Trouble on the high street: how charity shop profits have started to drop

01 Oct 2016 In-depth

This year’s Charity Shops Survey shows a sector facing a difficult trading environment and a decline in profits, finds David Ainsworth.

For charity shops, the year to March 2016 was the toughest for a long time, according to this year’s Charity Shops Survey, published for the 25th year by Charity Finance in association with Fundraising magazine.

The survey received 75 responses from charities operating 6,933 shops, with a total combined income of £847m. Respondents included all of the UK’s largest national shops chains, and the survey covers around twothirds of the UK’s charity shops. The figures covered charities’ most recent financial years, which in the case of most respondents was March 2016.

The survey found that staff costs and rent had risen sharply. Volunteering hours were down. And the sale price of recycled clothing (“rag”) dropped further.

All of this led to a sharp drop in profits for the sector as a whole – a fall of 11.6 per cent compared to the previous year. This is a real-terms drop of more than 12 per cent, and an underperformance of 14 per cent compared to the wider economy.

These figures follow a decade of rapid growth, in which the shops sector consistently outperformed inflation and the wider economy, although there were signs last year that the juggernaut was starting to slow.

Charity shops, it appears, do better in economic downturns. This year’s drop in fortunes comes in the first real year of strong consumer confidence since 2008. Staff wages, depressed by a lack of alternative work in recession, are bouncing back, while consumers are heading back to more expensive high street alternatives. Volunteers are in some cases finding paid work. And a stronger demand for retail properties, even on the high street, means landlords can afford to raise rents.

Shops remain extremely profitable, however, posting a profit margin of more than 20 per cent. This is perhaps unspectacular as far as charities are concerned, but for most companies, it would be viewed as extremely healthy.

Perhaps this is why, despite a tougher environment, charities continue to open more shops than they close. This survey once again contains a record number of shops, up a little under 2 per cent on last year. It is not clear if this trend will continue in the face of a tougher environment.

A drop in shops profits should not be viewed as too negative a thing. They are victims of circumstance: people spend less in charity shops when they have more money and can afford more expensive alternatives. Charity shops should expect to become less productive just as fundraising and contract income pick up.

National Living Wage

The minimum wage has never been a significant factor in the world of charity shops, but there are signs that it is about to become one.

Charity shops pay their managers an average of around £8.70 an hour, well over the £7.20 minimum imposed by the chancellor early this year. But if lower paid staff are affected by this new minimum, shop managers’ salaries may have to rise to compensate. And the government’s promised National Living Wage is set to be around £9 an hour by 2020, so shop managers will eventually be caught by it.

Charities seem to be taking on less staff in order to compensate, but despite the number of workers per shop going down, wage bills are still up 7 per cent.

Historically, charities have listed the minimum wage as bottom of a long list of concerns, with availability of stock and volunteers usually at the top. This year, however, staff costs have risen almost to the top, and the minimum wage has climbed to mid-table, suggesting salaries are about to become a big issue for the sector.

Type and location of shops

One factor in the growth in shop numbers is a rise in specialist stores – those selling things such as furniture, books and electrical items – and off- high-street stores, about which the survey asked more questions this year.

We also now know such details as: the average size of a charity shop – around 1,000 square feet; the average spending per head on training – around £67 a year per member of staff; and the hours contributed by part-time workers – 35 per cent.

In terms of geography, new questions in this year’s survey make it clear that there are effectively two types of shop chains: those which operate nationwide, and those which operate only in a very local area. The two groups have very different traits.

And some areas of the country appear more popular than others. There are far more charity shops per head of population in South East England than there are elsewhere in the UK.

To purchase the Charity Shops Survey 2016 click here.

More on

We use cookies to ensure that we give you the best experience on our website. Read our policy here.