Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Thrift Store Industry
Transcript
- Lucas: So, Luna, I've been digging into a corner of the economy that's actually booming in this stagflation environment — thrift stores. And I don't just mean the small vintage shops, I mean the big chains like Goodwill and Salvation Army. Their traffic is up double digits year-over-year. Luna: That makes sense on the surface — when inflation squeezes budgets, people trade down. But are thrift stores themselves immune to the cost pressures we keep talking about? Lucas: Not at all — and that's the interesting part. June CPI came in at 332.6, still up 3.5 percent annually. So while shoppers are flocking to thrift stores for cheaper clothes, the stores themselves are seeing higher rent, higher utility costs, and, crucially, higher wages for their workers. The average hourly earnings for private workers hit $37.60 in June. Luna: Right, because thrift stores employ a lot of people. So their cost base is rising, but they can't just raise prices like a regular retailer — their whole value proposition is being cheap. Lucas: Exactly. Goodwill's average price per item has gone up maybe 10 to 15 percent over the past two years, but that's still far below retail. The real story is how they're managing the supply side. Donations are actually down in some regions — because people are holding onto their stuff longer, or selling it themselves online. Luna: Oh interesting — so the 'inventory' that thrift stores rely on is tightening at the same time demand is spiking. That's a classic stagflation squeeze: higher demand, but constrained supply. Lucas: Precisely. And the data backs it up. Job openings in the broader retail sector were at 7.59 million in May — still elevated — so thrift stores are competing for workers too. It's a triple whammy: labor costs up, donations down, and operational costs up. Luna: So how are they adapting? Are they just accepting lower margins? Lucas: Some are, but others are getting creative. Salvation Army, for instance, has started pricing higher-end donations separately — think designer brands or vintage — and selling them on their own e-commerce platform. They're essentially bifurcating their inventory: keep the basics cheap in-store, but capture the willing to pay more online. Luna: That's smart — it's like a barbell strategy. They serve the low-income shopper in-store, but also chase the higher-margin luxury resale market that's booming. I read that the luxury resale segment grew something like 20 percent last year. Lucas: Yeah, and that's where the overlap with broader inflation gets really interesting. As the cost of new goods rises, the relative value of used luxury goods improves. So you get a shift in consumer mindset: 'I can't afford a new Gucci bag, but I can afford a pre-owned one.' That's pure substitution effect. Luna: But isn't there a risk that thrift stores start alienating their core low-income customers if they push too hard on premium pricing? Lucas: That's the tension. Goodwill's mission is employment and training — they're not a for-profit. So they have to balance mission and margin. A store manager I spoke with told me they've started running 'price hold' programs on essential items — winter coats, kids' shoes — keeping them at last year's prices even as costs rise. They use the online premium sales to subsidize those holds. Luna: So cross-subsidization within the same organization — that's a really practical response to stagflation. But is it sustainable if inflation stays sticky? Lucas: The ten-year breakeven inflation rate is currently at 2.26 percent — up a bit from last month — so the market expects inflation to stay above target for a while. If that persists, thrift stores will face a real margin crunch. Some smaller independent shops might not make it. Luna: Which would actually hurt the low-income households the most — exactly the people who rely on thrift stores. So stagflation could end up reducing the very safety net that thrift stores provide. Lucas: That's the irony. But let's look on the bright side for a second. The unemployment rate dipped to 4.2 percent in June, and we added nonfarm payrolls. So the labor market is still reasonably strong. That means more people have jobs, but their real wages are still being eroded by inflation. Thrift stores become a coping mechanism, not just for the poor, but for the squeezed middle class. Luna: Yeah, I've definitely noticed more friends talking about thrifting as a 'hack' rather than a necessity. There's a cultural shift happening too — it's becoming trendier to buy secondhand, which adds a demand tailwind independent of the economic cycle. Lucas: And that's where the data gets really positive for the industry. The online resale market — platforms like ThredUp, Poshmark, Depop — those are growing at a compound annual growth rate of over 15 percent. Thrift stores that can plug into that digital ecosystem are going to thrive. Luna: So the winners in this environment are the ones that can operate both a physical and a digital channel — capture the in-store traffic from inflation-stressed shoppers, and also the higher-margin online sales from fashion-conscious consumers. Lucas: Right. And the losers? Probably the standalone charity shops that can't afford the tech investment. They get squeezed on both ends: higher costs and a shift in donation patterns toward online platforms. Luna: Speaking of small operations punching above their weight — you know, this show itself is a pretty lean operation. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it's a small gesture that makes a real difference. We keep it ad-free, and listener support is what allows us to dig into stories like this one. Luna: Absolutely. Alright, so we've talked about thrift stores adapting — but let's zoom out. What does this tell us about the broader economy? Are thrift stores a leading indicator of where consumer spending is headed? Lucas: They might be. Historically, thrift store traffic tends to peak about six to nine months after a recession ends — because that's when people's savings run out. But right now, we're not in a recession — real GDP growth was 2.1 percent annualized in Q1. So the surge in thrift demand is happening during a period of slow, but positive, growth. That's unusual. Luna: So it's not just a recession signal — it's a stagflation signal. People feel squeezed even though the economy is technically growing. The disconnect between macro data and household sentiment. Lucas: Exactly. And that's something the Fed is watching closely. The CPI is still above the 2 percent target, but core CPI actually dipped slightly in June — from 336.12 to 336.1. Not much, but it's a hint that some pressures are easing. Meanwhile, the PCE price index, which the Fed prefers, ticked up to 131.5 in May. Luna: So the narrative is still muddled. No wonder thrift stores are a safe haven for consumers — they don't know if inflation will stick, so they hedge by spending less. Lucas: Exactly. And the thrift industry is responding in real time. I think we'll see more of these cross-subsidization models, more digital integration, and maybe even consolidation among smaller players. Luna: It's a fascinating microcosm of the larger economy. Thanks for digging into this, Lucas. Lucas: My pleasure. Next time, we'll look at how these same forces are affecting the furniture rental market — another industry seeing a strange boom.