Transcription
Every shop you have ever walked into has one number on its book that towers over all the others. And that number is what it paid for the stuff on the shelves.
A supermarket hands back something like 70 cents of every dollar it takes just to restock. A clothing chain wires money to factories a year in advance and then waits to find out whether it guessed the season right. It is the single biggest risk in retail and it is the reason most retailers die.
Then there's a chain of more than 3,000 stores across the United States and Canada that moved about 8.6 billion dollars in a year and paid nothing whatsoever over its inventory. Not a discount, nothing. The stock arrives in the back of a hatchback driven there by a person who owns it, who then queues it up to hand it over and then thanks the staff for taking it off their hands. That is goodwill. And once you see the shape of it, the whole thing rearranges itself.
Because if the goods are free, then the business cannot really be about selling clothes and it is not. Most of what you drop off never reaches the shelf at all. And the following bag you handed over is how you find out what these places actually sell and who is actually buying. Before the sorting room one thing from you. What is the single best thing you've ever pulled out of a thrift store and what did you pay for it? I want the item and the price because somebody reading this bought a $200 coat for $4 and has never told anyone. Put it below and if you're already down there hitting the like and subscribe button would mean so much to me.
So, free inventory. That sounds like a cheat code and in gross margin terms, it is. But free is not the same as cheap and this is where most people's mental model of a thrift store falls apart. Somebody has to receive that bag. Somebody has to open it, decide whether each item is sellable, check it for damage, price it, hang it, and put it on a floor that is paying commercial rent in a retail unit big enough to hold 10 times more stock than a normal clothing store because the range is one of everything. Then, somebody has to take it back down again when it does not sell. Free goods, expensive hands, labor and real estate are the entire cost base. And they scale with volume rather than value, which means the business is not trying to sell you an expensive jumper. It is trying to move weight. Hold on to that word because weight is the thing that explains everything later.
Now, the second thing almost nobody knows. Goodwill is not a company. There is no head office deciding what your local one charges for jeans. It is a federation of around 160 independent regional nonprofits. Each one legally its own organization. Each one running its own stores, setting its own prices, and setting its own executive pay. They share a brand and very little else, which is how you end up with the pay figures. In Houston, the chief executive of the local Goodwill took home over $1.3 million in total compensation. Goodwill Omaha paid its chief executive $933,444 in a single year. In big metros, 4 to 600,000 is unremarkable. And the reason those numbers can sit where they sit is quietly the most important fact about the whole model. That money is not coming from government grants that need renewing or from big donors who might read the filings and get annoyed. It comes out of the tills. A charity funded by retail answers to almost nobody because the customer thinks they are shipping and the donor thinks they are giving and neither of them think they are a stakeholder.
Right, the bag. You drop off four carrier bags in the back room. They get triaged fast cuz dwell time is a cost. Anything stained, torn, wet, or smelling of a loft goes straight out of consideration. Anything obviously valuable gets pulled aside for the online operation, which matters more than people realize and we will come back to it. What is left gets priced and hung. Depending on which study you believe, somewhere between 10 and 20% of donated garments ever make it onto a shop rack. Take the bag you imagined. Of those four bags, roughly one bag's worth at best gets the retail experience you pictured when you dropped it off. The other three enter a completely different business and that business is a ladder and every rung down is cheaper and faster than the one above.
On the shop floor, items get color tagged. Each week a different color goes on sale and after about four weeks of not selling, an item is done. It has failed at full price and it has failed at half price and the floor space it is occupying is worth more than it. So, it comes off the rack and goes to the outlet. If you have never been to a Goodwill outlet, it does not look like a shop. It looks like a warehouse full of enormous blue bins and inside those bins is unsorted, unpriced, undignified clothing piled loose and you buy it by the pound. Most outlets charge somewhere between $1.29 and $2.19 per pound for soft goods. There are people who do this for a living, standing over the bins at opening time with gloves on and the tempo in there tells you exactly what kind of business this is. Staff swap the bins out every 15 to 30 minutes. An item sits on the outlet floor for about two hours before it is pulled and moved on. 2 hours. A garment that took a factory worker in Bangladesh maybe 20 minutes to sew that's hung in your wardrobe for 3 years gets a 2-hour audition at the bottom of a bin and then it is gone.
Gone where though? This is the part that changes how the whole thing looks. What comes off the outlet floor is not thrown away. It is compressed into bales, weighed, and sold to textile brokers by the pound. Somewhere between 40 and 75% of donated textiles end up going out this door. At that moment, the item stops being clothing in a meaningful sense. It stops having a size or a brand or a style. It becomes a commodity measured in tons and it gets loaded into a shipping container. That container has a destination and the destination is not usually America.
Go to Accra in Ghana and walk into Kantamanto Market. Roughly 15 million garments arrive there from the global north every single week. It is one of the largest second-hand clothing markets on Earth and somewhere north of 30,000 people make their living inside of it unpicking bales, repairing, restyling, reselling, running an entire informal industry economy on the contents of Western wardrobes. The traders there have a name for the bales. In Twi, they call it obroni wawu, dead white man's clothes. The logic is brutal and completely reasonable because if a person gave away clothes this good and this much of it, the only explanation that makes sense is that the person died.
Here is the number that should stop you though. Of everything arriving at Kantamanto, an estimated 40% leaves again as waste. Too stained, too torn, or simply too badly made to have a second life at all. 40% of 15 million is 6 million garments a week that have been shipped 4,000 miles in order to become someone else's landfill problem. The traders pay for those bales up front, sight unseen, which means they are also absorbing the financial cost of the rubbish that was hidden in the middle of them. So, the sequence laid out plainly, you give something away for free believing it will help a person. It is sorted for resale value, sold at retail, sold again by the pound, bailed, sold a third time by the ton, shipped across an ocean, sold the fourth time to a trader in Accra, and then in four cases out of 10, burned or dumped. Every stage in that chain got paid. Nobody in that chain paid you.
Now, I'm not going to hand you a simple villain here because the honest version of the story is more interesting than the angry one. The received wisdom is that second-hand imports wiped out African clothing manufacturing, and Kenya is the case everyone cites. At its peak in the 1980s, Kenya's textile industry employed something like 500,000 people. By the early 2000s, formal employment in the sector had collapsed to under 50,000. That is a real collapse, and it is not in dispute. But, the cause is not just the bales. Kenya liberalized its trade in the '90s. Cheap brand new garments from Asia arrived at the same time. And most decisively, the domestic cotton supply chains fell apart. So, Kenyan mills could not get affordable raw materials to compete with anybody. Second-hand clothing was one pressure among several, and treating it as the whole explanation is the kind of tidy story that falls over the moment you check it.
And then, the other side of the ledger, which almost never gets mentioned, roughly 2 million Kenyans now work in the mitumba trade. 2 million livelihoods in sorting, hauling, mending, and selling second-hand clothes, contributing serious money to the economy every month. The trade did not simply destroy an industry. It leveled one industry and then built a much larger, much more precarious, much lower margin one on top of the rubble. And the people inside it will defend it fiercely because it is their income. When politicians float banning mitumba, the traders are the ones who fight it hardest. That is the real shape of it, not a scandal. A supply chain that quietly reassigned who gets to manufacture and who gets to resell.
Which brings us to the most instructive company in the entire industry, and it is not a charity at all. You may have shopped at Savers or Value Village or Unique. Same parents. It is the largest for-profit thrift chain in North America. It has been owned by the private equity firm Ares Management, and it went out for a private offering of over $500 million before before heading for the New York Stock Exchange. There is no nonprofit anywhere in that sentence. It's model is the cleanest expression of everything above. It buys donated goods from charity partners, paying them a few cents per pound or a flat rate per item. And it pays that rate whether or not the item ever sells. Then it prices those goods at second-hand retail. The margin between pennies by weight and a price tag on a hanger is the company.
And it got tested. The Washington State Attorney General sued, arguing the chain had created the impression it was a charity and that shopping there benefited good causes. It went all the way up, and in February 2023, the Washington Supreme Court ruled unanimously for the company, finding its marketing was protected speech. The Attorney General's office was then ordered to pay $4.3 million of the company's legal costs. Read that outcome carefully because it is the thesis of the whole industry. Looking like a charity is legal. The atmosphere of doing good is a free input, exactly like the clothes.
There's one more cost line worth knowing about, and it is the uncomfortable one. Section 14c of the Fair Labor Standards Act allows certain employers holding a federal certificate to pay disabled workers less than the minimum wage. As of recently, close to 40,000 people were working under those certificates, and the majority of them earn under $3.50 an hour, not per item, per hour. A proposed federal rule would have phased the whole program out within 3 years. It was withdrawn in July 2025, so the certificates continue. 18 states have now ended the practice within their own borders, which tells you where this is heading, slowly. And Goodwill affiliates are among the organizations still holding the of Lincoln Goodwill in Illinois pays 21 employees a subminimum wage under the exemption. Ohio Valley Goodwill has employed nearly 300 workers on subminimum wage. Remember that these are independent organizations, so this is not every Goodwill, and plenty of affiliates have given the certificates up. But the mission statement on the wall is job training for people facing barriers to employment, and the legal instrument in the filing cabinet permits paying some of those same people under $3.50 an hour while the chief executive in Houston clears 1.3 million. Both of those things are true at once, and the organization is structured so that neither one has to explain itself to the other.
So where does the money actually come from? Not from clothes. Clothes are just a four A thrift chain is a materials business wearing a shop as a disguise, and it has three revenue layers stacked on top of one free input. There is the online layer the genuinely valuable things get pulled out during sorting and sold nationally rather than locally, which is where the vintage designer piece you were hoping to find actually went. And underneath both of those is the wholesale layer, which is where most of the tonnage goes and where the guaranteed money lives cuz a broker will always buy weight at a price whether or not anybody wants it to wear it. The last layer is where the model is close to unbreakable. A normal retailer that misjudges demand eats the loss. A thrift chain that misjudges demand sells the mistake by the pound. There is a floor under everything, which means the customer you assumed was central to all of this the person browsing the rails on a Saturday is only the top rung of a four-rung ladder and the person the business genuinely cannot operate with is not the shopper at all. It is you in the car park with four bags waiting for a receipt. You never were the customer. You were the supplier. You delivered for free and you said thank you. If you found this one interesting drop a like and a subscribe. It genuinely does help a lot. And if you want to know how other industries quietly make their money in ways nobody notices the money and business playlists on this channel is right there and the dollar stores one is a good place to go next. See you in the next one. >> [music] >> I am waiting.