Charity shops cash in

Britain's retailers are having a hard time, with a number of well-known chains such as Habitat, Blacks, Peacocks and Game feeling the pressure. Clinton Cards has announced the closure of all its shops, and vacancy rates in some places run as high as 30%. The multiples closed 14 shops a day last year, and replacements are not springing up to fill the gaps. There are whitewashed windows everywhere.

Our high streets would look a whole lot emptier, however, were it not for charity shops. Last year, their sales rose 3.6% to £974m. There are more than 9,000 of them, and they are growing in number - and ambition - all the time, benefiting from people's taste for bargains and their increasing willingness to wear other people's clothes (the fashion for 'vintage' has no doubt helped).

Sue Ryder, for instance, runs a network of hospices and nursing homes across the UK. It has 399 shops. Some of them are frankly shabby, but it is working hard to bring them up to the standards expected of a modern retailer. The store at the lower end of the High Street in Cheltenham, Gloucestershire is a good example. Light, airy, with white walls and new shopfittings, it stocks men's, women's and children's clothes, bric-a-brac, electrical items, books and DVDs, but also devotes half of its 3,000sq ft floor space to furniture, secondhand and new.

It is quite busy when I visit. An old lady is trying on a pair of shoes. A plump man in ill-advised shorts and sandals is flicking through a rack of trousers. A determined-looking woman is flicking some cut glass with her fingernail, listening to the ring. At the till, Josh, a diffident 17 year-old who has dropped out of school and is volunteering while he looks for paid work, counts the coins a customer has fished from her purse to pay for a book. In the furniture department, a group of schoolchildren on work experience are sitting at a dining table, comparing notes.

In the sorting room at the back, tattooed Sharon, 39, a paid sales assistant, is busily unpacking donated children's games. At the same time, she keeps an eye on volunteer Cheryl, who is unloading a bag of clothes. A shy woman also of 39, Cheryl tells me that she came to the store in April after suffering illness and being unemployed for a year. She is happy in the back room for now. When her confidence returns, she may gravitate to the shop floor. 'When she first came here she was so nervous,' explains Sharon, who began as a volunteer herself. 'She thought we were going to bite her head off.' Then Tony comes in. A smiling, affable black man of 32, it turns out he is a prisoner at a nearby open prison, here on a rehabilitation scheme.

The sorting room is the engine of the operation, piled high with donated bags of clothes. All the clothes are examined, priced and steamed. Priority goes to bags that carry a label saying they have been gift-aided (the charity can claim 25p from the taxman for every £1 worth of goods donated). Dirty and damaged clothes are put aside for a weekly collection by rag merchants, although that is something of a misnomer: the wholesale textiles companies sell on most of the rejected clothes to be worn in the third world (80% of Africans dress in second-hand clothing), leaving only a residue to be recycled into cleaning cloths or furniture stuffing.

The charity, which made £8.2m last year on sales of £35m, plans to expand to around 500 shops by the end of 2015. It is by no means alone in being ambitious, although different chains have different approaches. British Heart Foundation (BHF) is now the biggest charity retail operation in terms of sales (£165m, on which it made a net profit of £31.2m) and number of stores (more than 700). Every year, it opens 10 standard shops selling clothes, bric-a-brac and books and about 30 big furniture and electrical stores, occupying units vacated by supermarkets and the like.

In contrast, Oxfam (sales £88m, profit £26m), which invented the modern charity shop in 1948, is pursuing a different model, with many of its 700 shops beginning to specialise. As well as book and music stores, it has fashion and 'vintage' clothing boutiques, furniture stores and bridal shops. Every summer it sets up shops at music festivals, gathering clothes from its stores across the country to appeal to the young and trendy.

Save The Children (sales £8m, profit £1.7m) has a different model again. In addition to its 130 standard shops, it now has five shops branded as Mary's Living And Giving, and plans 35 more. Created by television retail guru Mary Portas, these are stylish, sophisticated outlets in well-heeled locations, selling new goods donated by designers including Chanel, Ralph Lauren, Stella McCartney and Vivienne Westwood. Save The Children also sells donated new clothing - end-of-range clothes, samples, etc - through concessions run by Hallett Retail in Beales department stores around the country.

Charity retailers are increasingly using the internet. Many sell new goods through their own sites. Some have eBay shops. As I write this, BHF is attracting bids upwards of £1,350 for a Cartier lady's watch. Oxfam puts donated items on its own site: volunteers in the branches photograph them, upload them, then pack and post them when they are sold. 'The volunteer model really helps us,' explains trading director Andrew Horton. 'If it was a paid model it wouldn't really work.' The site currently turns over about £2m a year.

Charity shopping has become fashionable, and acceptable across the class spectrum: some 55% of people use the shops. 'I think in recessionary times people who are hard up need a bargain, and people who aren't so hard up want a bargain,' says Mike Lucas, retail director of BHF. Charities must maximise their income, and donors want them to get good prices, but many poorer customers use the stores as a source of everyday clothing for themselves and their children. Prices are generally set locally: the average transaction brings in £6.50. 'Every shop prices product based on what the people in that community can afford,' says Chris Coe, retail director of Save The Children. 'Whether we are running a shop in Redcar or Primrose Hill, the customers in each of those shops will believe they have had exceptional value for money for their purchases.'

In the back room of that Sue Ryder shop in Cheltenham, which processes 850 garments a week, knitwear, for example, is swiftly allocated to one of three price bands: 'supermarket' (£2.95), 'average' (£4.50) and 'high quality' (£6.95), which includes the designer-label gear sought after by discerning shoppers and popular with shoplifters (charity shops can't afford security tagging). At the same time, volunteers keep a lookout for exceptional items that can be sold through other channels. One bag that came into the branch contained what looked at first sight like 'nasty gold costume jewellery': it raised £600.

As well as flogging donated items, most charities also sell new goods that they have bought in. Some of it makes sense (Oxfam concentrates on fair-trade goods and ethically and environmentally sourced gifts, intended to align closely with its values), some less so. Sue Ryder, for instance, sells wooden dolls' houses, balls of wool, jigsaws, boiled sweets, statues of the Buddha and ukuleles. There's a new £299 saxophone in the window of the High Street Cheltenham shop. Even retail director Heidi Travis seems at a loss to explain what some of these things are doing there. The reasons are, she says, 'historic', but they represent an 'established business' that is difficult to walk away from.

The sale of bought-in new goods can never be more than a sideline for the charity shops (donated new goods, like those sold in the Mary's Living And Giving shops, are a different case). Apart from anything else, it violates the legal status under which they are granted an 80% reduction in business rates (and more, at the discretion of local authorities).

That rate discount is controversial, with some blaming it for the plethora of charity shops in some towns. Mary Portas has a strong relationship with Save The Children, but in her review of the high street, conducted at the behest of the Government, she said start-ups, not charities, should be the priority for rate discounts. And the Welsh Assembly is considering a proposal to reduce the rate relief to 50% for some charity shops and limiting the number of shops eligible in any one area. There is also a belief, hotly denied, that demand from charity shops is keeping rents high and pricing independent retailers out of the high street.

Charity retailers insist that they are good for town centres and that they don't put anyone out of business. That's the result of out-of-town shopping, all-conquering supermarkets and the internet. 'I worked in commercial retail for 25 years,' says Oxfam's Horton, 'and never once in a conversation were we ever concerned about competition from charity shops.' My local secondhand book dealer disagrees, however, and you can see his point. Charity bookshops might not be able to find the precise book you want, but if you just want 'something to read' at £1.50 for a paperback they do the job. And the sales of all those new greetings cards, gifts and fancy goods must be coming at someone's expense.

Charity shops make good money for their parent organisations because their costs are low. There is that rate discount, they don't pay for most of their stock, and their staffing costs are lower. They all have paid head office staff and field managers, increasingly with a commercial retail background (Jo Evans,a Sue Ryder area manager, for instance, came from a management post with Arcadia), and almost all their store managers are paid. But volunteers are fundamental to the charity shop model. BHF has 24,000, Oxfam has 23,000, Sue Ryder has 9,000 and Save The Children has 3,500.

Volunteers work on the shop floor and in the back room, staffing the tills and sorting the stock. They collect furniture and do paperwork. And if there was ever a volunteer type - the retired lady, perhaps, or the stay-at-home mum - that is no longer the case. They are younger than they used to be, and come into volunteering for a wider range of reasons. They may be retired and looking for company and something useful to do; they may be between jobs; they may have some family connection with the cause. Increasingly, they tend to be 16 to 24 year-olds, looking for permanent work but hoping to gain experience and something to put on a CV. They may be working towards a Duke of Edinburgh award. They may have special needs. They may be the infamous Neets, kicking their heels. They may be ex-convicts, or prisoners on temporary release. Or, most controversially, they may be claimants sent along on one of the Government's many 'back to work' schemes for young people and the long-term unemployed.

There are sharp divisions between the charities on these. Oxfam won't touch them. 'We want volunteers who enjoy volunteering,' says Horton. Where there's an element of compulsion (which, it must be said, the Government denies) 'it affects the morale of the rest of the shop team'. Save The Children is also reluctant. 'We want people to volunteer for our shops because they want to,' says Chris Coe. It will take prisoners, but only at the discretion of the local shop leader: there is no national drive to do so.

In contrast, BHF takes people from Government schemes, providing they interview well and are 'keen to do it and motivated to do it'. Sue Ryder also casts the net wide. It uses people on the 'workfare' schemes. It accepts prisoners on the Release on Temporary Licence scheme and trains them up to assistant manager level, which includes working on the tills: each of its four Cheltenham stores has one. And it recently advertised in its stores to encourage Neets to come forward ('A NEET solution', said the poster).

Naturally, the retail directors speak highly of their volunteers: 'A very, very committed bunch of people,' says BHF's Lucas. 'Exceptional people,' says Save the Children's Coe. However, charity shops are increasingly staffed by people who are potentially challenging to manage. They not only lack retail experience but in some cases also lack work experience. 'Some,' says Evans, 'are not capable of working in a normal environment.' The shops pride themselves on being supportive. 'We try to find out what they really enjoy doing,' says Debbie Stacey, manager of Sue Ryder's High Street, Cheltenham branch, who supervises 25 volunteers aged from 16 to 80-plus. 'Some prefer not to be with the public; they prefer the back areas. You need to be prepared to spend more time with them, a bit more than you would with someone else. You have to let them settle in more slowly.'

'It's the hardest leadership challenge that I've ever had, but also the most rewarding,' says Save The Children's retail director. 'Because as a volunteer, you can just say 'Well, sod you, Chris Coe, I'm going to resign.' What it brings out is the best leadership qualities, the best management qualities, because you can't impose your will on a volunteer.'