With the Q2 2023 results from Savers Value Village, Winmark (the holding company for Plato’s Closet and Play It Again Sports), and ThredUP--in combination with our visitation data--we see that the thrift store theme that we've discussed several times this year continues to resonate. The consumer trend extends across brands, geographies, and channel--both brick & mortar and direct-to-consumer--but not all categories with Play It Again Sports’ traffic down -10% (a category that is struggling against a higher period base established during the pandemic).
In terms of geographies, below we show Plato’s Closet for several states where the brand has a large number of stores and see that the trend is consistent. For Q2 2023, Winmark reported royalty revenue per location up +6%, or in line with traffic; royalty revenue is proportional to franchisee sales. Savers reported a comp sales increase of +5.6% and a comp transaction increase of +6.6%, with a similar increase expected for the balance of the year.
As to Savers’ quarter and its profitability (a topic we've touched on in comparison to other retail categories), operating margins of 18.2% represented +100 basis points of margin expansion year-over-year. The company's SG&A expenses leveraged by 155 basis points, driven by scale efficiency, expense control, and its self-checkout initiative. Thus far during Q3 2023 (July/early August), management cited consistent trends with 2Q’s results, with U.S. basket trends starting to show slight growth year-over-year, which is coinciding with continued strong transaction growth.
Looking forward, Savers provided expansion plans, including 22 new stores next year and more than 25 per year beyond. Management views the secondhand market as a growth industry and the brand and footprint being vastly underdeveloped. Compared to the current footprint of 318 stores, management’s long term store target is 2,200, or 7x its current base. The graphic below from its IPO filing shows how Savers is positioning itself.
Source: Savers Value Village Inc. S-1
In support of the view that secondhand and resale retail is a growth market, ThredUP signed TOMS, J. Crew, and others this quarter. ThredUp produces some good data on the size and growth of the secondhand apparel and fashion market, which we show below. Given that Gen-Z and Millennials make up about 60% of the growth in demand, they weight prominently within the category. These are the consumers that are going to be most impacted by the restart of student loan payments in the fall. As such, watching the traffic trend at the secondhand brands is going to be a critical tell for how younger consumers are adjusting to the restarted approximate $300 per month payments. Should traffic gap up for secondhand retailers in September, October, or November, that will indicate consideration and spending on secondhand is up, which likely means that for these consumers, spending at Anthropologie, Altar’d State, Express, Revolve, and other brands is down.
For Q2 2023, thredUP reported an improvement in new buyers and orders per buyer, after four quarters of waning momentum, with revenues above plan. ThredUP CEO James Reinhart shared, “June was a little better probably than it had been in previous years. And I think quarter-to-date, I think we're seeing the sort of same patterns we've seen in previous years, and you're really starting to see back-to-school kick in now. I think that's sort of the story for the rest of Q3 2023. As for the budget shopper, we continue to see that, that is a customer that is more challenged, right? I think it's definitely a customer who's feeling the pinch across their discretionary purchasing power.” Management also shared that the lower-end consumers are still being under pressure and competitive intensity in the retail landscape remains high as inventory levels are still elevated, a dynamic that apparel brands have recently commented on as well.