What the Goodwill closure means for nonprofit recycling

The sudden closure of Goodwill in Toronto and surrounding areas came as a shock to many who see the 80-year-old charity as the quintessential symbol of giving help to the poor. News of the closure has reminded us that even the sale of that used plaid shirt or copper pot can come under the same market forces that all retailers face — in this case, with more strings attached.

According to CEO Keiko Nakamura, this branch of Goodwill has been faced with low margins, decreases in donations, and declining revenues. Five years ago, auditors had raised concern about Goodwill’s ability to remain sustainable, at a time when they had just sold their last real estate asset and cut staffing to improve cash flow. The real reasons for their closure, however, are more complicated.

As a whole, the used clothing sector is an active and competitive industry with more players entering each year. Vintage clothiers, consignment shops, and collection bins are in no short supply. Some Goodwill branches across Ontario and Canada are in expansion mode. Mennonite Central Committee’s Thrift Shops generated $2.5 million in Ontario alone and $8.8 million nationwide toward their refugee, development, and peace-building work. Salvation Army, the largest non-government provider of social services in Canada, forwarded $11.9 million in profits to its poverty, addiction, and relief programs.

Circumstances of Goodwill Industries (Toronto, Eastern, Central, and Northern Ontario) are unique:

Goodwill provides a place employment for people with disabilities and many others who would otherwise be left out of the economy. They must maintain substantial overhead, including rent, vehicles, and equipment, in order to accomplish their mission. Unlike charities that only do as much as their funding allows, Goodwill has the burden of generating 85 per cent of its revenue from sales just to provide a place where they can train people in need. We’re also talking about long-term leases, building renovations, and insurance costs that they must commit to in order to win government funding.

Unlike healthy Goodwill branches, they have no building assets, face pressure from union demands, and are at the mercy of high rents in urban centres. Their declining clothing donations means that used goods are being attracted elsewhere—likely by for-profit recyclers such as Value Village, nonprofits that simply sell the goods overseas, or less scrupulous organizations who masquerade as charities.

Fierce competition among discount retailers — which is seeing the demise of even the giant retailers like Target and Sears — means that Goodwill’s success hinges primarily on its ability to process low-priced product very cost-effectively. When your goal is also to train less-skilled workers and fulfil government contracts, answering to more than one master can be tricky, especially when times are tight.

Charities generally are more transparent and accountable than for-profits. They produce audited financial statements, file public annual returns, and are under the supervision of a member-elected volunteer board. At the same time, their options for restructuring are limited because they cannot sell shares, secure traditional venture capital, or get “bought out.”

Moreover, government and foundations are uninterested in funding debt. Social Capital Partners identified that social-purpose businesses face challenges today because their business models are complex and financial options limited. Social enterprises need more dynamic and flexible funding sources that go beyond the traditional year-to-year grant funding and allow organizations like Goodwill to make a turnaround in an unpredictable and cyclical market.

The business models that are working are either highly volunteer-based grassroots operations in smaller communities such as MCC Thrift Shops, larger organizations such as Salvation Army that has resources to support a thrift store division, or for-profit retailers where the charity’s role is reduced to doing collection or being the hook for soliciting donations. If the financial for-profit incentive is not there, then religious commitment is often the glue and fire that helps these very tight operations remain sustainable in the long term.

Finding a reasonable solution: 

What can be done? Many groups have responded with concern, but as a community we should decide whether we want places like Goodwill. The organization has an extremely tough but important mission: to join with the most unemployable in society, and give them a chance to take pride in their work and feel they’re a valuable part of the community. It’s a cause worth fighting for, but donors need to be aware of where they’re giving — if they truly want to give to charity, they should compare reputable charities with retailers that may not be forthright with how much goes to charity or into the pockets of owners.

While it’s disappointing news for many, Goodwill’s closure is an opportunity to bring attention to a sector that is unprotected from private business, largely ignored by innovative funding and tax policy, and disproportionately affected by regulatory constraints. Over decades these charities generate their own funds to help thousands each year, provide valuable products and services to you and me, and result in huge environmental benefits to boot. It may be time to give them a hand up.