, such as a top brand shirt or designer dress than hasn’t been worn, or for a treasure.

St Luke’s Op Shop in Enmore Sydney, where I volunteer on a Saturday, has had a couple of first edition books, the official program from the 'Turning of the Sod' for the Sydney Opera House and such weird things that, once a person sees that … treasure … he or she puts notes under the door, arrives early or runs in so excited. Some items are so … unusual… that we put a sign in the window saying: ‘If you can tell us what it is, you can have it.’ 

But being in an Op Shop ‘precinct’ where the leading charities each have a retail presence; where retailers of self-designed and hand made retro clothing have their first shop; second hand furniture stores do new, old and revamped; and now excited young budding retailers who think there is something special and exciting about running a shop; the concept of ‘Op Shop’ is becoming confused and, increasingly, we have to explain the business model.

A hint is the fact that charity shops tend to be called ‘thrift’ stores in the UK – there’s not much money in Op Shops. Let’s first look at the numbers and the base retail assumptions.

                                                                       

Remember from previous blogs on the figures for a pharmacy and a coffee shop, that you can calculate ‘up’ from the known rent using retail property benchmarks or use a benchmark set of percentages from a real estate agent or helpful person. For example, one restaurant (1) quotes figures of 15% overheads, 36% labour, 34% food costs, GST 10% leaving a profit 5%. Five cents in the dollar if all goes well. Food wastage (through misorders or returns) in restaurants is the key risk to the profit margin and survival.

We’ll use a metric of (rent+ outgoings) of 10% ($10,000), so a 'trying-to-be-for-profit’ retailer needs to generate $100,000 per month revenue to stay in business in this strip retail business. Each trading day s/he needs to generate $3,571 to stay in business. Next time you shop at a fashion retailer, have a look at the average customer spend. Work out how many shoppers they need.

St Luke’s average price is $5 so we have to sell 37 items @ $5 per trading day. And if the customers want books ($2) or cutlery (50c) were have to sell…heaps more… to pay the rent. I try and help every customer find a treasure.

But, as the song says, you have to work hard for the money – if you want to generate $100,000. What happens if s/he only generates $80,000? $70,000 or $2,800 per day? WOW, we're congratulating each other if we make $400!

The psyche of a local weekend market retailer is to make more than the cost of the stall. A market operator told me that he takes $1,200 on a rare good week and costs would be about $500; the person beside him cited income of $350 and stall costs of $150 but she had made her own unique lamp shades.

Economists would call it ‘satisficing’. It’s not a career option.

So why are enthusiastic individuals opening shops when the numbers are against them?

Perhaps the lower prices of the charity Op Shop model has misled hopeful retailers. Grunge… lower prices…meet hip people… But probably they are working on the ‘as long as I make more than the rent’ business model.

Before you email me about the ‘high’ prices at Vinnies (not so), there are numbers you need to understand about charity Op Shops:

  • the majority pay commercial rents
  • most don’t pay for product
  • most sell shoddy clothes to recyclers for ~$15 per kilo. These recyclers (often NFPs) then make underfelt or insulation to provide discretionary income.
  • most rely on volunteers (between 10 and 30 per week)
  • some now have to pay managers and some staff, due to a lack of volunteers who will regularly attend and work
  • Vinnies, Lifeline, Sallies, Anglicare and Red Cross have centralised processing centres where volunteers might prepare and price goods for distribution. Remember that The Salvation Army NSW says it spends $5m per year on tip fees to remove junk? St Luke’s has, on average, two volunteers per four-hour shift for four days per week sorting and manually pricing. On Saturdays we try and ‘process’ our donations. Op Shops are hard work!

To be survive in retail, there are a couple of success factors. 

1.    Know your business. What you think you see in any business is not necessarily what you get. The back end work of a Charity Op shop is demanding and time consuming. And boring. 

2.    Know your customer profile. The customer in Op shops is a value and treasure hunter. Charity Op shops provide clothes and household goods to a range of needy people – but they don’t walk in.

I am now a serial Op Shopper to benchmark our prices and mark up $3 items to $5 if they go in the Saturday window. My favourite customers are the ‘20 somethings’ who have woken up at midday to remember that they have a fancy dress party – they usually leave with a couple of extra items that they just might need. An extra $5 or so!

3.    Engage your customers; know what they look for. We have locals who walk in at the exact same time each day. We have those who buy a dress to wear each week, or books and magazines – and they give them back to resell. We have our long-time favourites who call in when visiting from interstate. We have those who seem chuffed that we remember them and help them find their treasures ...

4.    Know the location metrics. The property mantra ‘location, location, location’ is important for Op Shops too, but especially in terms of ‘adjacencies’ (important retail success factor). A shop needs to be in the right precinct and beside open, complementary and hopefully, busy, shops who have queues of people with discretionary income.

The first Saturday after a coffee shop opened two doors down, we took $300 more than usual due to the long queues. I did my favourite window display: ‘Weird and wonderful gifts for those who have everything’. The window can turn over three times. An extra $50.

5.    Know how to sell or learn fast. If you’re thinking of running a market stall or shop, Endeavour Foundation Op Shop in Penrith NSW wants you: “Do you enjoy meeting and helping people? Would you like to practise your window merchandising skills? Would you like an interesting role with free training opportunities?

We’ve had one hoping-to-be-For-Profit Op Shop close before its six month lease expired. Another, which had been successful for about eight years disappeared overnight – they bought from charity shops and used a mark up of about 500%. Their pricing strategy was to assess what the customer could pay. Alas, most customers had seen the product in the Op Shop. One charity shop that paid a manager three days a week closed before six months. 


FOR YOUR PROJECT OR BUSINESS:

Three issues to consider: 

1. Get the numbers right

Revenue is always the variable; the costs are fixed. If you think you’ve got a great idea, test it out in a market stall. That’s how Sass & Bide started – took a stall at Notting Hill, London, market once they had made enough to sell.

2. Listen to what other retailers say

Location is important. You need to be on the ant track, with complementary stores adjacent (attracting those with disposable incomes) and close to transport hubs. 

and

3. It's all about people

You’ve got to like people because you'll need to speak nicely to those who try for a discount when you’re volunteering on a Saturday. 

Questions to ask:

All of the above – retailers are willing to talk to you about the trading dynamics of their precinct. They know what everyone else is paying – or the real estate agent will tell you. Work out the sales per hour, every hour, you need to generate. Then volunteer first to see if you like retail.


Don’t forget, the Charity Op shops need your spare cash to support others. Look what Vinnies does with its money. There’s a treasure waiting just for you. A weird and wonderful gift to cause great joy...

                                                                     

(1) Matteo Pignatelli, AFR 26 March 2015

For education purposes only.

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