The truth behind thrift stores and their charities
By Carla Iacovetti 02/18/2010
Throughout America, thrift stores have been on the rise in popularity, from small towns to major metros, and everything else in between. Ventura itself has 12 thrift stores, two of which opened in the last two years. Despite the fact that the thrift store industry is thriving, there is a lot of misunderstanding surrounding these types of stores.
Even though the name thrift is used to describe these stores, the reality is that many of these stores are in business solely for profit, just like any normal retail store.
Is this OK?
In an article posted by Charities Review Counsel called “Not Every Thrift Store is a Non-Profit,” by John Ewoldt, Ewoldt says, “Can a thrift store still call itself a thrift store if it’s in business to make a profit rather than raising money for a charity? You betcha. Savers, Unique Thrift stores and Valu Thrift do. All are for-profit stores in the biz to make money like any retailer, not to support a charitable mission.”
The dividing line seems to center around the nonprofit status. Not all thrift stores are nonprofit.
In the simplest terms, a nonprofit organization is one that does not allow anyone to personally profit from the organization. In the case of thrift stores that are affiliated with a nonprofit charity, income taxes are only imposed on revenue and not the gifts or donations given to the store, because gifts are not income. A perfect example of this can be seen in operation through the world-renowned Salvation Army or Goodwill industries.
In addition, a thrift store can only give IRS deduction receipts for contributions if the thrift store is owned by a nonprofit charitable organization. For example, The Salvation Army Family Stores are owned by the nonprofit organization The Salvation Army, but they are not The Salvation Army. The Salvation Army is not a thrift store but an organization that originated in London in 1865 as a result of Christian evangelist William Booth’s Quaker tent meetings. Booth, a revolutionary by many standards, cast off traditional methods of preaching behind a pulpit in a church. With the belief that the gospel should be preached to the people on the streets, Booth walked the streets of London preaching to the poor, the homeless, the hungry and the destitute. It was this mindset that eventually led to the establishment of The Salvation Army. It was never a thrift store, and any aspect of assistance to the poor, the homeless and the downtrodden always began with conversion.
There is a lot of confusion surrounding the definition of a thrift store. According to the Webster’s New World College Dictionary, a thrift store is “a store where castoff clothes and rummage are sold, specifically to raise money for charity.”
Clay Ferrell, a former Ventura County resident who ran a thrift store for several years in Arizona, admitted to doing “well financially.” Ferrell says, “I made good money when I had that thrift store. My wife and I ran this back in the early ’80s and took home about $55,000 a year — after taxes, and that was pretty good money back then.”
The majority of the public perceives most thrift stores to be connected to charities, but has little understanding of what they really represent. In today’s world, Webster’s definition can be challenged somewhat.
Ferrell says, “Webster’s definition is not the true definition. There are a great number of stores that have the word ‘thrift’ in their titles, but have absolutely nothing to do with helping a charity.”
Brian Randall, the principle planner for the city of Ventura says, “Most of the thrift stores here in the city of Ventura are run by private organizations for nonprofits.” Randall further added that approximately six of the 12 thrift stores have the names of nonprofit organizations connected to those thrift stores.
While half of the stores in Ventura are affiliated with a nonprofit, many thrift stores are just in the business of making money. Even though these non-affiliate stores might give a small percentage to a charity, their main objective is to make a profit, just like any other retail store.
An entity — in this case, a thrift store — that makes a donation to a charity gets a receipt. Here is a hypothetical situation — Joe and Jane Doe own Use It Again Second-hand Store, and most people in their community believe that they support a charity. However, that is not actually the case. While this store might give 8 percent of its sales a month to a specified charity, it is not affiliated with the group, but merely donates to it.
A legal question arises when someone asks, “Are you affiliated with this charity?” In other words, a store can give to whomever it wants to, but that does not mean it is allied with that particular charity. So in a situation like the Does’, their gift becomes a business write-off at the end of the year, and this is where the definition of a thrift store becomes somewhat muddied.
“Sex sells, and so does charity,” Farrell says. “If I can pump up the perception of the value of the charitable contributions that I make at my store, then I can tug on the heartstrings of people until they bleed. One of the ways this is done is in advertising. The only thing stronger than the word charity in advertising is sex.”
For instance, a thrift store Web site or store advertisement might show a picture of a battered woman or child, which overtly gives the impression that the store supports a specific charity that deals with these kind of abuses. However, the only time that purchases in a thrift store will have any long-lasting value to a charity is when the thrift store is actually owned by the charity itself. Apart from that connection, a thrift store has no legal obligation to give one dime to any charity. Given most thrift stores sell donated items, they earn a 100 percent profit, minus the overheard, i.e., lease payments on buildings and paying wages to staff. It is a private organization, doing private business, for private profit.
Helen Lopez, the manager of Luther’s Attic Thrift Store in Simi Valley, a nonprofit store that raises money for three Lutheran schools in the area, shared that she is the only person working for the store who receives a salary. In addition, the thrift store is governed by a board and is under the umbrella of three Lutheran churches in Ventura County. This particular thrift store is highly selective in what it displays, and it receives a lot of donations.
“With the exception of myself, everyone who works at Luther’s Attic are volunteers, and if any of the volunteers happen to have children in one of our affiliate schools, there can be a discount given on their tuition,” Lopez says.
To receive a discount, the person must work 15 hours a quarter for each child. While Luther’s Attic does regularly give to other charities, its main goal for profit is to help support the following three schools: Good Shepherd Lutheran School in Simi Valley, First Lutheran Church Preschool in Camarillo, and Peace Lutheran Preschool, also in Camarillo.
Luther’s Attic typifies Webster’s definition of a thrift store. In this case, when a person purchases anything from this thrift store, all of the money will go directly to the support of the store and the three schools. The thrift store operates under the covering of three governing Lutheran churches.
Lopez says, “Most of the money made here goes to the schools. However, if we receive items that we cannot use in our store, then we donate to other charities, like The Salvation Army. We recently sent several boxes of shoes to Haiti, and in the past have actively given to The Rain Project and Battered Women’s Thrift Store.”
It appears Luther’s Attic is an exception to the rule. It really does fall under the category of what a thrift store should epitomize.
If you want to really find out about a thrift store that purports to support a certain charity, call the charity and ask them what the nature of their relationship is with the thrift store, Farrell says.
It is important to realize that if a thrift store is in the business of selling for profit, and it does give to a charity, that does not make it evil. A problem only arises if it is alluding to being affiliated with a charity, when in fact it is not.
The only way that a thrift store can be a nonprofit or 501(c)(3) is if it is owned by an organization like a church, etc.
Nonprofit is the legal umbrella title under which a thrift store must operate as a wholly-owned entity to be able to give or issue tax deduction receipts. Farrell says, “A purchase in a thrift store is never eligible for donations, and a thrift store cannot issue a tax deduction receipt without the nonprofit status — period.”
The misunderstanding concerning what a thrift store represents is broad. Ewoldt says, “Many shoppers assume that all thrift stores are in business only to help a charity. In fact, an informal, unscientific poll in the parking lots of … (two stores that are profit-driven) showed that about eight in 10 shoppers assumed that such stores were nonprofits.”
Beyond the charities, an assumed main function of thrift stores is affordable clothing. However, even the reused clothing that comes to the organization free of charge is too expensive to buy for those who need it most. Farrell also maintains, “If a thrift store is really established to help those who are down and out, then their prices need to be low enough so these people can actually purchase the clothing.”
If a homeless person, who has next to no money, were to go into a Goodwill or Salvation Army thrift store, he or she may find the prices a bit high. Shopping at a Walmart is nearly as cheap, and the items are new. Farrell says, “Bottom line, the down-and-out shopper is not going to be able to afford a pair of jeans at most of these charitable thrift stores.”
So just who is benefiting from these nonprofit thrift stores?
Farrell says, “Most people really don’t want to just take a handout. They want to still go in and choose what pair of pants they want. If they can go buy new clothing for near the same price, they will go do that, but of course, most cannot. A homeless person cannot afford these thrift stores, which is why most of them are dressed so shabbily. Keep in mind these unfortunate people have very little income.”
Bobbie Morgan, the owner of Ventura’s One Mo’ Time has been in business for 29 years. Morgan says, “I am not a thrift store, but a consignment store, and there sure seems to be a lot of confusion as to what a thrift store really is.”
Make no mistake about it — a consignment store is not a thrift store, even though it is selling second-hand goods, but because of the way the public views thrift or second-hand stores, most believe consignment stores support local charities.
Morgan says, “There is a big difference between the two.”
The confusion often occurs because both thrift stores and consignment stores sell second-hand goods. One of the major differences is that in thrift stores, the merchandise being sold is donated. The only thing that a person donating takes away is a possible receipt for a tax deduction. When merchandise is sold on consignment, the profits are divided between the consignment shop and the person who drops off the merchandise to be sold.
Morgan relays, “A consignment store cannot be nonprofit. I have a consignment store, and I sell second-hand merchandise for individuals, and we split the profit.”
Because thrift stores accept donated items, quite often the items are in poor shape. Lopez says, “People shouldn’t give away their garbage. No one wants to pay money for someone else’s trash.” Consignment stores, on the other hand, are usually very selective as to the types of merchandise they will accept. Because earning a profit is paramount, most consignment stores will not accept items that do not look fairly new. In addition, their prices are usually higher than most thrift stores, and they have nothing to do with charities.
So, for people who enjoy shopping at thrift stores, and perhaps want to shop to help support a charity, getting the facts doing a little investigative homework. Remember Farrell’s advice — “Call the charity and ask them what the nature of their relationship is with the thrift store.”
That way, you’ll know exactly where your money is going.