This thrift store is benefiting from consumers trading down
Rising inflation has pushed U.S. consumers to seek out deals and lower-priced alternatives, a trend clearly noted by companies like Amazon and McKinsey.
Savers Value Village (SVV) is capitalizing on this shift by expanding its thrift retail locations and emphasizing sustainable, budget-friendly shopping, although its performance in Canada is under pressure due to economic challenges.
Meanwhile, the company is investing in operational efficiencies to maintain profit margins and meet growing demand for affordable secondhand goods.
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With inflation persisting in the U.S. economy, consumer behavior changes are becoming entrenched.
The Federal Reserve has been aggressively raising interest rates to slow inflation, but Fed Chair Jerome Powell acknowledges that achieving the long-term 2% target will be challenging.
One of the clearest indicators of shifting consumer behavior comes from Amazon (AMZN).
In a conference call last year, Amazon CEO Andy Jassy noted customers are increasingly looking for deals and trading down to less expensive products.
McKinsey also reported that consumers are trading down to cheaper alternatives as they struggle to manage their finances.
This trend of “trading down” is impacting many industries as inflation eats into household budgets.
However, some companies can benefit from this trading down effect, especially those that offer cheaper products or services than their competitors.
Savers Value Village (SVV) stands as North America’s largest for-profit thrift retailer and continues to grow with the consumers trading down.
Over the past three years, the company has expanded from 306 to 344 locations across the U.S. and Canada, tapping into growing consumer interest in both sustainable and budget-friendly shopping options.
Furthermore, Savers plans to open 29 more locations this year alone.
This expansion happens at a good time. More shoppers are turning to secondhand items, both for environmental reasons and to save money.
Savers’ strength lies in its partnerships with nonprofits and local communities, which supply a steady stream of donated items.
This approach helps them maintain good profit margins while offering customers much lower prices than traditional retailers.
About 28% of Americans say they’re either “just getting by” or “finding it difficult to get by,” while roughly 32% of Canadians describe themselves as “struggling” financially.
These economic realities create a natural customer base for what Savers offers.
In the U.S., comparable store sales surged nearly 80% between 2021 and 2023, proving that value-driven shopping isn’t just a trend but a lasting shift.
But Savers isn’t just competing on price. Its focus on sustainability resonates with younger shoppers, particularly Gen Z, who are twice as likely to buy secondhand goods as older generations.
This gives the company an edge over traditional retailers, especially as environmental concerns influence purchasing decisions.
The in-store experience also matters. Unlike online resale platforms, Savers lets customers physically browse and inspect items, which builds trust and encourages repeat visits. All these factors combined enabled the company to achieve 70% Uniform return on assets ”ROA” and 24% asset growth last year.
However, Canada tells a different story. Higher unemployment, rising mortgage rates, and weaker consumer spending have hit the market hard.
Comparable sales there dropped 4.5% in recent quarters, with management expecting further declines.
This is a problem because Canada accounts for nearly half of Savers’ stores, and many of its customers in the region are lower-income households already stretched thin by inflation.
Performance in Canada caused the market to be worried, reflected by the stock trading at 11.2x Uniform P/E.
We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.
The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.
In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.
At the current stock price, the market expects the company’s ROA to decline to 42% instead of staying stable as Wall Street analysts predict.
Beyond opening new stores, Savers is investing in better operations that may cost more now but should save money later.
One key project involves developing centralized processing facilities away from retail locations. These facilities handle merchandise more efficiently.
The mature facilities already show lower costs per item, but expanding this system requires significant investment before the company sees all the benefits.
These operational improvements fit with Savers’ long-term goal of building a more efficient business that can grow to meet increasing demand for secondhand goods.
Savers focused on getting bigger while also becoming more efficient.
As prices continue to rise across North America, the company’s lower-cost options become more attractive to shoppers watching their budgets.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
