Charities & Retail: driving growth and increasing revenue
27 October 2016
In recent years charities have faced many challenges, including more demand for their services, a reduction in public sector funding, increasing competition for donors as the pressure on individual-giving grows, and the need to embrace and invest in digital technologies.
For those charities with retail operations, the shop chains are becoming an essential revenue and donation stream, with shop income contributing, in many cases, to between 25-60% of the total charity income. Charity shop numbers have been growing steadily for the past ten years and around 70% of medium to large charities expect further growth in their shop portfolios. With top performing charities generating an income of over £2,500 per shop per week, charity retailing is moving away from the traditional charity shop concept to becoming a commercial enterprise in its own right.
In order to succeed in this increasingly crowded and competitive market, some charity retailers are experimenting with new technologies and expanding their store offerings to better meet customer needs. However, charities shouldn’t lose sight of their core purpose, their brand and their support base and it’s critical for them to understand their donors and customers. More importantly, they should also ensure that their retail chains turn their income potential into actual profit which can be put back into supporting their main cause.
As charities have traditionally operated in a non-commercial environment, delivering profitable growth in a retail operation can be a challenge and could require adjustments to their organisation, operations and culture. In particular, it requires charities to increasingly embrace practices that are more typical of the private, rather than of the non-profit sector.
In our experience in working with charities who are looking to increase the revenue from their retail chain, there are some typical areas that need to be tackled.
Know your customers and donors
Charities need to understand their donors and the reasons why they donate to a particular charity rather than another, so they can maintain an active engagement with them. In a world increasingly dominated by fast fashion and consumables, it is also key to have reliable sources of corporate-donated new goods. This may mean developing staff at head office with the commercial drive to successfully establish corporate partnerships. In addition, the gathering of customer insight needs to become more sophisticated so that it can inform the retail brand strategy, category management, shop display and pricing.
Set the benchmark for your performance
Increasing revenue and profit margin need to be actively managed and setting a performance benchmark against other top-performing retail charities is a first step. Benchmarks, and the extent to which they can be applied to a specific charity, need to be carefully understood to make them relevant and realistic. However, what charities often struggle with is the set up and management of hard performance measures, supported by a robust process where corrective actions are routinely identified and implemented. This often requires a review of how shops are performing, and in some cases, making difficult decisions involving shop closures.
Manage your cost base
Cost management is a challenging task for most organisations, whether in the private or non-profit sector. One area where we find considerable hidden costs in retail charities is in stock distribution and replenishment. Without sophisticated inventory and till management systems, it can be a challenge to understand the replenishment needs of individual shops, both in terms of frequency and product mix. This data is essential to plan the end-to-end distribution activities and to strike the right balance between logistic costs and the availability of products in store.
These are just a few examples of the issues we typically find - obviously each retail charity is unique and will face a distinct set of challenges. But by understanding and identifying tangible opportunity areas for a charity to address, this will ultimately lead to their retail operation achieving higher performance levels and increased revenue.