Charity shops in the UK

Introduction
This is a review paper based on the authors extensive researching and consulting with a wide range of charities which run retail operations. The purpose of the paper is to give an overview and insight into the present state of charity shops in the UK and some indications as to their future development. Information is taken from the retail literature, independent surveys and original data collected by the author. In some cases individual charities are named but in others quotations are unattributed to preserve the anonymity of the individuals or organisations involved. Charity shops in retail terms fall into the category of an untraditional distributive form, which is well known in the UK and becoming a familiar sight in the USA and parts of Europe. Charity retailing has become an expanding and successful sector of the retailing market and since the late 1980s the shops have blossomed on the streets of towns and cities and have gradually become a feature of interest for retail academics and concern for the conventional retailer. The origins of charity retailing can be traced to the latter part of the nineteenth century when the Salvation Army offered cheap second hand clothing to people on low incomes; however, the charity shops have essentially been a post. 1945 phenomenon. Oxfam opened its rst shop in 1947, and the Sue Ryder Foundation opened shops in London, Birmingham, Hull, Manchester and Liverpool in the early 1950s. In the next two decades many charities followed suit. The most rapid expansion in the development of charity shops has been since 1985. In their initial stages they had an image of being very down market, scruffy and often dirty; this was due to the nature of the goods sold, second-hand clothes and household items, and to an absence of professionalism and uniformity in the management of the shops. In the economic boom of the 1980s this image changed with the realization by charities that there was serious money to be made from retailing but only if the shops were run in a more commercial and professional way. This growth in professionalism has increased over the years, giving shop operators greater condence to compete on commercial terms with other high street retailers.

Suzanne Horne

The author Suzanne Horne is a Lecturer in the Department of Marketing, at the University of Stirling, Stirling, Scotland, UK. Abstract Charity retailing has been a successful sector of the retail market since the late 1980s. Charity shops have blossomed on the streets of towns and cities in the UK to become a feature of interest for retail academics and concern for the conventional retailer. They have the potential to serve four purposes in that they offer a social service, enable the recycling of goods, help to raise awareness of the charity and provide a fundraising medium. With increased professionalism in their operations, competition has escalated for customers, goods and volunteers, both with other charities and with established retailers in terms of business rates relief. The increased competition from within and without poses the problem of retail strategy for the future. Suggestions for future development include developing a strong brand image in order to attract and secure customer loyalty, and joint ventures with other retailers and charities. There is no doubt that the charity shop can provide a very successful means of raising funds.

International Journal of Retail & Distribution Management Volume 26 Number 4 1998 pp. 155161 MCB University Press ISSN 0959-0552

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Charity shops vary considerably in terms of size, merchandise mix and professionalism. Although there is no ofcial statistic available, it is widely suggested that the typical size of a shop is approximately 1,000 square feet with an average selling space of 700 square feet. The merchandise sold varies from new bought-in goods, to any standard of donated second-hand clothing and household articles. Most new goods are small household articles, stationery and personal items such as jewellery. Although some charities sell large items of second-hand furniture and other household goods, the majority sell donated clothing and small household articles, books and trinkets. Finding accurate information on the total number of charity shops in operation at present is difcult because there is no register of charity shops and gures depend on the charities responding to surveys. St Leger (1993) gives an overview of charity shops in 1988 and the latest survey to be undertaken (Phelan, 1996) suggests that a total of 53 charities were operating 4,454 shops in 1996 and that 11 of these charities accounted for 3,792 shops. Table I gives the number of shops operated by the top ten retail charities and their expansion in numbers over the last seven years. It shows considerable growth by some charities who have realised the potential of charity shop income and increased their shop numbers accordingly.

Purpose
The majority of charities which operate shops do so in order to raise funds to enable them to
Table I Growth in the number of charity shops

carry out their primary purpose, which is, for the relief of poverty, or for the advancement of education, or for the advancement of religion or for other purposes benecial to the community (Charities Digest, 1995). One major trading charity suggests that compromise is needed as there is conict with hard business and charity. Its mission statement for trading is to generate as much money as possible without compromising its charitable aims. However, it can be argued that the purpose of the charity shop is not wholly to make money, as is the case with commercial retailing, but to provide four interrelated functions which are highlighted below. Before 1980 most charities opened shops in order to provide a social service by offering for sale low cost goods to sections of society who were unable to purchase from established retailers. Today, many charity shops making good prots still do provide this service, in that they are situated in poor locations near to their target customers. A second function of the charity shop, which is often overlooked or understated, is that of the recycling of goods. In an age of Green Issues the charity shop serves to recycle unwanted goods on two levels. The rst is that of clothes, books and household goods unwanted by one set of consumers but purchased by another and so recycled. The other is that of goods at the end of their useful life being recycled for manufacture into another form. The slogan, given by a retail manager for one charity chain is, if in doubt rag it, the shop must have as much good quality stuff out as possible(charity retail manager). An increasing number of charities now collect unsaleable items, especially of clothing, and sell them on as

Charity Oxfam ICRF Age Concern England British Red Cross Help the Aged Barnardos Scope British Heart Foundation Cancer Research Campaign Save the Children Total

1990 804 400 150 152 114 273 185 13 150 128 2369

1991 821 425 160 141 142 278 204 70 150 146 2537

1992 843 468 200 190 185 291 238 111 190 153 2869

1993 836 470 237 285 213 294 246 147 190 160 3078

1994 842 470 327 306 240 307 250 192 207 159 3300

1995 842 470 367 324 280 307 254 225 227 158 3454

1996 844 474 400 355 322 315 276 272 234 158 3454

+ 40 74 250 203 208 42 91 259 84 30 1281

Source: adapted from Phelan, 1996 156

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scrap rags to be reused in other industries, for example cotton rags to stuff car upholstery. Many shops now have ragging bays where merchandise is sorted and segregated for the shopoor or the rag merchant. The third function is to raise awareness of the charitable cause. A shop in a prominent location attracts the notice of passers by and can be used as an information centre for the charity. Leaets and other promotional literature can be displayed and volunteer recruitment often takes place through the shops. As previously mentioned, the main and fourth function is that of fundraising. The level of funds raised by an individual shop depends on the location, the quality of the merchandise, the nature of the merchandise, whether second hand or bought-in new, and the expertise and professionalism of the management. Phelan (1996) suggests that in 1996, 4,470 shops raised a total income of 240 million. The expenditure on this sum was 174 million giving a prot of 66 million and a prot margin of 27.5 per cent on turnover. As can be seen from Table II, this varies from charity to charity. With many different structures and accounting methods it is difcult to compare like with like, for example capital employed and headquarters overheads. Some of the shops are run as autonomous outlets and some as chains or branches. Some of the most professional charity retailers, for example
Table II Incomes generated by top ten charities

Oxfam and Imperial Cancer Research Fund, now receive as much money from their trading activities as they do from individual donation which is traditionally the main source of charity income. Many charities now realise how much money can be made through trading and suggest that it is a crucial form of fundraising without which they would struggle. It provides that golden asset which is unallocated money, money without any conditions attached and not tied to any specic project.

Trading
Until 1988 there was little thought as to whether charities indulging in retail activities were considered to be trading in the real sense. In section 505 of the Income and Corporation Taxes Act 1988, the exemption from tax given to charities extends to income from trade, only if that trade is the primary purpose of the charity. There are also exemptions for certain trading activities which are not covered by statute and the most important is that relating to the sale of donated goods. If goods are donated to a charity the sale of them is deemed to be the realisation of a gift and not the act of trading. This would suggest that a charity shop selling 100 per cent donated goods is not considered to be trading but realising the value of a gift. This applies even if that gift is cleaned or renovated. However , if the renovation is

Charity names Oxfam ICRF British Heart Foundation SCOPE Barnardos Help the Aged Cancer Research Campaign Age Concern England British Red Cross Save the Children Fund

Date gures prep. to 30.4.95 30.9.95 30.3.96 31.3.96 31.3.96 30.4.96 31.3.95 31.3.96 31.3.95 31.12.95

Income total 56,378,000 25,980,000 24,640,000 22,737,000 17,974,456 16,475,000 16,379,945 9,552,352 8,875,000 6,590,400

Wage Average Prot bill as prot per as a % a % shop pw of t/o of t/o 418 202 411 365 293 268 367 108 173 264 157 32.5 19.2 23.6 23.1 26.7 27.2 26.4 23.4 35.9 32.9 8.4 7.3

Income donated goods 41,563,000 21,900,000

Donated good as % of t/o 73.7 84.3

23.8 30.4 28.2 22.0 22.6 6.3

22,554,000 15,442,891 16,400,000 15,890,481 9,077,616 4,614,000

99 86 99.5 97 95 70

Source: adapted from Phelan, 1996

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signicant or if it changes the nature of the good then the sale will amount to a trade. As charities have grown in retail professionalism, so they have changed the nature of their retail operations. One of the major changes to take place is that of buyingin new merchandise. The rationale for this strategy was rst to improve the image of the shops in order to attract new customers and thus widen the customer base, and secondly to compensate for the lack of good quality goods being donated to the shops. Horne and Broadbridge (1993, 1995) suggest a three category classication of charity shops according to the merchandise mix. The rst category sells 100 per cent donated goods and includes the thrift shops which were the original type of retail outlet for most retailing charities. The second category sells both donated and new bought-in goods with the mix ranging from 5 to 95 per cent; these new goods include a broad range of items many of which can be purchased from established retailers. The progression of the thrift shop from category one to category two coincided with the rapid increase in the numbers of charity shops in the late 1980s to early 1990s. The majority of shops now operate in category two although there is evidence to suggest that some experienced charity retailers are now no longer buying-in new goods but concentrating, on what we know best, which is the sale of second-hand goods(Charity Retail Director). The third Category consists of those shops selling 100 per cent new bought-in goods, for example the National Trust, and these shops have no tax exemption and are in direct competition with established high street retailers. It is possible for a charity to operate shops in all three categories; Oxfam, for example, has shops dedicated to selling new goods purchased from third world countries, shops selling a mixture of bought-in and donated goods and shops selling only second hand goods. These are strategic options which are now open to the dedicated charity retailer.

an average of four hours a week in order to meet people and who has a close afnity with the particular charity (Horne and Broadbridge, 1994). The use of unpaid staff is a major difference between the traditional retailer and the charity retailer. As Horne and Broadbridge (1995) suggest, the retail volunteer can be on the one hand the biggest asset, working for no nancial reward, and on the other hand the biggest headache because often he/she has their own very denite ideas of how the operation should be run. Sometimes this use of volunteers in the shops works very well, but often there is adverse reaction by them to any sort of change and, because of the short number of hours worked in a week, groups of volunteers tend to work together and do their own thing. Phelan (1996) suggests that there are 89,000 live retail volunteers, but the availability of good volunteers continues to fall and therefore charities are beginning to pay market salaries in order to improve the quality of management at all levels. Phelan gives an example of how wages increase as the number of shops increase. Oxfam increased its number of shops by a quarter of a percent but at the same time the wage bill increased by 7 per cent. Barnardos similarly increased its shop number by 2.6 per cent and its wages bill rose by 6.5 per cent. Thus as the levels of professionalism rise so also do the running costs.

Competition
The increased professionalism which is now seen in the top retailing charities has brought more revenue to the charities concerned but has also brought problems. The most obvious one is that of competition which is not as obvious as it at rst appears and depends almost entirely on which category the shop operates in. There is competition for customers, but if the merchandise sold is entirely second-hand it is desirable to have other charity shops in close proximity. As there is no continuity of stock for donated goods the customer will purchase in one shop and move to the next to search for compatible goods. The customer will go from shop to shop searching for goods (Cohen, 1995) and is not therefore charity specic in this case. If new goods are on sale then charity shops do compete with each other, and as many goods bear the logo or name of the charity the

Volunteers
Ten years ago the majority of those people found serving in a charity shop would be working a few hours a week for dedication to the charity and not for money. The retail volunteer is most likely to be a woman over the age of 55 years who works in the shop for

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consumer begins to show a preference for one charity against another. There is also competition for good quality donated second-hand goods which, as the number of shops increases, becomes more difcult to secure. This search for the best quality donated goods has led to greater sophistication in distribution methods. Most charity shops relied in the past on donors bringing unwanted goods to individual shops. With this method there is little control over the distribution, no means of monitoring which location they are from, or how regularly donors provide the goods or any means of moving them from shop to shop. The pedestrianisation of the high street in many towns caused a downturn in the number of goods being given in to individual shops. Donors were no longer able to park and drop and for many donors it was either too embarrassing to carry goods in or the loads were too heavy. Many of the more professional charity retailers now operate their own pick up and distribution systems. Van drivers, many of whom are employed on an hourly rate or are self-employed, drop bags in neighbourhoods and call back for them at a later date. One bag drop operator suggested that if, for example, there is a drop of 250 bags there is an expected pick up of 40, and it is estimated that for every pound spent on a van delivery 6 prot will be made. Charities operating this system suggest that it is the control and monitoring of these systems which make them so much more useful. It is possible to record the street where bags are dropped, the number of bags returned from that street and the quality of garments and goods donated from that area. There is also competition in the recruiting and retention of good volunteers. One way to overcome these problems is to pay shop staff. This bring stafng into competition with established retailers and means that wages and working conditions have to be comparable to established retailers in order to attract the best workforce. These areas of competition, for customers, goods and volunteers, could be described as internal problems which are part of the retail operations. A different level of competition which is outwith the control of the charity retailer has become an issue which could, in the long run, have a detrimental effect on certain charity shops.

This is an area of perceived competition by established retailers which is causing much concern throughout the country and which might have severe repercussions for charity shops if legislation is brought about which, for example, would add Value Added Tax (VAT) to donated goods. This perceived competition by small established retailers manifests itself in the belief that charity shops trade on an unfair footing, gaining benet from their charitable status (the Federation of Small Businesses (1995). There is a feeling among retailers and Chambers of Commerce to suggest that tension is growing and that in a time of recession the established retailer will ght for the right to operate regardless of the fact that the competition might be fundraising for a worthy cause. Some retailers are registering complaints with Chambers of Commerce and the Ofce of Fair Trading deeming unfair competition.

Legislation
Legally there is nothing to prevent a charity from opening a shop, but trading legislation is different for each of the categories of shop outlined earlier. VAT is charged on bought-in goods but not on donated goods and also rate relief is given to charity shops in terms of an 80 per cent mandatory rates relief and a 20 per cent discretionary one. These are levied by local authorities and for the mandatory relief to be upheld the hereditament must be used wholly or mainly for charitable purposes. The discretionary relief is up to 100 per cent rate relief which is given at the discretion of the charging authority. This authority may reduce or further reduce the amount of rates payable if the rate payer is a charity or a trustee for the charity and the hereditament is wholly or mainly used for charitable purposes. It is suggested that in order to qualify for relief of these taxes the turnover of bought-in goods must not exceed 35 per cent and accordingly 65 per cent of turnover must be derived from the sale of donated goods. Confusion exists over this gure as some people believe that the turnover of bought-in goods could be up to 49 per cent and that the requirement is simply that the shop sells mainly donated goods (Horne and Broadbridge, 1993, 1995). Originally covered by the 1967 General Rate Act and subsequently amended by the Local Government Finance Act (1988) (LGFA), which introduced the Community Charge

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and The Uniform Business Rate, charity shops are covered in section 64 (10) of this 1988 Act. The Act states that an hereditament is to be treated as being for charitable purposes if it is, wholly or mainly used for the sale of goods donated to a charity and the proceeds of the sale of the goods (after the deduction of any expenses) are applied for the purpose of the charity. The term mainly is open to interpretation and causes much confusion. If the merchandise mix is a key determinant for rate relief then it would be logical to assume that shops in category three have no such relief. Research suggests, however, that some shops in this category are granted tax relief (Horne and Broadbridge, 1995). This confusion over trading legislation suggests that charity retailing is moving faster than the imposition of legislation.

Rates
Most of the debate of established retailers against charity retailers has been directed to the issue of rates paid or not paid and the fact that charity shops have few overheads either xed or unxed. Another issue which has not been so well argued is that if a charity is given rate relief it can then afford to pay higher rent and rates for a property than an established retailer and this, in many cases, serves to keep rent and rates at a higher level than would otherwise be sustained. It has been suggested by many established retailers that the mandatory relief should apply, only to those shops selling 100 per cent donated goods, and obviously those charities following this strategy are happy with the proposal. Many charities are denied the discretionary award and some authorities have refused the mandatory one on terms of unfair competition if the proportion of new goods is very high. There is a suggestion that the percentage of mandatory relief should be brought down from 80 per cent to 50 per cent which, as Phelan (1996) points out would cost Oxfam, for example, approximately 1m across its chain of 844 shops.

however, and there is a move away from poor secondary trading sites to primary high street sites and even the rare site in a shopping centre. Established retailers fear the proliferation of charity shops and there is evidence to suggest that some Chambers of Commerce are putting pressure on local councils to go so far as to restrict the number of successful charity shop applications (Horne, 1995). The Federation of Small Business in one Scottish town sees the expansion of charity shops in the town as, an enormous problem which has caused the local economy to suffer due to lost rates, employment and business impact as charity shops proliferate the negative drain on the economy increases (Ellis, 1996, p. 49). The alternative view to this, from a retailer is that, there are far too many charity shops but better a charity shop than a boarded up shop. The increasing number is not the only problem perceived by established retailers. Complaints are made regarding the competition due to the increased sophistication of their operations and in the change in the merchandise mix offered by charity retailers. Some retailers have been so annoyed by the alteration of the merchandise mix by charity shops that they have ceased to deal with suppliers who supply charity shops. A further insult to injury was the case of a loyal customer who requested the name and address of a supplier in order to recommend them to a charity retailer, who could then sell the product at little more than cost instead of the recommended retail price. Some retailers deal with the situation by offering better value for money or by stocking different products from those sold in the charity shops. Although many of these problems of similar stock do not affect the small shopkeeper the perceived competition is felt by the majority, who may like to see restrictions on rate relief for charity shops:
The fact that these shops get so much help in terms of rate relief, a volunteer workforce etc. upsets small businesses, especially in times of hardship when all are struggling, its deemed to be an unfair advantage and we would like to see restriction on rate relief for charity shops. (complaints by retailers to a Scottish chamber of commerce) cited in Ellis (1996, p. 56).

Competitive advantage
The rise in the number of charity shops was a sudden phenomenon and the idea of competitive advantage is not one which established retailers feel comfortable with. The charity shop image has changed,

Comments such as these illustrate the strong feeling of small retail businesses, though many say that they have no objections to the 160

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genuine thrift shops. It would appear that the criteria for determining business rate relief within charity shop categories II and III are ill dened (Ellis, 1996). There is disparity across the country in terms of what constitutes the percentage ratio of donated to bought-in goods for example. There is every reason to suppose that competition with other charities will continue to increase for goods, workforce and customers as will competition, perceived or otherwise, with established retailers.

The future
The situation for charity shops at present is a polarisation of operations, with the autonomous charity shop on the one hand and on the other the large charity chain. Individual shops fundraising for a specic cause such as a childrens hospice see a solid and fruitful future. By their nature they hold a niche market that is likely to grow. The large chains of charity shops, however, fear the imposition of VAT on donated goods and the loss of their business rates relief. Many of the smaller but nonetheless successful smaller operations see the need to move forward and increase their operations, but hesitate to change what is doing well. In the words of one retail director, we wish to go up market, go forward but dont want to change what is doing well. Many charity fundraisers, both in press and in private have discussed the possibility of developing branding in order to differentiate the charity in the mind of the donor of goods, the customer and the volunteer alike. This brand image is established by the larger charities with Oxfam, for example, often being used as the generic name for a charity shop, but in order for other less well known charities to develop shop branding the retailers have to offer a distinct service. In order to do this it is acknowledged by many that this will entail knowing their customers like the back of their hands, something which few charities do at the moment. One suggestion put forward for the future is that of joint ventures in retailing. This could take the form of charities pooling resources and working together or the joining of an established retailer with a charitable organisation. Although this has been mentioned as an idea for the future it holds many pitfalls which need careful consideration before any such venture is undertaken. A word of warning

from one large trading charity was that in a joint venture with a business it is the charity that often comes off worse because it is too soft, not aggressive enough. This would imply that the business would be the dominant partner rather than the partnership being mutually benecial. The charity shop phenomenon of the past decade has become a recognised retail format which has the ability to promote a social conscience and social equality, and is concerned with the environment and fair trading. These attributes provide the potential for a competitive edge over established retailers which, if used wisely, could serve to increase competitive advantage. Charity shops, therefore, have the potential to be an excellent form of fundraising for the charitable cause and an increasingly challenging retail format.

References
Charities Digest (1995), 101st edition, The Family Welfare Association, London.
Cohen, J. (1995), An examination of a customer prole: a study of Oxfams customers in Stirling, Unpublished nal year dissertation, Department of Marketing, University of Stirling. Ellis, J. (1996), Charity shops: friend or foe?, Unpublished nal year dissertation, Department of Marketing, University of Stirling. Federation of Small Businesses (1995), Trading in a jungle of unfair competition, The National Federation of Self-Employed and Small Businesses Ltd. Horne, S. (1995), Lattivita commerciale nelle organizzazioni non prot e il sistema impositivo: il realizzarsi della concorrenza, Diritto and management degli enti non commerciali, pp. 609-17. Horne, S. and Broadbridge, A. (1993), From Rags to Riches: A Classication of Charity Shops, Working Paper 9302, Institute for Retail Studies, Stirling University. Horne, S. and Broadbridge, A. (1994), The charity shop volunteer: greatest asset or biggest headache?, Voluntas International Journal of Voluntary and Non-Prot Organisations, Vol. 5 No. 2. Horne, S. and Broadbridge, A. (1995), Charity shops: a classication by merchandise mix, International Journal of Retail & Distribution Management, Vol. 23 No. 7, pp. 17-23. Local Government Finance Act (1988), HMSO, London. Phelan, D. (1996), High street wars hot up, NGO Finance, Vol. 6 No. 3, pp. 18-28. Rating Charity Shops Act (1976), HMSO, London. St Leger, M. (1993), Shops operated by the top 400 charities, in Saxon-Harold, S.K.E. and Kendall, J. (Eds), Researching the Voluntary Sector, Charities Aid Foundation, Tonbridge, Kent.

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