This Thrift Store is Morally Bankrupt / by sylvia kronstadt

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Registered: 03-14-2011
This Thrift Store is Morally Bankrupt / by sylvia kronstadt
Fri, 07-04-2014 - 3:39pm

Thrift Shop: It's not just a song -- it's a scandal

SAVERS STORES: Tricking donors, treating themselves, screwing charities

Cloaked in fuzzy deception, and leaping all the way to the bank.

    Being a cynic is a tough job, but somebody's got to do it. Otherwise, we'd never find out the truth about anything.
    I was cynical the moment I heard a public service announcement about the new Savers thrift shop in our area. "Dedicated to supporting our community's nonprofit organizations," our local NPR affiliate declared.
    "Go shopping, and help others at the same time!" another ad said enticingly.
    "Proceeds go to Big Brothers Big Sisters!" a new TV commercial claims, tugging at those proverbial heartstrings. What a wonderful rationale for a buying spree!
    My first question was: Is Savers itself a nonprofit? The answer is NO. It is "a U.S.-based multinational profit-making conglomerate" with more than 350 stores in three countries.
     My second question was: How much of its $1.5 billion annual revenue goes to the charities it claims to benefit? The answer is: None of your business.  Savers has always refused to  disclose its outlays to the nonprofits whose names it uses to attract both donors and shoppers (and the charities flatly refuse to discuss the matter as well). I found estimates ranging from three percent to 10 percent. Savers earns more in one year than it donates every 10 years, according to documents regarding its second recapitalization.
    Savers claims repeatedly that its proceeds go to its various charities. "Proceeds" is defined by Webster as "the total amount brought in <the proceeds of a sale>". 
    It seems to me that the Savers profiteers should proceed ("to go on in an orderly, regulated way") to prison, after their 60 years of deception.
    The Los Angeles Times calculated 27 years ago that Savers earns more than 100 percent return on its equity each year. That was before its explosive growth, beefed-up management expertise (from buyout firm Freeman Spogli), aggressive advertising, big-time Wall Street capitalization, and economies of scale.
    New stores are being launched at a dizzying rate, including the one that just popped up in my community. The firm projected in 2012 that it would double its number of outlets by 2017.


    Thanks to the grim, heartbreaking downward spiral of our economy, thrift shopping has become acceptable to millions who would otherwise not even have considered it. On a more positive note, it has become truly "cool" to young people, who have embraced the joyfully, defiantly anti-materialistic ethic in the Grammy Award-winning song by Macklemore. Thrift shopping has become a fad, a sport, a hobby, a wonderful recycling phenomenon, and an outlet for the creativity of those who are disillusioned with today's boring, predictable and overpriced marketplace  (http://kronstantinople.blogspot.com/2014/02/the-rambunctiously-rich-rewards-of.html).  
    According to America’s Research Group, a consumer research firm, about 16-18 percent of Americans will shop at a thrift store during a given year. For consignment/resale shops, it’s about 12-15 percent. To put these figures in perspective, the firm adds, "consider that during the same time frame; 11.4 percent of Americans shop in factory outlet malls, 19.6 percent in apparel stores and 21.3 percent in major department stores."
     "We are progressing from a disposable society to a recycling society—a change that has enormous market potential for the resale industry as a whole. After all, 'Resale is the ultimate in recycling!' " the Association of Retail Professionals says.

OH THE THRILL OF GETTING AWAY WITH MURDER 

    I have been an avid thrifter since childhood (thanks to a mother, who refused to purchase anything that wasn't a bargain). Stalking "cheap stuff" and unusual finds, designer castoffs, "vintage" treasures and one-of-a-kind household enhancements made us feel triumphant, rather than like mindless cogs in the nation's Merchandising Machine. We were practically getting away with murder!
    So is Savers.    

Millions of people contribute to Savers' "charitable" work, creating a legion of insider millionaires.

    Savers' modus operandi is chillingly cynical. It has agreements with some of the best-known nonprofits in the country, as well as dozens of smaller (and ethically dubious) ones, which permit it to use their names in its advertising and solicitation of donations.
    "What these charities are doing is selling their name for 10 cents on the dollar," the Times article noted. "They don't control the store, they don't hire the solicitors, they just let (operators) use their name."
    The charities are willing to accept a tiny fraction of the profit Savers earns on their behalf, because, "it's better than nothing." It may well be, but these nonprofits are complicit in the deception of a charity-minded public.

SAVERS' IS IN A DEVILISH DANCE WITH ITS 'PARTNERS'
    The 150 charities that have "partnered" with Savers fall under the categories of disease-based foundations, organizations that help at-risk youth, and veteran organizations. They include Big Brothers Big Sisters, The Lupus Foundation, The Epilepsy Foundation, Disabled American Veterans, Vietnam Veterans of America, Multiple Sclerosis Society, Council for the Blind, the Association for Retarded Citizens (ARC) and dozens of other organizations for the mentally handicapped.
     Savers' promotes a "little engine that could" image, with its down-home ads, and its logo, which conveys a blocky, elementary-school innocence. It claims its "core value" is to "embrace honesty, integrity and ethics in all aspects of our business."
    "Do something good, do a good deed, do your part, DONATE," the firm's very attractive web site urges:
    "Savers pays local nonprofits every time you donate your reusable clothing and household items, which helps fund programs right in your community. The more you give, the more they get."

Indulge your materialistic self, and be a "do-gooder" in the process, Savers urges.

    What a joke. Savers' business plan is a brilliant fraud. It explicitly perpetuates the lie that when you donate your "gently used" clothing and other items, you are bestowing your generosity on nonprofits dedicated to social welfare. Its web site has pages on: Why donate to charity? What to donate to charity. (and) How to donate to charity.

    But you are not donating to charity. You are giving to an unscrupulous, expansionistic enterprise that uses charities as a cover for its predatory practices.
   The Savers site adds: "Donors feel great about making a difference. What a great way to pay it forward."

YOUR DONATIONS FOSTER THE LIFESTYLE OF THE RICH AND INFAMOUS
    Actually, they are paying it backward, right into Savers' vast and extravagant empire. A far-flung dynasty of grandparents, parents, their kids and their kids' kids are living lives of luxury -- with multimillion-dollar homes, Cessna jets (charged as a business, expense "used for surveillance") and Ferraris -- thanks to their homespun forbears' clever concept. Public records show one of the old-timers owns hundreds of acres of land, some developed into shopping centers, in California, Florida and Texas.

     Surveys have indicated that upwards of 80 percent of thrift-store shoppers believe the outlets are run by nonprofits whose sole mission is to do good works, which has traditionally been the case. This has enhanced the inherent pleasure in thrifting, which is considerable. So it's easy to see why shoppers are confused, according to Smartgivers.com.  Announcements via the public address system at Savers say that proceeds from the store's sales are donated to the Epilepsy Foundation and Arc (for example), but no announcements, store signs or even the company's web site, Savers.com, disclose that its primary goal is profit. 
    One woman who posted on a message board describes donating some attractive and valuable items in response to a call that purported to be from the Lupus Foundation. Some time later, she found her items in a Savers store. She felt angry and betrayed. "I’d rather leave a bag of clothes at a church than to be involved in such a scam," she wrote.
    Another added, "I really got taken for a ride. I will not give to this 'charity' again."

Savers takes generous people for a ride, and it gets a lot of mileage out of of them.

     If donors "knew only a small portion of the value of their donation could benefit the charity, they’re not going to be enthusiastic about donating their goods unless they just want to get rid of them," said Daniel Borochoff, president of the American Institute of Philanthropy, which monitors charity fundraising practices. "I would hope people who have something valuable to donate wouldn’t donate this way."
    Frugalistas can have a blast, plowing through Savers merchandise and "curating" adorable outfits and interior design. But disadvantaged people are being heartlessly used as bait.

There's bound to be a Hugo Boss leather jacket in there somewhere.

GOOD AFTERNOON! ARE YOU A GOOD PERSON?
      Over the years, as I have taken regular phone calls asking me to put my uneeded items on the curb for pickup, I assumed the person calling from the MS Society had MS, and that the person calling from ARC probably had a retarded child, and that the person calling from DAV was probably an actual disabled veteran. I always gave them everything I could scrounge up.
    I never dreamed that these solicitations were coming from massive Savers call centers, where minimum-wage employees blanketed the country with their hard-to-resist appeals for assistance. The word "Savers" was never used. The trucks that stopped by to pick up my donations were emblazoned with the charity's logo. It wasn't until recently that I was behind one of these large, colorful trucks, and noticed a small Savers label attached to the bumper.

The Big Brothers truck had a charming photo and a rousing slogan.


    In January of this year, Apogee (the investment company with more than 4,000 employees that operates the Savers family of thrift stores) opened its third call center center-- this one in El Paso -- which is expected to hire as many as 450 workers. The other two operations are in Minnesota and Nebraska. The centers make calls purportedly representing nonprofit organizations, to solicit and schedule pickup of donated clothing and household goods sold at Savers and Value Village thrift stores nationwide.
    In some of the company's stores, such as several in New Jersey, the charities solicit the items themselves and get paid a per-pound rate by Apogee.

WEIGH YOUR OPTIONS, AND AVOID SAVERS' SCALES
    "Apogee’s bulk rates mean a donated fur coat brings a charity no more money than a bag of T-shirts, and the middleman’s fees slash what the charities get by large percentages. But critics say donors are led to believe the full value of their goods is helping a cause," the New Jersey Star-Ledger points out.
   

 Employees of the new Apogee Retail call center work in their facility at 1359 Lomaland Tuesday. The company now has 120 employees but hopes to meet their Savers newest call center makes thousands of contacts per day. Those who generate the most donations get bonuses.

     I emailed officials at 10 of the major charities affiliated with Savers to ask how much money they receive for goods donated in their names, and how they rationalize the arrangement, and only one replied. I asked Savers itself to explain its mode of operation and to justify its misleading premise. I never received a response.
    Why? Was this an implicit admission that everyone knows this whole thing is a ruse?
    The media relations director of Big Brothers Big Sisters, the only person who acknowledged any of my emails, said she couldn't provide any data, because each of the charity's 337 "independent" affiliates has "an individual agreement with a thrift operation."
    That wasn't very helpful, and it's certainly not very responsible. Why doesn't this well-regarded charity have policies that govern the ethics of fund-raising by its members?
    One local Big Brothers administrator admits that Savers "doesn’t actively alert donors that their goods are going to a for-profit retailer."  He adds that all donors get a receipt that comes with a coupon for “$3 off at Savers.”

EPILEPSY FOUNDATION IS ON SHAKY GROUND
   Since the Epilepsy Foundation's refused to correspond with me, I consulted its web site, which is blatantly misleading. It states: "100 percent of the proceeds from your donation will fund programs offered by the Epilepsy Foundation. You receive a tax receipt for your donation!"
    If this foundation provides a tax receipt for the full value of your donation -- rather than the tiny percent that doesn't go straight onto Savers' coffers -- it is breaking the law. The organization's $225,000 a year director should know that. And his assurance that, "In most cases, donors can give up to $500 of goods without a qualified appraisal" is an invitation to screw the IRS.
    My overture to the Lupus Foundation also received no response. More than 35 percent of this organization's income is used for fundraising, and its CEO earns over a quarter million dollars. This scenario is typical in the Savers dynamic:  It gives a pittance to the charities it claims to support, and that pittance is used not to help the needy or fund research but rather to perpetuate the lifestyles of those who have these cushy "nonprofit" jobs. As with most aspects of our society and economy, it's the have-nots who lose out.

Yes, lupus is a cruel mystery, and its foundation is mysteriously cruel about how it uses its credibility and resources.

    The MS Society, another major Savers client, refused to comment on its failure to inform donors about this unsavory relationship. The organization, which "is a collective of passionate individuals who want to do something about MS now - to move together toward a world free of Multiple Sclerosis," pays its president nearly $300,000. Its former president got $400,000, so at least they're moving in the right direction. Each of its affiliates around the country pays its president close to $150,000 annually. Despite taking in more than $1.3 million in contributions last year, the Arizona chapter posted a $164,000 deficit. I have been informed that this is not at all unusual.

BATTLING FOR THE BUCKS

    Many thrift shops -- even the major ones -- fear that Savers has thrown them into a battle for survival, with its gleaming "department stores" -- which are about twice the size of a typical Goodwill -- and  its ubiquitous ad campaigns. The St. Louis Post-Dispatch noted last year that each time a Savers store enters a local market, a "war" ensues, and conventional outlets are forced to reassess their own viability while also beefing up advertising budgets, honing messages to highlight their local impact, and contemplating more aggressive expansions. The resale industry is a $12 billion monster, estimated to be growing in revenue at 5 percent per year -- one of the fastest-growing segments of retail -- according to the National Association of Resale and Thrift Shops and the Association of Resale Professionals.
    With all this jockeying to become bigger, and to dump the homely atmosphere of old-time bargain stores, how long much longer will thrift shops live up to their name?  Customers are complaining about rising prices already.   

    The popular Yelp web site contains scathing opinions about Savers' "bargains." In Buffalo, New York, posters have made comments such as "This is a 'thrift store' for people who normally shop at the mall. I can walk into Walmart & Old Navy and pay the same for new items that they sell used. They had a cast iron pan that cost more used (and crusted over) than the exact same pan would cost new at Macy's."
    Another added, "I can buy brand new clothes on sale cheaper. Someone needs to educate the people pricing things that not everything is worth 20 bucks for a pair of worn AE jeans. Sorry but we purchased True Religion jeans for that!" 
    "Anything the slightest bit edgy or cool was double what the stuff around it was and the more average of a size it was the more expensive it was as well. Lame," a disgruntled shopper wrote.  
    "Name of store should be changed to Ripoffs."

LET THE BIG-TIMERS ROLL: SPINOUTS, BUYOUTS, RESTRUCTURINGS!

    Savers' colorful 65-year history -- which I'll summarize below -- is impressive (if you don't mind the fraud part) and convoluted. It's financial trajectory is equally mind-boggling.
    Savers' parent, Apogee Retail, which is based in the Seattle area, opened in November 2013 as an umbrella corporation for the firm's many "brands." In addition to the Savers imprint, it runs Value Village, Village des Valeurs, Unique Thrift Stores and several others, all of which have ties to the family clan that started it all.

    As the largest privately-held thrift store chain in North America, Savers announced in June 2012 that definitive agreements had been executed with affiliates of leading private equity firms Leonard Green & Partners, L.P. ("LGP") and TPG to recapitalize the company in partnership with Savers' management team. 

    Thomas Ellison, son of the company's founder and a 35-year veteran of Savers, has an equal ownership position to LGP and TPG in the company, and has remained in his role as chairman. Ken Alterman continues to lead the organization as president and CEO. 
    The new alliances "are a move to further position Savers for success in the resale business, with continued growth in non-profit partner development and new store expansion," according to a press release.
    "The Company's recapitalization follows a very successful six-year partnership with investment firm Freeman Spogli & Co. Over that time, Savers demonstrated exceptional company performance and enjoyed strong resale market conditions...Savers is poised to continue its recent pace of rapid expansion through organic and acquisition growth over the next five years...with its strong brand equity, a proven business model and significant potential for global expansion," said John Danhakl, managing partner of LGP.

FANCY EQUITY FIRMS SEE SAVERS AS A POT OF GOLD
     This was a big-time transaction for such a cute little feel-good company!
     Savers engaged Goldman Sachs Lending Partners LLC, Barclays Bank PLC, Credit Suisse Securities (USA) LLC, and Deutsche Bank Securities Inc. to act as the joint bookrunners and joint lead arrangers of the senior secured credit facilities. Crescent Capital Group was assigned to be the purchaser of the private unsecured notes.

When Savers got entwined with the biggest of the Big Boys, it was a very heartwarming (and ego-boosting) experience.   Leonard Green & Partners, L.P. is one of the nation's preeminent private equity firms with over $15 billion of private equity capital raised since inception.
    TPG is a leading global private investment firm founded in 1992 with $51.5 billion of assets under management and offices in Fort Worth, San Francisco, Beijing, Chongqing, Hong Kong, Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, Sao Paulo, Shanghai, Singapore and Tokyo
    TPG says it has "extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings."
    Isn't it incongruous that these global financial powerhouses are finding "charitable" thrift stores to be such attractive investments? 



When you know what you're doing, it's almost laughably easy.

THE MOM AND POP MONSTROSITY
     The great uncles of Apogee vice president Orlo Ellison are credited with creating the first large Salvation Army thrift stores in California before leaving to adopt a for-profit model in the early 1950s.
    They and their descendants created for-profit thrift stores throughout the country.
   "In the beginning, the Ellisons salvaged troubled souls. Now they make fortunes in salvage," according to a superbly documented 1987 Los Angeles Times article, which characterized them as "a mostly reclusive family of Salvation Army officers turned entrepreneurs."
    It is quite a grand epic.
    The Times documented how the Ellison family built its multibillion-dollar empire by "exploiting people's open-handedness to charities."

FROM HUMBLE BEGINNINGS TO THE LAP OF LUXURY
    Savers founder Bill Ellison -- whose grandfather and great uncle, Ben and Orlo Ellison, were instrumental in building the Salvation Army's thrift organization in the 1930's and '40s -- opened his first thrift store in San Francisco in 1954, and Orlo started one outside Los Angeles. 

  Bill Ellison started it all in San Francisco.

    (The Salvation Army, Volunteers of America,  Goodwill Industries and a few other groups known as the "industrials," sold most of their salvage at the time to wholesale rag and scrap dealers to fund their charitable enterprises.)  
    Together, the Ellison brothers did well enough that younger brothers, Robert Orville, Walter (Bud) and John soon joined them, expanding the family's clientele to include Associations of Retarded Citizens. Later generations added Big Brothers and charities serving orphans, the blind and the disabled.
    All five brothers are now dead, but today nearly 100 Ellisons, their in-laws, associates and former employees run hundreds of thrift stores in Los Angeles, Ventura, Seattle, Atlanta, Tampa, Denver, Chicago and other cities in almost every state, as well as in Canada and Australia, according to the Times. The Savers web site doesn't disclose any of this. It merely features founder Bill, who died in 2008.

RECLUSIVE FOR A REASON: EMBARRASSMENT!
    Most Ellisons are so anxious to stay out of the public eye that even their business telephone numbers often are unlisted, the Times reported. I wonder why! I would hide, too. I'd change my name and get lots of plastic surgery.
    Savers merchandising techniques are so efficient that "we can generate one million dollars out of the same discards" the traditionals would sell for $300,000, one Ellison was quoted as saying.

     Ellison's sons, Matthew and Mark, and the husbands of his two daughters, all work in the family business (Matthew built a $1.3-million fortune from charity thrift stores in less than six years, public records indicate). Ellison's 142-acre ranch just north of Ventura was for sale for $3 million at the time the article appeared. He had a condominium in Colorado, where he spent summers and holidays. His family owns most of the 28 stores they personally oversee. He was a real estate developer in Texas, where he sold 40 acres to Wal-Mart, and in Washington state, where he's built  a 180-house subdivision and shopping center.
    All of this from "charitable donations"! 
    Savers expresses pride that it keeps unwanted items out of landfills. Only about half the merchandise that comes into a typical  store makes it to store shelves. The rest is sold to overseas merchants, primarily in developing nations.

Send it to Africa! They are a resourceful people, who know how to make use of this stuff!

     These sales represent roughly 2 to 3 percent of Savers' profits, which CEO Alterman says is not insignificant if you consider that simply dumping the "unwanted inventory" would swallow around 10 percent of the firm's net revenues.

THRIFT SHOPS THRIVE IN A THRIVING ECONOMY
    When the economy does turn around, people will return to luxury department stores, which in turn will fill up Savers' donation bins, as shoppers empty their closets to make way for new items, Alterman predicts. When that happens, sales activity at his shops will be "crazy," he says.
    "We do even better in a good economy," Alterman explains. "The merchandise gets better. The treasure hunters grow. They're not spending $4 per item but $6. And when you're selling 100 million items per year, one or two extra dollars really adds up."

COMING SOON: Would you believe that the legally nonprofit Goodwill Industries, Savers' primary competitor, is at least as disgraceful? In 38 states, from Hawaii to Florida, a majority of Goodwill organizations pay workers with disabilities less than the federal minimum wage (as little as 25 cents an hour), while simultaneously spending tens of millions of dollars in executive compensation and travel-related expenses (They always fly first-class, just like the "nonprofit" Mayo Clinic honchos. See how this all works for the betterment of the already better?). Goodwill of Southern California paid more than $1.1 million in total compensation to its then-CEO, making him the highest paid Goodwill executive in the country. Seventeen Goodwill entities reported executive compensation in excess of $1 million per year, with 30 CEOs receiving more than $293,000 per year in total compensation. In 2012, the "nonprofit" generated $4.89 billion in total revenue. It also received $87 million in government grants.
    What do they do with all that money? They help themselves to it! How can they have maintained the public's "good will" for so long?
    It's deja vu all over again -- only worse!