Tuesday, January 10, 2012

The Used Clothing Story

                                                       The Used Clothing Story
                                                        A good business not to be in      
                                             Written 2010 re-written 04/2013 unedited
                                                                 Howard Yasgar
    Whenever I read an article in the newspapers about someone successfully doing some type of easy business, I automatically would say “Hey, I could do that”. I always said that especially if the newspaper article makes it appear as if the business is something really easy to do.
    Well, that’s exactly what I thought, when in 1990, while having breakfast I read a story in the Miami Herald newspaper, about how lots of people that were buying used clothing from the Salvation Army and Goodwill Industries. The story said they were getting the good used clothing for practically nothing. They said people were buying the clothing by the pound, and they were selling it for big money. Wow, I thought, what could be easier than that. It happens that in 1990, my automotive company “API” was involved in a law suit against our former general manager. He had conspired with one of our major suppliers, to set up a competing company. He had stolen our computer programs to go into competition with us, so we had no choice but to bring a law suit, and we did.
     After several months there were two things became apparent. The first being that we would win the suit. But even in winning, we would gain little or nothing as our former manager had nothing. But before we knew it we had spent $47,000.00, in legal fees which hurt us financially.
     However during my business career, I had suffered several ups and downs, so I felt that I could somehow find a way to develop a new revenue source, to help get our company on its feet again. That was when, that I read the article in the Miami Herald that talked about how much excess used clothing was available in Florida, and how cheaply it could be bought from the Salvation Army and Goodwill Industries.
     The article in the paper was fascinating, it said that the organizations were receiving more clothing than they could sell in their stores, so to get rid of the excess, they were making 1200 lb bales of used clothing and selling it for 12 cents a lb.  
     Now, I knew something about the used clothing business, as I remembered that back in 1962, my good friend Lou Gladstein had approached me with a proposition to buy tons of used clothing that was available from hundreds of dry cleaners located in New York City. Lou had said he had been approached by a big dry cleaning organization. They wanted him to clean out their warehouse, which was full of unclaimed clothes. The clothing was all clean, and on hangers, and in plastic bags. It was the clothing people never picked up from the cleaners. Lou said we could buy the whole deal for only 6 cents per pound, and he asked me if I had some idea of what to do with tons of clean clothes. So that’s when I started looking into how to sell used clothing.
      Lou said he had once sold an old school bus to a fellow in the used clothes business, so we called him to ask him what he was doing with used clothing.  He said that he shipped the bus to the country of Colombia, then he filled the bus with used clothing and stopped in all the small rural towns. Customers climbed up and picked out all the clothing they wanted and paid as they left the bus. He said he was making a lot of money, so Lou asked him if he would be interested in the clothing from the dry cleaners in New York City and the fellow said he was afraid he had no market for clean tuxedos and business suits or cashmere sweaters, His customers wanted jeans and cotton tee shirts. So I learned from him that not all used clothing was easily saleable, I should have remembered that.
    So now here I was in 1990, and I was already formulating a used clothing business plan in my mind. First thing I needed to do, was see if I could actually buy clothing cheap like the Miami Herald article had intimated anyone could do Then I needed to see what the competition was, and how they were doing the used clothing  business.
    My partner Don and I headed for the main headquarters of Goodwill Industries in Miami and we spoke to a manager, he said, yes they had clothing, but it was all spoken for and nothing was available. I got the distinct feeling that the Goodwill manager had some buddies in the used clothing business, and he didn’t want us upsetting his private side deal. Next we went to the Salvation Army, and low and behold, it was a different story. They were happy to show us that donated clothing came in daily by the ton, they had a complete assembly line set up to receive it, and they let us watch their operation. The used clothing was dumped on a conveyer, and the pockets checked for money or valuables, I didn’t ask what happened to what they found of value. Next, individual items were picked out and inspected, the good items places on hangars and a price tag stapled on. Wrinkled, stained, damaged or unmarketable winter clothing fell into a hole that went to the baler down stairs. That’s where the 1200 lb. bales were made. We were told that any clothing that didn’t sell in their retail stores came back and went right to the baler, and we could buy the baled clothing for 12 cents a lb.
     Now that we had a real good source of used clothing at a cheap price, we needed to look into the other aspects of the business, as I still had no idea of how the used clothing business worked in Miami. But I felt that anything that could be bought for 12 cents a lb, sounded like an easy way to make money. Now I was more confident that the Miami Herald article may have been telling the truth.
     Next I looked in the yellow pages of the phone book to see how many companies in Miami were dealing with used clothing, and I found that there were several, but the “Miami Rag Company” looked like they were pretty big and their warehouse was close to our office, so, the next morning I dragged my partner Don over to see what the Miami Rag Company was doing.
      Boy, were we surprised, as they had a monstrous building with hundreds of bales of used clothing, they had an army of workers sorting all the stuff. Clothing of all types was being sorted rapidly, and clothes appeared to be flying in the air as the workers separated it. Miami Rag Company was a well run
Company that was employing a lot of Haitian and Central American workers. They had hundreds of big pallet boxes set up for separated items to be put it in, and the workers were working fast, throwing clothing in every direction.
     When one of the owners spotted us, and he ushered us into an office, and we told him that we wanted to buy some used clothing for the export market. He then gave us a menu of export prices, and I noticed his price for used clothing started at $1.50 per lb., and some of the prices for different types of used clothing were much higher, especially for items like blue jeans.
     Then they took us to the export packing dept, where they were making bundles of about 150 lbs. ea. They said the bundles were being made ready for shipment overseas, all neatly banded and covered in white plastic.
     We left the place, thinking that the profit spread from 12 cents to $1.50 per lb sounded too good to be true. We felt that there must have been a lot of profit in the used clothing business. Could it be possible that I discovered the true rags to riches story, and here it was right before our very eyes, so based on what we had seen, my conclusion was that we needed to buy at least four of the giant 1200 pound bales of clothing from the Salvation Army, I felt that quantity would be sufficient for an experiment, and I could learn the business.
      I then emptied out a section of one of our buildings, which we called our “Magic Clean building.” It had been named after the rug cleaning company we had bought it from. I set up all the long portable tables I could find, making them into a giant horse shoe shape.   Then we made up some large cardboard pallet boxes, to sort the various clothing into, just like we had seen the Miami Rag Company doing. I knew that I needed to get myself a quick education on the sorting of used clothing.
      Because we already had good export contacts overseas for our automotive items, I had hoped that they could now be talked into dealing in the used clothing also. I was also thinking that with a little advertising in Central and South America, we could develop a good export market just like we saw Miami Rag Company was doing. I was determined to find out how much profit could be made. The whole thing looked too good to be true.
      Next we went to the Salvation Army and bought four bales of used clothing at 1200 lbs. each, which cost us 12 cents a pound or only $576.00. It was then that we encountered the first problem. We
Had on way to get the bales moved to our building. I hadn't thought about that being a problem. After several calls, we finally found a trucker that would do it for $150.00. This was our first unexpected extra cost. Then when the bales arrived, they were too big for our tiny forklift to move. The bales were
1200 lbs. each and just as wide as the truck. To move the bales, we had to have all our employees come over and roll them out of the truck. We rolled them onto the ground, and then we rolled them by hand into the building. This wasted at least a couple of hours, and made some of the clothing dirty. It was another problem I had not anticipated.
     Once the bundles were rolled inside the building, I was anxious to open one up and start sorting and making some money. I was in for a surprise, when I clipped the bands on the first bundle, I hadn’t realized that they were compacted so tightly, and the clothing literally exploded out of the bale. The bale went, “Poof” and there was a mountain of clothing all over the place.
     I immediately started sorting the clothing on the tables that I had set up, and the first thing I noticed was that there was lots of polyester clothing which was no longer popular in the market, and no one wanted it overseas. There were lots of polyester shirts and skirts and all needed to be thrown in the trash, another unexpected cost I hadn’t expected. As I started pulling out the polyester shirts, I recognized them as shirts that had been very popular, only a few years before. Some were even similar to ones I had owned, but I knew now that no one would wear them, they were just out of style.
     Then I noticed that there was also a lot of polyester men’s clothing, especially jumbo sizes of men’s pants. They were all waist size 46 and up. I could see there was going to be a lot more trash than expected. Then I started seeing sweat shirts, and lots of heavy winter clothing, well I thought, that was understandable, people moved to Florida and threw away their winter clothes, but what was I going to do with them. I saw that my big box of heavy insulated jackets was filling up fast.
     Most of the used clothing that I was separating, appeared to have been cleaned and laundered, but also mixed in was quite a bit of used and unwashed stuff, like dirty underwear. All of that stuff had to go into the trash. After several days of sorting, our trash container was overflowing with junk clothing
And we had to order extra pickup, which was another unexpected expense. After sorting for several days I realized that something was wrong, there was very little cotton clothing suitable for warm climates, but there was a lot of heavy clothing suitable for cold climates.
      I looked into the yellow pages of the phone book for retail stores selling used clothes. I wanted to see how other used clothing dealers were marketing this same type of crappy clothing. I found a store in a rundown mall in Miami Inner City. The whole mall was nearly bankrupt, it was exactly where I would have expected a used clothing store to be located. The store was big and neat, with all the clothing separated and hanging on racks in perfect order, it was just like they were new. In their back room I saw the clothing bales just like we had bought from the Salvation Army, but they also had washing and ironing equipment, to clean dirty clothes and remove wrinkles. I could see that the store was doing it the right way, but it had one major problem, there were no customers.
     So I started thinking, there had to be some market somewhere, but it obviously was not in Miami. I had to rethink this whole used clothing business all over again.
      I went back to sorting the bales of clothing we had. But it was now becoming a lot of work, and the fun was all gone. I could see that there were very few pairs of Levi type jeans and few cotton tee shirts,
And it appeared I was trashing more clothing than I was keeping. The more I sorted, the more depressed I became, I had a big box of clothing that looked like it would be good only in Alaska. I now realized this used clothing business was not going to be as easy as I had thought.
     In desperation I put an ad in several international trade newspapers. I was offering used American clothes for $1.25 per lb. Then one of our employees named Jose, said his mother sold in the market in Nicaragua and she could sell the used clothing. So we started to look into shipping clothing to Managua Nicaragua, but it was not so simple. Shipping by ocean was cheapest but took a lot of time, airfreight was expensive but quick. Then there was duty, and not to mention that the customers would be paying in their local currency and we needed U.S. Dollars. Then there was the problem of currency devaluation, we would have to buy dollars every night. It was way too complicated, so our employee Jose offered to fly there with the used clothing and do everything that was needed. His mother said she could sell every pair of Levi type jeans we could ship there.
     We didn’t have enough blue jeans so we called the Miami rag Company, we saw they were bundling up jeans there. Yes they said, jeans were a good item and we could buy them for $2.50 a lb. I started to better understand why the Salvation Army was selling the clothes cheap for 12 cents a pound. Anything good was already taken to their stores, and sold by them. Well now we knew why Miami Rag sold jeans for $2.50 per lb. They had to throw ¾ of the used clothing they bought in the trash. So we purchased 4 bundles of jeans from Miami Rag for $1000.00 and shipped them to Managua by plane with Jose.
     That day, I happened to be talking to my daughter in Connecticut, and she told me that she had just had a yard sale and sold all the baby clothing she had. I got excited, I told her I had tons of unused baby clothing, she could sell, so I picked out a couple hundred pounds of beautiful new and clean baby clothes and shipped it to her in Connecticut, at my expense.
     Things were looking up, we had blue jeans going to Managua, I had baby clothes going to Connecticut, and I received an international order from Poland for 100 lbs. of heavy duty winter clothes.
      Jose called every day from Managua, the jeans were selling briskly, he had to pay several bribes but he said he took care of it, and every night he converted the local currency into dollars. By the end of the week, he called to tell us that the all the blue jeans that could be sold, had been sold, which was about 50 percent or half of what we had sent. “What about the rest of the jeans?” I asked, Jose said unfortunately most of the blue jeans left over were too big a size for the people in Nicaragua, as all the
Nicaraguan people had small waists, and all the blue jeans were just too big. I asked Jose if his mother could have the jeans altered, but Jose said that they already looked into it and it was impractical. Any profit we would have made was now gone, so I told Jose to return to Miami. I knew that Miami Rag had sold us jeans that were just not possible to sell overseas.
     I called my daughter in Connecticut to see how the baby clothing was selling. She said she wasn’t able to sell one piece.
     The mail came and there was a letter of complaint from Poland. They said they were very disappointed in the heavy duty winter clothes I had sent. I had sent them only clothing suitable for Eskimo’s, and still they were complaining.  
     I now felt it was best to not lose any more money, my direction was now very clear, every week, when the trash men came, I filled our trash dumpster up with the clothing we had left in the Magic Clean Building. I found that it was almost as much work throwing the used clothes away as it was sorting it.
      If anyone wants to know about the used clothing business, just ask me.

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