Used Merchandise a hit for Winmark®
Income for the Minneapolis owner of such franchise-based businesses as Music Go Round and Play It Again Sports is growing during recession
The recession may have battered most retailers around the country, but it has been a boon to business for Minneapolis-based Winmark Corp., which operates used-merchandise retail outlets in 48 states and Canada.
"This economy has been very favorable for used merchandise," said John Morgan, Winmark chairman and CEO.
The company operates four franchise based retail businesses — Play It Again Sports, with 351 stores; Music Go Round, with 35 stores; Once Upon A Child, with 234 stores; and Plato's Closet, with 247 stores. In all, the company has 867 stores.
Last month, Winmark posted quarterly net income of 22 cents per share, an increase of nearly 30 percent over second-quarter 2008 earnings of 17 cents per share. Total net income for the quarter was $1,195,300. For the first six months of 2009, net income was $2,609,000, or 49 cents per share, compared with $187,800, or 34 cents a share a year earlier.
Among the company's four retail brands, Morgan says the store that has benefited the most from the recession is Plato's Closet, which sells used clothing. Not only are more people willing to buy used clothing now, but they are also more eager to sell their old clothes to make a few extra dollars.
"It has been a fabulous business," Morgan says. "It's doing very well in this economy and the margins are very good."
Although Winmark focuses on used merchandise, many of its stores also carry some new items. About 30 percent of the musical instruments sold at Music Go Round outlets are new, and about 10 percent of the clothing, toys and other children's merchandise sold at Once Upon a Child is new.
Winmark's largest chain, Play It Again Sports, sells a wide variety of sporting goods, although only about 30 percent of its merchandise is used. "We can never get enough used sports equipment," Morgan says. "But our prices on new sports merchandise are very competitive with the other sporting goods chains. We're probably the largest seller of hockey skates in the world."
Focus on franchising
Winmark was founded in 1988 as Play It Again Sports Franchise Corp., and changed its name to Grow Biz International Inc. when it went public in 1993. Morgan joined the business in 2000 as chairman and CEO and immediately began to make some changes to try to help the business turn a profit.
"The company was very good at selling franchises, but it was still losing money," Morgan recalls. One of his first steps was to cut out the businesses that were losing money, such as Computer Renaissance, a retailer of used computer equipment.
The company also started weeding out franchises that weren't pulling their weight, and it became more selective in the new franchisees it added.
"We're no longer in the business of selling franchises — we're in the business of awarding franchises," explains Steve Murphy, Winmark president of franchising. "We want to make sure the franchisees have the financial qualifications to properly capitalize the business. We also look at their operations experience and their ability to work within the community to promote their franchises."
The cost of a franchise is $25,000, plus 5 percent of gross revenues from store sales. New franchise owners receive two weeks of training. "Improving franchisee training has been our primary focus the past few years," Murphy says.
The company has also boosted its marketing and merchandising assistance for franchise owners. "We have software and systems now that tell them how much they should pay for their merchandise, how much they should sell it for and how much of each item they should buy," Morgan says. "But, obviously, some of those decisions vary by region. Hockey sticks sell better in Canada than they do in Miami."
In addition to its retail business, Winmark also operates an equipment leasing division. "We use the royalty money we receive from the franchises to finance the leasing business," Morgan says. The leasing operation serves both small and midsize businesses. "We might lease a forklift to a small manufacturer or $1 million worth of computers and servers to a larger business."
Morgan has set modest goals for growth of the company's franchise business. "We're looking for high-single-digit growth of the franchises."
Winmark stock (WINA) closed Friday at $17.93 a share, slightly off its 52-week high of $19.49 and more than double its 52week low of $8.20. The company pays no dividend.
|