Goodwill: Doing Good While Doing Well

How Goodwill, one of the nation's largest charities, has designed its operations to support a healthy triple bottom line.

Introduction

It is clear that Goodwill Industries International, a large charity providing job training and community services, is out to do good. But increasingly, the organization—funded primarily by a network of self-sustaining non-profit thrift stores—has also been doing well. With $3.94 billion in retail sales from more than 3,000 stores run by local Goodwills, the non-profit is a major player in the resale/thrift store space. [1] It has reached 42.6% market share and 92% brand recognition in an industry that has grown 2.3% annually since the Great Recession. [2] For context, Goodwill’s annual sales would have put it in the top 100 retailers in the United States in 2014. [3]

But Goodwill’s success is not confined to its financial performance. The organization also provided support services and training to 24.4 million people and placed 318,000 individuals into jobs in 2014; moreover, each year it diverts 2 billion pounds of goods from landfills. [1][4]

Goodwill’s Business Model: A Self-Sustaining Triple Bottom Line

Goodwill’s business model is one of the earliest examples of a social enterprise. In the words of Jim Gibbons, President and CEO, “Goodwill… follow[s] a business model that at its core is based on values that promote the common good. Basically, we’re committed to three goals, by which we measure our business’ success: (1) Empowering individuals in the communities we serve; (2) ensuring a self-sustaining community enterprise; and (3) having a positive impact on the environment.” [4]

Put simply, Goodwill delivers on a triple bottom line by funding its services not through grants but with revenues from self-sustaining thrift stores, which sell donated items that might otherwise end up in a landfill. Donors give second-hand goods and apparel to Goodwill, which prepares (or repairs, as needed) them for resale in its stores. Goodwill derives 66% of its revenues from these retail stores, compared to only 2-3% from donations (the rest come from government contracts). [5]

Goodwill’s Operating Model: Alignment with Business Model

Goodwill’s operating model is based on in-kind donations, independent stores, and integration of its goals in daily operations.

Goodwill sources goods from local donors. As a result, it does not need a large-scale network of distributors and suppliers to stock its shelves. Donations—which are often dropped off—dramatically reduce the cost (financial and environmental) of transportation. Accepting donations also means Goodwill does not need to invest in delivering a consistent set of merchandise in predictable sizes for each store. Indeed, part of the appeal for consumers is “the fabulous fashion and exciting finds at Goodwill stores,” where items are unique and the shopping experience is akin to a treasure hunt. [6]

Macklemore & Ryan Lewis’s Hit “Thrift Shop” immortalized the “treasure hunt” appeal of the secondhand store

In addition to driving sales and lowering costs, Goodwill’s donation model also allows it to operate as a decentralized network. Goodwill Industries International is actually a collection of 165 independent Goodwills, each of which is its own non-profit social enterprise. [4] Autonomy allows Goodwills to adapt to local markets. For example, some locations “have opted to forgo the more traditional secondhand storehouses to open sleek resale boutiques” [2].

A “Boutique” Goodwill located in Orange County, CA [2]

oc boutique

Others employ targeted donation strategies, like in New York City, where the local Goodwill partnered with Uber “to pick up donations from apartment-dwell[ers]…a demographic that has a much harder time donating…than car-owning suburbanites.” [2] Goodwill also thinks locally in designing employment programs: branches assess their market for in-demand skills and adjust training plans accordingly.

Goodwill embraces operational practices that balance its goals. It hires unemployed workers to run stores and expressly encourages turnover: “we’re…happy when we have a talented team member leave us for a new, bigger, better opportunity.” [7] Goodwill will invest in labor at the expense of automation; for example, San Francisco’s branch does not have an automated inventory system, preferring a model where employees stock shelves and re-arrange merchandise by hand [8]. But Goodwill does also weigh some opportunities for employees against its commitment to self-sustaining stores. For example, many Goodwills forbid employees from getting “dibs” on merchandise, as this might undermine the stores’ appeal to other shoppers [9].

Ultimately, Goodwill’s operating model—driven by donations, decentralization, and balancing its goals—enables a self-sustaining, internally consistent organization. According to the director of Wharton’s Social Impact Initiative, “it’s impossible to overstate how important that is, because many nonprofits lack that kind of stability, and they are really scraping by each year. So any time you can get some stability, and get some vision in to the future, you are able to do things a lot more effectively.” [7]

Sources:

[1] http://www.goodwill.org/about-us/

[2] https://www.ama.org/publications/MarketingNews/Pages/goodwill-retail-thrifty-business.aspx

[3] https://nrf.com/2014/top100-table

[4] https://hbr.org/2011/10/the-good-business-model-at-goo

[5] http://www.youphil.com/en/article/06116-james-gibbons-goodwill-as-the-original-social-enterprise?ypcli=ano

[6] http://www.huffingtonpost.com/margaret-teich/goodwill-good-clothes-and_b_126538.html

[7] http://knowledge.wharton.upenn.edu/article/charitys-hybrid-vehicle-how-goodwills-dual-model-succeeds/

[8] Interview with Samantha Wyman, former Special Assistant to the Board, Goodwill of San Francisco, San Mateo, and Marin.

[9] http://www.goodwillsouthernaz.org/faq/

Goodwill Logo from: https://d3ui957tjb5bqd.cloudfront.net/uploads/2014/02/logo_goodwill-560×112.jpg

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12 thoughts on “Goodwill: Doing Good While Doing Well

  1. Jennie, super interesting write up. Specifically, I wasn’t aware that Goodwill operated its own boutique outlets in addition to thrift stores. Given goodwill is clearly operating like a business, I wonder if the company also thinks about brand building and marketing. One of the challenges a company like Goodwill faces, in my mind at least, is the perception that it is an old, hand-me-down thrift store – not necessarily a place millennial’s are looking to go thrift shopping. Moreover, outside of positioning its retail thrift outlets, I would be interested to know how the company thinks about branding and marketing the non-profit work that it does. As I read this, I kept thinking to myself – what exactly does Goodwill do?!?!

    1. That’s a great question! I left out of this posting anything about “marketing” that I thought wasn’t directly related to their “operating model” (although sometimes it’s really hard to draw that distinction). For example, here’s an interesting article about how Goodwill is trying to re-brand itself as a hip, fun place to shop, and shake off that image you mentioned (of being an “old, hand-me-down thrift store”): https://www.ama.org/publications/MarketingNews/Pages/goodwill-retail-thrifty-business.aspx

      Some of the Goodwills have thought of really creative ways to tackle the branding challenge (including the boutique branding). Another example is this blog, which is written by the DC Goodwill about awesome “diamond in the rough” finds at the local store–it is meant to drum up excitement for shopping there and it is apparently working! http://www.fashionofgoodwill.org/blog/

  2. Really great write-up Jennie – fascinating insight into a familiar brand that nonetheless operates a bit under the radar.

    How does Goodwill think about competition for donations vs other donated goods retailers (Savers, Value Village)? Are there any marketing/branding steps that the company takes to set themselves apart particular from for-profit donated goods solicitors, or are they generally content just to take things as they come?

    Also, does Goodwill partner with other regional non-profit partners in soliciting & monetizing donated goods? If so, how?

    1. Damola! I’m stumped. I’m not sure how they are positioning themselves relative to for-profit donated goods solicitors–will have to look into it. Great question.

      My best guess on your second point is that there are partnerships that are being organized by the local Goodwills. I read some examples of specific branches across the country doing interesting things with partners (e.g. fashion shows, competitions, etc.) to drum up interest but my sense is that this happens branch-by-branch rather than nationally (this goes to Schuyler’s question below about what exactly it is that corporate Goodwill does, which was something I need to look into more as well).

      Thanks for the good ?s!

  3. Thank you for the article and for providing insight into how Goodwill actually creates value! I love their business model and the social impact that the organization strives to create. One of the nonprofits that I was involved with back in Mexico (a healthcare nonprofit) had some conversations with Goodwill about the possibility of partnering with them in order to become self-sustainable. In other words, this Mexican nonprofit would operate Goodwill stores in Mexico so that a % of the contributions would be used to fund their operations and depend less on declining donations. Two obstacles prevented them from going forth with the partnership: 1) the Mexican informal apparel market – which happens in the street and needs little real estate – already provides a place for donors to give their clothes and for future users to purchase them at even lower prices than Goodwill 2) as one organization whose business model was geared towards outpatient healthcare it would be extremely difficult to operate the number of stores they needed in order to break even.

    I did think, however, that in theory this represented a very interesting value proposition and I wonder how Goodwill may be able to leverage its knowledge and capabilities in the future to help other growth stage nonprofits with their funding needs.

    1. Really thought-provoking comment GZA. I find the example you gave of the Mexican non-profit to be really interesting. One of the things I thought was kind of strange about Goodwill as I researched it was the fact that their thrift store operations (besides offering employment opportunities in the stores) don’t actually seem to have anything to do with their core “charitable” function of providing tailored, targeted job training in local markets. The idea of a healthcare non-profit operating thrift stores is even more striking in that regard, which I think is driven home by your point #2 on why it failed (thought obviously the local context in point #1 is also really important). And yet, Goodwill seems to be making this disconnect work–will have to do some thinking on why.

      Also, I find it surprising, actually, that consumers aren’t more turned off by a disconnected model like this, where the core operations of the funding sources (the stores) are so different from of the core function of the non-profit itself (job training). It’s such a contrast from companies like TOM’s, where the donation/purchase is clearly linked to the associated charitable service. Learning about what Goodwill does actually made me feel less excited about donating my clothes (I had been under the mistaken assumption that they were being bought cheaply by people who needed them–however, that’s obviously not really how this works). Being two steps removed from the charitable impact of my donation makes me personally feel less good about donating, but I guess Goodwill’s success means not all consumers have this problem.

  4. Jennie,

    This is a great write-up! I was actually shocked to read that Goodwill’s annual sales would have put it in the top 100 retailers in the United States!

    Your piece does an excellent job of explaining how Goodwill is able to deliver through its focus on the triple bottom line. In one of the comments above, Elliot shares his perception of Goodwill as place with an older reputation that might not particularly resonate with millennials. My question to you is whether you think Goodwills business model will still be able to stand out as more Companies begin to advertise the focus they also have on the triple bottom line. Do you think social enterprises, and more narrowly those in the clothing segment, will begin to compete with one another in a “winner takes all” type of way? My hunch is that a lot of people want to make some effort to support social enterprises that do good, but don’t want to give all their attention or money to these types of businesses. For instance, is Goodwill competing more directly against TOMS than it is Wal-Mart? I could be totally wrong, and would love to get your thoughts.

    Thanks again – great job!

    1. I think this is a fascinating question. I agree with you completely that the willingness of consumers to support social enterprises seems to be finite. And I wonder if that problem will only be exacerbated by the fact that some strains of thought around social enterprises like Tom’s seem to have turned negative recently; I’m not sure how long it will be considered an unquestionably good thing to donate goods to developing countries, as documentaries like Poverty, Inc. start to raise questions about the potential of such donations to depress local economies that might otherwise produce those goods (e.g. cobblers can’t make shoes where Tom’s is making its donations because there is no market for them).

      At the very least, it’s not clear to me what the answer to your question re: Tom’s vs. Wal-Mart is. If I had to take a stab at guess, I’d think perhaps it actually depends on whether you’re looking at supply or demand. I think Goodwill is in competition with other non-profits and social enterprises for what goes into the business (donations). In this regard, I think it does have a sustaining advantage in that it’s not asking for money but rather for in-kind donations of clothes and appliances, which the consumer often wants to get rid of anyway. I think Damola’s question on how it can compete with for-profit resellers is really interesting here.

      But as for Wal-Mart, I think I see Goodwill competing with them more on the demand side, i.e. for retail customers. But even there, I think Goodwill might be in a slightly different space, because it offers unique goods and a “treasure-hunt” experience, which can appeal to a different customer base (and maybe even a more profitable one) than the more utilitarian, “every day low price” Wal-Mart. But I agree that as more and more companies claim the triple bottom line, Goodwill may see pressure from both the supply and demand sides!

  5. Fascinating to learn about the size and scale of Goodwill. I had no idea. I been on the donation side and on the consumer side of the business, and feel that over time they have enhanced the presence of their stores. Things are cleaner, more organized than a decade ago – that has a big impact as well on the overall consumer experience. Great post.

    1. Thanks! Interesting observation–seems to jive with what I’m reading online about their efforts over time to spruce up stores.

  6. Hey friend–very interesting. I’m curious how Goodwill International makes money–do they take a % of sales? Franchising fee? What actual value does the umbrella org give to the stores, given their autonomy?

    Best,
    Schuyler

    1. Great question. I’m not actually sure. Since the branches operate so independently, it’s possible they are funding headquarters just out of the 2-3% of overall revenue that is “donations” to Goodwill, rather than taking a cut from the stores, but I honestly don’t know. Will look into it. As for the value of the national organization, this was something I was asking myself as well. Obviously there are reasons why Goodwill can afford to operate so independently while traditional retailers can’t, but it seems that it must still have some need for a central organization (or at least enough of a need to justify one’s existence). I’m not exactly sure what that is but that’s something I’d like to look into as well.

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