Thrift Retailer
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Thrift Retailer

Growing Profit in Thrift With Kaizen — D.O.W.N.T.I.M.E.

What do Kaizen and Lean have to do with thrift or second-hand stores? Thrift receives random stuff and has to turn that stuff into an organized retail store. Anyway, aren’t those manufacturing concepts?

Kaizen and Lean aren’t just for factories anymore.

In Kaizen, everything either adds value or doesn’t. Being intentional about understanding what does and doesn’t is the core of this philosophy. For example, accepting a donation adds value; putting it in a bin and storing it for months may not.

Being a not-for-profit adds an extra responsibility to be good stewards of resources, especially donated goods. Fulfilling the cause’s goals requires turning those goods into money, with some leftover after paying the bills.

Kaizen helps improve the “some leftover” part.

There was a time in the early 20th century when donated clothing was mended, buttons replaced, etc. Eventually, the labor cost exceeded the value of repaired goods, and that practice was largely abandoned. It’s an example of identifying a process, reviewing the value of the process, and, in this case, eliminating it. Kaizen 101. A consistent Kaizen lens can identify time and profit thieves.

What’s the shortest, simplest trip from donation to sale?

The acronym D.O.W.T.I.M.E. is an excellent tool. It works in thrift, with a twist. Using the acronym, we will explore each letter and how they apply to the second-hand world. An actionable tip is included with each letter.

Kaizen has also been called the process of continual simplification. Following are some ways to simplify and streamline things.

D stands for damage.

One of the most common causes of damage in a thrift environment is clutter. One thing becomes ten, and all of a sudden random stuff is everywhere.

When things become, separated value is reduced or lost. A ceiling fan or board game parts fall out of a box, gone forever. Items become scratched or damaged. This is especially true with home décor, wall art, and breakables. That lead glass vase gets cracked, becoming trash.

Then there is theft. Let’s face it, it happens. Disorganization and clutter are a thief’s friend. The sales floor, backroom, the story is the same. It provides places to hide things.

I once found a like-new leather Harley-Davidson jacket in a bin of housewares. Interestingly it was near the employee exit. $100 was about to disappear when everything has a place; out-of-place items like that stand out.
There are lots of causes of damage. Deal with clutter, and you will be well ahead of the game.

Keep the stream flowing, don’t let clutter dams clog the flow.

O stands for over processing.

In Kaizen, over-processing is doing more than necessary to products or doing things that don’t add value. It’s a revenue killer in thrift just as much as traditional business.

It pays to view accepting, sorting, and preparing thrift goods much like manufacturing processes. First, raw materials of second-hand goods come in, and several things are done to them. Eventually, sellable products go to the sales floor (or e-commerce) what’s left goes down other paths.

Examples of thrift overwork:

Do what needs to be done, that’s it.

W stands for Waiting.

In this case, it isn’t about waiting in line at the checkout. Instead, it’s the time goods spend waiting for something to be done to them. When you think about it, donated goods spend a lot of time waiting. They wait to be sorted, wait to be priced, wait to go to the sales floor, wait for a buyer. Sometimes they remain in storage for months.

The total of those time segments is called cycle time.

For thrift, retail cycle time is the total time from donation acceptance to proper placement on the sales floor. Since sitting on the sales floor isn’t part of production, we will leave that out. Better thrift-centric POS systems include the capacity to measure both.

Each of those wait times can vary from minutes to days or longer. Follow a few specific items through the process, and you might be surprised how long things wait to be turned into money. That is, after all the job, turn stuff into money.

A second-hand shop I visited recently has a clearly defined path from donation to the sales floor. It’s an if/then system. If it’s a large appliance, it goes down this path for testing, then to the sales floor. If it’s electronic, then it goes down this path. If it’s damaged/unsellable, it goes down this path to be harvested for parts and metals. There might have been half a dozen tributaries.

Reducing cycle time will tend to increase revenue.

They even have a secret sauce. Every donation that comes in stays in a cart or bin until it goes through the if/then process. During the few hours I was there, I saw a steady flow of goods moving to the sales floor and other various directions. It’s no wonder they are a national volume and profit leader in their segment.

Our primary job in non-profit thrift retail is to convert donated goods into money to support the cause. It’s that simple and that complex.

Create processes that move items to the sales floor in a minimum amount of time with as little effort as possible.

N is for Non-used talent.

Maybe better put as underused people skills. It’s is more challenging to track than something like cycle time.

In thrift, talent can have a whole different flair. Almost everyone has a hobby or passion, giving them an edge in something. Engaging those unique skills can help maximize donated goods’ value.

Crazy stuff shows up in the constant flow of random donated stuff. A lot of money is left on the table when value isn’t spotted.

A few real-life hidden talent examples:

Then there is the generalist who has an eye for value. People that have this superpower are the most valuable employees or volunteers in the organization.

Uncover and use those life passions and superpowers.

T stands for transportation.

Transportation can’t be avoided entirely, but it can be managed.

Transportation includes the cost of a vehicle, insurance, maintenance, fuel, and one or two employees. I strongly suggest tracking transportation and logistics costs separately. Knowing an expense makes it possible to manage it.

I have a simple formula to keep track of picked up donation acquisition costs:

The total cost of transportation divided by the number of picked-up donations equals picked-up donation acquisition cost.

It’s expensive to pay for a truck, maintenance, insurance, and two people. Often an employee also has to be assigned to manage scheduling.

Understanding and managing that cost can make a big difference to the bottom line.

Two ways to manage donation acquisition cost:

Set a minimum estimated donation value that you will pick up.

Always encourage, possibly reward, donations be dropped off at a store.

I Stands for inventory.

Inventory is stuff waiting to be turned into money. You gotta have it; too much of it can be a problem.

Turns are a crucial metric in traditional retail. It’s the number of times a year inventory turns over or is replaced with fresh goods. In thrift turns, or how fast things sell, has to be managed up and down as the inbound flow goes up and down.

The challenge in thrift is the lack of control of that inbound flow. Manufacturing that Kaizen is built on can essentially manage inbound raw materials. But, unfortunately, the raw material of donated goods isn’t so easily controlled.

In some ways, this ties back to the letter W for waiting. From the moment of acceptance to sale or disposal, inventory is unrealized income.
The trick is turning goods at a profitable pace without clogging up a sales floor, backroom, or storage facility.

Thrift lives in a very dynamic supply and demand world.

I was at a store recently that had a sea of assorted chairs. Some were single, some pairs, other larger sets. The selection was great, but the quantity was too much. They ran a big chair sale to bring inventory in line with the space available. That can be tricky as the best items tend to sell first, leaving the less appealing things to sit. (No pun intended)

The best way to combat that is to make sure each item is priced appropriately first. Sometimes a brutal quality check and some weeding are in order. Someone once told me, “your store is only as good as the worst item for sale” there is some truth to that.

Heavy donations may require lower prices to speed up sales. Conversely, slow donations may indicate higher prices to maximize value. It’s as much art as science.

Every square foot of a facility costs money. Stuff sitting is raising that cost.

M stands for Motion.

Moving stuff around doesn’t directly add value. Instead, unnecessary motion adds small costs that add up.

Some types of motion:

At a Kaizen event, a textile processor pointed out that whenever she needed a new rolling rack, she had to walk to the far end of the warehouse to get one. When sales floor staff was done with them, they also had a long walk to put them in storage. So we moved them to a line between processing and the door to the sales floor.

We estimated that move saved about 60-foot steps per rack. That store averaged a dozen racks a day. That added up to over 5,000 steps a week and well over 200,000 per year. That’s a genuine labor-saving.

In another case, we were having a terrible problem with shoe pairs becoming separated. It’s tough to sell single shoes. Saving singles, playing match game from time to time is also problematic.

Pulling a Kaizen event together, we identified they were becoming mixed with other goods between donor drop-off and the first sort. So we set up a space for shoes in the donation area, with bags and rubber bands available to keep them together. The donation attendants were only tasked with keeping them together, not making quality or type choices. This was a high donation volume store; we estimated this added another thousand dollars a month to shoe department sales.

At another Kaizen event, we noticed a long trip from the donation area to processing.

The impediment was a wide wall between the two areas. We cut a hole in the wall allowing goods to be sent in a nearly straight line from the donation door to the processing area on a roller system. The labor-saving was hundreds of steps a day. The time savings was over an hour a day. Multiply that over a year.

Even something as simple as setting up workstations differently for right and left-handed people reduces motion.

Draw out the actual path of donated goods sometime. Chances are, a few improvements will become apparent.

Looking at processes as an integrated whole rather than separate pieces will make wasted motion apparent.

E stands for Excessive Production

Last letter!

Excessive or overproduction is preparing more goods for sale than can reasonably be expected to sell.

Thrift tends to stock the sales floor based on donation flow. Traditional retail stocks the sales floor based on customer demand. Push versus pull. It’s the biggest paradox in thrift retail.

Any traditional retail 101 training will tell you to provide the most space and best locations to the highest demand products and categories.

Often that isn’t what thrift retail does. But, of course, it is easier said than done. When a bunch of board games shows up, they need to sell. Still, there is an upper limit to how many can be reasonably stocked and sold.

We once received a whole semi-load of brand new board games. There were only four titles. Anyone that shopped in our stores that even might want one eventually had one. It wasn’t long before those displays became defacto storage space. We had flooded our customer base.

They had to come off of the sales floor, so productive goods could go on those displays.

What to do?

Flexibility. A thrift store sales floor is constantly in the process of reinvention. The design and layout have to allow for departments to expand and contract based on donation flow.

There does tend to be some seasonality in donations. Toys, for example, tend to come in heavy right before and after Christmas as the old makes way for the new. Toys is a great year-round department that can be expanded when those donations pick up and shrink when they slow down. The departments adjacent to them should have some flexibility built-in.

Textiles are even more seasonally affected. Shorts and lightweight clothing replace sweaters and coats in most of the country.

Seasonality. One of the biggest challenges in thrift is what to do without season goods. Winter coats aren’t worth the hanger they are on in August in the Midwest. Yet, they are a top seller going into fall. Christmas goods are donated year-round. Some sell out of season, but having goods to build a statement department in season pays a lot of bills.

Overflow or reserve space. Every square foot of a facility costs money. All of them need to pay for themselves in one way or another. Storage space is no different. Those winter coats donated in the spring and summer are worth saving for fall.

Having space to store some categories of excess goods can increase the overall value you receive from your donations. It also allows for a more seasonally correct sales floor.

A full sales floor looks great, a productive full sales floor makes money.

Conclusion:

There you have it! Thanks for reading to the end, I hope you found some things that you can act on that will save time and money.

In the end the question should always be:

What’s the shortest, simplest path from the donation door to the cash register.

A couple other posts you might find of interest:

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Tim Gebauer

Thrift and retail blogger. Helping small business succeed. Connect on linkedIn, my thrift reseller blog thethrifter or my amazon thrift merchandising e-book.