Value Village Wants You to Think That It Gives Big to Charity. It Doesn't.

Claims about doing good for charities appear to be vastly overblown. Behind many a great deal at the chain of thrift stores is a pretty meager good deed. Behind others there appear to be none.

Every used item in this store was PURCHASED from our nonprofit partners.”

Emblazoned on the wall behind cash registers at a Value Village thrift store in Bellingham, the meaning of the feel-good message in bold lettering couldn’t be missed by shoppers at the store’s grand opening in 2011: The purchase of slightly used pants, a vintage jacket, and other thrift-store treasures is an act of charity.

The black T-shirts worn by cashiers carried a matching message for bargain-hunters with hearts of gold: “Good deeds. Great deals.”

The ubiquitous promotion of charitable activity is a big reason why Value Village’s corporate parent, Savers, Inc., does more than $1.2 billion in business annually. Based in Bellevue, for years it has been the single largest player in the prosperous and growing industry of for-profit thrift stores. And thrift has proved lucrative for the firms’ executives. Board Chairman Tom Ellison, for example, owns a waterfront mansion in the same suburb as Bill Gates.

But Savers’ claims about doing good for charities appear to be vastly overblown. Behind many a great deal at Value Village is a pretty meager good deed. Behind others there appear to be none, InvestigateWest found.

Sometimes Savers’ charity partners have received less than 5 percent of sales revenue on goods donated on their behalf, InvestigateWest found. Overall, it appears that between 8 and 17 percent of the firm’s revenue ends up with charities.

Meanwhile, Savers does not routinely tell donors how much of their used-goods donation actually goes to charity. That may mislead donors to overestimate their good deed—and, according to tax experts and charity-watchers, take a tax deduction that is far too high.

Today—despite recent news that the Capitol Hill Value Village location will soon close—Savers is aggressively expanding. From 2009 to 2014, the company grew at a rate of about 5 percent each year and opened or acquired as many as 20 stores each year, according to industry-research firm IBISWorld. The company now reports that it runs more than 330 stores and employs 22,000 workers. The chain increasingly competes with long-standing nonprofit thrift stores that devote most of their revenue to those in need.

And Savers, after decades of relying heavily on its partner charities to gather goods for sale at its stores, has embraced a new strategy: asking donors to drop off merchandise at Savers stores instead of donating it directly to charities that then bring the goods to Savers. Savers “purchases” this merchandise by donating money to charities in the donors’ name, but at a price far less per pound than merchandise brought in by the charities themselves.

The collection strategy—which runs counter to the bold claim on display at the Bellingham store’s 2011 opening—was employed by Savers at least since 2005 and was highlighted in Standard & Poor’s 2012 corporate rating of the company, which projected that Savers’ gross profit margin would increase, “reflecting an increase in higher-margin onsite donations.”

And it has paid off. From 2005 to 2010 Savers was the nation’s fifth-fastest-growing discount retailer, according to the trade journal Chain Store Guide. And since 2006 its revenue has more than doubled, according to Moody’s Investor’s Service, to $1.2 billion, although Savers, privately owned, does not disclose its financial performance to the public.

Meanwhile, at least six of the more than 100 charities associated with Savers stores have severed ties with the company over the past six years, at least two of them citing terms that were too unfavorable to the charities.

One of the charities that pulled the plug was the Boston-area Big Brother Big Sister Foundation. By operating its own thrift store, it’s now netting three to four times the revenue it received under the Savers deal, according to director Steven Beck. “If a charity is making 4 to 6 percent, that’s pretty unbalanced,” Beck says. “If you’re making a million and we’re making $40,000, how is that helping charities?

“It may be legal, but it’s not right.”

Savers refused to be interviewed or provide responses to written questions for this story.

There’s no question that charities make money they wouldn’t otherwise have. Big Brothers Big Sisters of Puget Sound, for example, realizes 10 percent of its revenue from the arrangement, says Amy Mack, president and CEO of the group.

“The steady revenue through our partnership with Savers/Value Village held true during the recent recession, as other sources of revenues dried up or were reduced drastically,” Mack told InvestigateWest in an e-mail. “The steady revenues helped us maintain our momentum in the youth-mentoring market.”

But critics say Savers’ consumers and donors are being deceived because so little of the stores’ revenue actually reaches the charities.

Consumer advocate Sylvia Kronstadt, formerly a fraud investigator with New York City’s Department of Consumer Affairs, argues that consumers and donors should shun Savers because of its business model.

The company, she told InvestigateWest in an e-mail, “preys on donors’ good intentions to create fabulous wealth for itself.” To her, “the charities who ‘partner’ with Savers are guilty as well, for allowing their names to be used in exchange for a few pennies on the dollar.”

In 2012, Macklemore made the Capitol Hill Value Village famous by filming part of the video for his monster hit “Thrift Shop” in its aisles. But decades before Macklemore spotlighted the latest evolution in trendy American shopping habits, Savers had perfected a “community service” marketing veneer that suggests its main goal is to help charities.

“A lot of people coming in here think we are a charity,” Sean Macrae, a floor worker at one of Seattle’s Value Village stores, told InvestigateWest in June 2014—even though Savers is registered as a for-profit business in Washington state and elsewhere. And why wouldn’t consumers walking into one of Savers’ roomy, brightly lit stores think that when they see the prominent logo of a local nonprofit?

Founded by the son of a Salvation Army executive in San Francisco’s Mission District in 1954, Savers created a business model that today is growing increasingly widespread: the for-profit thrift store.

Goods sold in Savers’ stores come from charities’ collection bins; at-home pickups scheduled by telemarketers paid by Savers or a nonprofit partner; and special fundraising drives. Plus, of course, the in-store drop-offs Savers now favors. Potential donors are targeted with radio and TV ads, direct-mail appeals, postcards, and brochures.

Charity-watchers say Savers and stores like it are quietly reaping a bonanza on donated goods, giving back minimally to charities while spouting slogans like “Donating to Value Village is a great way to Donate to Charity.”

Savers’ for-profit status “needs to be disclosed at the point of donation,” says Daniel Borochoff, president of the American Institute of Philanthropy and charitywatch.org.

Savers’ nonprofit competitors are pointed in their criticism. “It would not be deceptive if Savers stated clearly on its doors that they were collecting on behalf of certain charities and let you know whatever percentage that amounted to,” says Michael Meyer, a vice president of Goodwill Industries International. "Now . . . the presentation is creating enough grayness that it’s not clear to the consumer.”

Although most states do not require for-profit thrift stores to disclose how much they pay charities, InvestigateWest obtained contracts between Savers and charities filed with state officials in Washington and documents from Minnesota describing prices Savers paid charities there. InvestigateWest also analyzed information gathered by California for Savers stores doing business with two Silicon Valley charities. Taken together, these show that Savers’ partners are receiving only a small fraction of the sale price of the donated merchandise. Interviews with more than a dozen former and current employees corroborate these records.

The smallest percentages of revenue paid to charities over the past 15 years by Savers, according to the California records Savers filed, came in 2001 when Big Brothers Big Sisters of East Bay, in Oakland, received .02 percent of the revenue from the sale of items donated in its name. The same year Hope Rehabilitation Services in Santa Clara received just .87 percent of revenues from its donations, California public records state.

The most recent California records, from 2013, state that Savers is sending between 4 and 17 percent of its revenue to charities.

Overall, Savers says it paid $200 million to charities in 2014. If the $1.2 billion in annual revenue that Moody’s estimates Savers made for the year ending April 2015 is accurate, that works out to Savers keeping roughly 83 cents of every dollar it takes in, with charities getting 17 percent. Savers’ largest nonprofit competitors, which are required by federal law to report their finances to the public, spend a large majority of revenue on helping people in need. For example, even though Goodwill Industries International has been criticized for extravagant executive salaries, its 2014 audited financial statement reports that it devoted 95 percent of its revenue to programs that help the disabled and others who have difficulty securing work.

Calling itself “the thrift superstore with a community conscience,” Savers defends itself against supporters of nonprofit thrift-store operators by stating that it offers medium-sized nonprofits a way to earn money even if they can’t open their own thrift stores as have the behemoths of the industry, Goodwill and The Salvation Army. Indeed, some of Savers’ charity partners have done business with the chain for decades.

Although Savers would not respond to InvestigateWest’s questions, public records show how the firm has defended itself to government officials.

In a letter InvestigateWest obtained through the Washington Open Public Records Act, the Washington State Charities Division asked Value Village in 2002 about whether it solicits, and is therefore required to register as a commercial fundraiser. Savers general counsel Bradley Whiting responded in part: “We do not solicit for donations or contributions on behalf of any organization, nor do we donate ourselves to any organization. All merchandise obtained from the local not-for-profit entities is purchased from the entities at a commercially negotiated price, and is not tied to any subsequent sale to the public. Our relationship with the entities is strictly one of purchaser and supplier.”

Yet the price discrepancies between what Savers pays the charities and how much items earn on the sales floor are stark: A tie that Value Village might pay a nickel to buy from a charity sells for $4.99. A vintage women’s top that costs Value Village a dime sells for $9.99. A purse that Value Village gets for about a quarter retails for $12.99. A vase, which Value Village doesn’t pay anything for under the contracts InvestigateWest reviewed, goes on the sales floor for $14.99. Those figures, based on one typical contract and purchases made by InvestigateWest at a Seattle Value Village, vary from store to store and nonprofit to nonprofit, but across its operations, Savers’ business model is based on paying a few dimes per pound for clothing it sells at secondhand-retail prices.

It is a considerable margin, even taking into account the fact that, according to a 2013 letter from Savers spokesperson Sara Gaugl to Washington state officials, nearly three-quarters of donations are not suitable for resale. Those that don’t end up in stores are “responsibly recycled,” she wrote. Much of that involves selling merchandise in developing countries.

Gaugl’s letter came in response to a complaint filed with the Washington State Attorney General’s Office by a consumer upset at what she considered false and deceptive “fundraising representations.” The consumer’s complaint cited numerous in-store fundraising appeals, and asked why the company had not registered as a commercial fundraiser. “Inside the store, there are more signs, in addition to canned announcements every few minutes plus bookmarks scattered everywhere,” the consumer wrote. She also urged the state’s attorney general to undertake an investigation of Savers. However, the Attorney General’s Office responded by passing on the complaint to Savers and closing the matter in March 2013.

Minnesota’s Attorney General took a very different approach prompted by “many complaints from consumers,” according to spokesman Ben Wogsland. Following a year-long investigation, Minnesota Attorney General Lori Swanson sued Savers in May 2015, accusing the company of deceit by “convincing people to shop at Savers stores under the guise that Savers is or has the aura of a nonprofit or benevolent organization, such that their purchases will benefit a charity . . . This masks Savers’ actual status as a for-profit entity that receives the lion’s share of the value of donations people make to benefit charitable organizations,” says the suit, which sought among other things to compel the company to be more forthcoming with consumers and donors. Also: “Examples abound of Savers’ attempts to blur its mission and identity with that of charities.”

The lawsuit was settled in June, with Savers agreeing to pay $1.8 million to charities and provide more transparency to donors and shoppers.

“Savers is holding themselves out as a ‘do good’ organization. But they should not be soliciting for goods that charities aren’t benefitting from,” Wogsland says, adding: “We have no reason to believe that they’re operating any differently in other states.”

In May, Swanson notified other states’ attorneys general of her findings.

So far none has taken action.

Some who have worked at Value Village understand the criticisms.

“You see some big poster with a big Guatemalan baby face on it, and think that’s what it is about,” says Catherine Brophy, who worked her way up from cashier to assistant manager at a Value Village outside Seattle. In reality, says Brophy, who now works for Habitat for Humanity’s ReStore, “The main focus of Value Village is about making a profit. It’s all about ‘What are the numbers?’ ”

Just across the parking lot from the 24,000-square-foot Value Village where Brophy worked sits a tiny thrift shop called Eastside Community Aid. Virtually all the earnings produced by the 60 volunteers who take shifts at the nonprofit secondhand store support its mission and programs, including causes such as low-income housing, food banks, and fighting domestic violence. The small store competes for donors and shoppers with the big-box commercial competitor next door and its huge directional signage, crafty marketing, and voluminous share of parking spots.

“People think they’re giving to the community, but it’s unclear how much,” says Jody Orbits, manager at Eastside Community Aid. “They just don’t know the full story of where those donations are going.”

One major accusation leveled by the Minnesota attorney general is that Savers pays its partners nothing for household appliances, recreational equipment, bric-a-brac, and other so-called “hard goods.”

An InvestigateWest review of eight contracts between Savers and Washington charities found that Savers appears to pay nothing for certain donated items. The charities’ donations are required by the contracts to be weighed and paid for, but housewares and so forth are “included in the cloth price.” Translation: Charities are required by their contract with Savers to bring in the hard goods. They just don’t get paid extra for them. Several former Savers employees and an executive at a former Savers charity partner confirmed this information to InvestigateWest.

“My understanding was that we got paid per pound for the clothing; ‘miscel’ we didn’t get paid for,” says Brian Holloway, director of advocacy and family support at the charity Arc of Spokane, because its value is supposed to be covered by the price paid for clothing. Arc of Spokane severed its relationship with Savers in 2013 to open its own thrift store.

Yet Savers’ marketing frequently blurs the distinction.

On the “Donate” page of the Savers website: “Every donation of gently used clothing and items you make supports a nonprofit in your community.”

On brochures distributed at retail stores: “We partner with local nonprofits and pay them for all the goods donated at our stores.”

On a promotional bookmark: “Value Village pays local nonprofits every time you donate.”

And sometimes the same message can be found on charities’ websites too, like this passage from Clothes for Kids’ Sake: “We collect donations of gently used clothing, housewares, books, toys, etc. from members of our local community and deliver these items to our neighborhood Savers store. The revenue from the items sold go directly to your local Big Brothers Big Sisters agencies.”

Savers’ practices are well-known among charity watchers and others in the resale business.

“Savers and other for-profit stores should be clearly articulating the amount that is actually going to the charity and clearly telling donors where the rest is going,” says Kris Kewitsch, director of the Minnesota-based Charities Review Council.

“It’s not clear to the public who’s benefiting,” says Adele Meyer, president of the Association of Resale Professionals (NARTS), the main trade group for thrift stores. “They’re privately held but they don’t post it; everything above operating costs goes into the hands of a private company.”

“The true issue lies at the core of the industry: Who benefits from me donating my stuff to a charity?” says Beck of the Boston-area Big Brother Big Sister Foundation. “Why should I give if the charity only gets a small share of the money?”

Charity-watchers say donors and shoppers shouldn’t be left to guess how much money makes its way from the sales floor to Savers’ charity partners. But the company has resisted a legal requirement to do that in its home state.

At least six times since 1987, Washington authorities told the company to register as a commercial fundraiser under a state law meant to protect the public from deceptive fundraising. Commercial fundraisers must report how much they raise for charity and what percentage they keep for themselves.

Finally, in early November 2014, Savers, under pressure from a Washington state assistant attorney general, at last conceded. It is now registered as a commercial fundraiser in Washington, and by next year is required to report how much it is giving to charities—a result sought for decades by officials in the Washington Secretary of State’s Office Charities Program.

In Minnesota, it took the attorney general’s lawsuit to get Savers to promise to disclose the percentage of a donation’s value that reaches the charity, including differences for in-store donations. Under the settlement, Savers will also file annual reports with the state outlining the value of donations, expenses, and payments to charities; certify that donations solicited on behalf of a particular charity actually benefit that charity; and, for the first time, be prohibited from not paying for non-clothing goods collected by charities.

For Savers’ donors elsewhere, however, an equal level of transparency may still be hard to come by. Critics charge that the way Savers collects donations encourages donors to overestimate the value of their charitable contribution.

InvestigateWest documented several instances in which Savers stores gave donors the impression that the entire value of donated goods is deductible. “Please insert what you feel is fair market value of the merchandise,” says a receipt for Savers’ donors in Kansas City. A Seattle-area store distributes receipts with similar wording.

In a report that predates its suit against Savers, the Minnesota Attorney General’s Office criticized Savers for misleading donors, resulting in their “claiming tax deductions for donated goods for which the charities receive no payment.”

Rebecca Sherrell advises consumers who get a phone call asking for donations for charity to ask what percentage actually goes to the charity. “I hope this Minnesota lawsuit opens the eyes of the donating public,” she says.

InvestigateWest is a nonprofit news agency based in Seattle and covering the Pacific Northwest. Learn more at invw.org.

 
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