Is Goodwill creating great cash flow from donations?

The 2008 recession wiped out many small businesses that were operating on the edge. Virtually overnight strip malls were dominated by empty retail space like a ghost town. It was at this same time that I noticed Goodwill Donation Express store fronts filling the empty stores. I figured the cheap rent and high gas prices had Goodwill Industries switching from neighborhood pick up, to strip mall drop off.

Goodwill: charitable donation business model 

All of the Goodwill Express locations have attractive signage and look well kept. They seem to be a nice substitution to the weed strewn corner lot or empty store front that they replaced. However, I kept seeing more and more of these Goodwill Express donation centers. Obviously, there is more money in my “gently” used clothes than what I deducted from my taxes as a charitable donation.

Goodwill  Donation Express sites popping up 

Any brick and mortar store has fixed costs that can’t be avoided: rent, utilities, wages and taxes to name a few. Granted, as a nonprofit, Goodwill Industries probably doesn’t have all the expenses normally associated with a “for profit” business. In addition, they receive special tax breaks because of their nonprofit status and the ability to avoid minimum wage regulations when hiring
certain disabled individuals. Either way, each location represents monthly expenses that we can conservatively estimate as if we were developing a business plan.

Goodwill expanding donation sites 

Similar to a franchise model, Goodwill Industries has territories or districts in which independent Goodwill member organizations operate a variety of sanctioned activities from the retail clothing outlets to facility and grounds maintenance. The Sacramento area is part of the Sacramento Valley and Northern Nevada district. The bulk of the Goodwill Industry retail stores and Donation Express sites are located Sacramento, Redding and Reno.

Growing like a fast food chain 

The Sacramento Valley and Northern Nevada district has 23 retail outlets, 69 express donation store fronts and more are planned in

Folsom and Roseville. By my conservative estimation the total monthly expenses for the Goodwill brick and mortar operations in this district are $41,330 per month or $495,960 per year.

• Average Square Feet per location- was based on my visits to retail and express sites.
• Rent– I estimated at half the current rate for retail locations assuming Goodwill was able to sign leases with building owners eager to get a tenant to fill a vacant location.
• Utilities, insurance low ball estimate of electricity, phone, workers’ compensation and liability insurance.
• Employees per store- based on my observation of clerks present. Each retail location has a manager in addition to staff.
• Employee hours- most locations are open for an average of 10 hours per day, 6 days per week
• Minimum Wage- This may be a high estimate since Goodwill is able to pay below minimum wage for certain employees with disabilities.

Goodwill Industries
Sacramento Valley, Northern Nevada
	Retail	Donation
	Store	Express
	23	69
Average Square feet	2,000	300
Total Sq. ft.	46,000	20,700
Expenses per month
Rent $0.50/sq. ft.	$23,000	$10,350
Utilities, Insurance	$200	$100
Employees per store	3	1
Employee hours	720	240
Min. Wage $8.00/hr	$5,760	$1,920
Total Est. Expenses	$28,960	$12,370
Minimum Total
Monthly Expenses	$41,330

Recycling of donations

Revenue generated at Goodwill stores comes not only from donated clothing and household appliances, but I noticed they are also selling excess inventory from other vendors. The excess inventory was either picked up for pennies on the dollar or received as a donation. Elizabeth Cline, author of Over-Dressed The Shockingly High Cost of Cheap Fashion, in an interview with Terry Gross on Fresh Air mentioned how Goodwill will bundle unsold clothing and resell it to foreign countries. The cycle of cheap clothes made in Asia is purchased in the U.S., and then donated to Goodwill, which in turn, sells it back to Asia.

6 figure salaries 

The CEO salary is anything but a discount. John Hrabe reported in his article for the Huffington Post that most of the CEO’s of Goodwill member organizations earn six figure salaries. Specifically, the CEO of the Sacramento Valley and Northern Nevada district pulled down $376,317 for the last year records were available. Add the CEO salary and other administration costs to the physical fixed costs of the locations and the operation expenditures must easily top $1 million. That means they have to sell the equivalent of 200,000 pairs of used trousers at $5 each to break even.

Subsidized by tax adjustments 

I am sure that Goodwill Industries is taking full advantage of all available local, state and federal tax breaks to operate and compete in the private sector. They are also indirectly leveraging the tax credits individuals and businesses receive when donating clothing and household goods for resale. It’s a pretty good business model if you can get all of you inventory donated.

Unfair competitive advantage?

There is no doubt that Goodwill Industries funds many worthy community projects and employs people that may not be able to find a job elsewhere. But is the “Goodwill” model of distributing money from charitable donations the most efficient model? Are there people that are making excessive compensation while some employees are not making a living wage? Is it fair that organizations like Goodwill and Pride Industries compete for contracts with below market wage rates against private sector companies that don’t have that luxury?

It’s hard not to get that “goodwill” feeling when you shop or donate to Goodwill. Perhaps Goodwill is now the dominant social giving model in our country to support our neighbors who have not been as fortunate.