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Charity shops temperature check

Written by Tom Collinge
April/May 2016

Charity shops are a high street institution. Since Oxfam opened the first charity shop in the UK in 1947, the number of charity shops has continued to rise. There were estimated to be just over 5,000 in 1997, which in less than 20 years has more than doubled to 10,300 today.

Currently raising approximately £290 million for good causes, charity shops have become an invaluable part of the sector’s funding mix.

Recently though, there have been reports of a slowdown in growth; so what are the issues for charity retail in 2016?

The living wage

Perhaps the most significant measure in his March 2016 budget, George Osborne’s National Living Wage (NLW) has massive implications for the entire retail sector, charity shops included. The increase to £7.10/h from £6.70/h for adults over the age of 25 came into force on the first of April and equals the highest ever previous rise. The wage is then supposed to escalate annually, based on 60% of the typical worker’s hourly salary and should reach £9.35/h by 2020.

The Third Sector Research Centre has estimated the NLW will cost the charitable sector around £500 million by 2020 with a large portion of that likely to be associated with charity shop staff salaries. While that is a significant figure, charity shops are actually better placed than most retailers to deal with the wage hike, due to the fact that most are responsible employers.

“There’s something in the region of 18,000 jobs in the charity retail sector and most of those are paid above the living wage anyway” says Robin Osterley, Chief Executive of the Charity Retail Association, indicating that while the costs are real there will not be a dramatic swing in wage bills through the NLW alone.

Business rates

In the same budget, the Chancellor chose not to change the business rate relief for charities, much to the relief of the sector. There had been some concern that, as part of his drive to totally devolve business rates to Local Authorities by 2020, George Osborne would tinker with the 80% of business rates that charities do not have to pay the so called statutory relief.

He did not and while this has been welcomed, there is still concern over the other 20%, the discretionary relief, which councils can set at whatever rate they choose between 0-20% and which is coming under increasing pressure. As the cuts bite, Local Authorities which find their budgets stressed are looking for ways shore up income.

Andrew O’Brien, head of policy and engagement at the Charity Finance Group says his organisation has seen “a clear link between those local areas which are receiving the biggest cuts and those looking to consult on business rates because they have a duty to maintain statutory services.”

When the choice local authorities are faced with is between cuts to charity shops or schools, O’Brien says, “we know where they’re going to land.”

Gift Aid

Over at HMRC, there has been a clarification of the rules around Gift Aid as they pertain to charity shops. There had been concern that the current rules could be interpreted to mean that charities had to contact people who had donated goods each time an individual item was sold to request the Gift Aid. This would have imposed a heavy bureaucratic burden, but thankfully, through working with the Charity Retail Association and other industry bodies, HMRC’s new guidance only requires charities to contact these donors once a year.

This fulfils charities’ legal obligation to provide donors with a right to refuse Gift Aid on their donation. The guidance also ended confusion over who was liable if a donor misrepresented their tax status (thus making them not eligible for Gift Aid), with responsibility being placed squarely with the donor, not the charity.

These changes have cleared up what was an intimidatingly complex system, especially for smaller charities, and means we should expect to see a growth in Gift Aid income through charity shops in the coming years.

Rag price

Income through ‘rag’ or clothes not sold in store but recycled or sold abroad has fallen.

Textile prices have been falling globally since 2013 and Alan Wheeler, director of the Textile Recycling Association says “downward pressure on prices for used clothing is inevitable for some time to come”. This price squeeze cuts income for charity shops and others in the supply chain, with Wheeler reporting that 23% of his members have gone bust since 2013.

To understand why this is happening one needs to look overseas. Most of the recycled clothing is sold abroad and as African and Asian economies grow, people in emerging markets are less keen to purchase second hand clothes. Indeed, importing recycled clothing is often seen as harmful to the local economy which explains a move by the West African states of Kenya, Uganda, Tanzania, Rwanda and Burundi to ban imports of used clothing by 2019. These countries account for 10% of the UK rag market so it is likely the impact on incomes will be noticeable.

Technology

With the shifting environment not entirely positive for charity retail, the good news is that charities are rising to the challenges they face. One of the key ways they are doing this is by using the opportunities afforded by modern technology, including shifting retail operations online.

British Heart Foundation, for instance, has the largest eBay store of any charity, which as Mike Taylor, retail director explains, allows it to: “Optimise the products that are inherently valuable and realise the value of things which are highly unusual”. For example, a reel to reel tape recorder could be worth hundreds of pounds to a collector but could find itself gathering dust in a local charity shop. A pallet of 1,920 make-up brushes would also be difficult to shift via the shop front but is currently the most valuable item on the BHF eBay store, priced £5,760 at the time of writing.

While British Heart Foundation runs its ecommerce through a central office in Leeds, smaller charities can take advantage through cloud based services, such as those offered by Cybertill, which allow staff in store to register items on eBay. Items can even remain on the shelves and potentially be sold in the shop right up until a buyer is found online.

Other digital technologies, such as barcode systems, have enabled charities to simplify both their pricing and Gift Aid administration. This is not only more efficient but the creation of electronic records also opens up a range of possibilities in terms of loyalty card schemes of the kind traditionally used by Tesco or Sainsbury’s. Such cards could allow donors and customers to be given feedback on the impact their donation or purchase is having and could even go as far as linking to other support the individual has offered the charity, such as through volunteering, regular gifts and fundraising activities.

The value of this integration is much more than monetary and perhaps heralds a new role for charity shops. One that is not only focused on generating immediate income for charities but one which helps build loyalty and demonstrate impact.

Tom Collinge is a freelance journalist



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