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The skinny on Habitat for Humanity’s side business

Nonprofit organizations start side businesses for any number of mission-related reasons. Some offer job-training opportunities for clients, others support green initiatives.

ReStore Manager Zach Spader
MinnPost photo by Scott Russell
ReStore Manager Zach Spader said the store gets surprise donations. One day a Kohler semi dropped off 15 Jacccuzis.

Nonprofit organizations start side businesses for any number of mission-related reasons. Some offer job-training opportunities for clients, others support green initiatives. For still others, such as Twin Cities Habitat for Humanity, goal one is making money for the organization’s core work.

Habitat opened a ReStore in north Minneapolis in early 2007, selling new and used building materials. To boost profits, the store is moving.

Habitat fell into some good luck a few years back, just as it was finishing its ReStore business plan. Lamperts Lumber was going to open a building supply overstock store at 501 W. Broadway; then the construction market slumped. It offered Habitat a fully stocked store, and, for a time, a rent break.

It wasn’t where Habitat’s market research said to locate, but the offer was too good to pass up. Fast forward. Today Habitat is paying full rent and other operating costs: $32,000 a month for retail space when smaller warehouse space would do. Robert White, Habitat’s vice president and chief financial officer, says he can get a better location and reduce costs to $12,000 a month.

This ReStore story is another peak at what nonprofit leaders call “social enterprise,” and it’s a big topic as nonprofits look for new revenue. I recently wrote about the Animal Humane Society’s new airport pet boarding facility. The Society created a separate for-profit business to generate money for its programs. Habitat took a different approach. The ReStore is under the nonprofit umbrella. That way, donations are tax deductible.

White and Store Manager Zach Spader recently gave me the ReStore skinny.

Habitat is close to finalizing a deal on its new site. Expect an announcement soon. The target area is up Highway 280, and then east-west along St. Anthony, Roseville, Maplewood, Golden Valley, Robbinsdale and New Hope. Owners of that aging, first-ring suburban housing are a good market.

Finding a niche
The first Habitat ReStore opened in Austin, Texas, in 1991, and hundreds more have popped up here and abroad. Each store takes on a community flavor. The Madison, Wis.,. ReStore has a green focus. Some of the Florida Restores resell furniture, castoffs of downsizing seniors. Brainerd’s Lakes Area Habitat ReStore does a good business in deconstruction of high-end lake homes, White said.

In choosing its market, the Twin Cities ReStore had to navigate potential nonprofit competitors.

Project for Pride in Living has the PPL Shop, which provides adult job readiness training. It sells used office and business equipment and surplus new home décor items. The Green Institute’s The ReUse Center, sells reclaimed and surplus building products, focusing on keeping those materials out of landfills.

White said the missing nonprofit niche was in high-end building materials. “We felt that product would sell better. It fit the financial mission.”

Habitat stays out of the home deconstruction business, referring those calls to the ReUse Center, which specializes in that work. Habitat also ruled out south Minneapolis as a store location to avoid ReUse Center proximity.

The ReStore broke even in 2007, its first year. That’s ahead of plan. Once it matures, Habitat hopes to gross $1 million annually, and net $300,000 to $400,000 in revenue. That’s not a huge sum given Habitat raises around $16 million a year. Still, that’s enough to build two or three more houses a year.

The ReStore’s secondary goals include leveraging corporate connections and raising money for Habitat’s international efforts. (The Twin Cities chapter “tithes,” so that it builds as many homes abroad as it does locally.)

“When you come down to environmental issues, that is fourth on the list,” White said.

Lessons learned
Habitat’s still-young venture offers lessons for other nonprofits mulling over such enterprises. White said the store required tremendous start-up work from staff. Early on, Habitat decided it would not divert any cash from its housing mission to the store. Habitat got a $200,000 bank loan (now paid back) for start up.

Habitat made, and is sticking to, its business plan. It is established and attached to its north Minneapolis neighborhood, which makes the move difficult. “We came back to mission,” White said. “We are not getting the customer base that we should.”

The ReStore found a strong market among landlords. They needed certain basics: inexpensive carpet, paint and cabinets. Donations weren’t reliable. The ReStore now buys some staple items wholesale to keep customers returning.

For several years before opening the store, Habitat ran a multi-day garage sale of surplus building supplies as a trial run. It proved the demand was there. Store manager Spader said his early concern was supply: Could the ReStore generate the donations needed to keep the shelves full?

It’s worked, and there have been pleasant surprises.

“Kohler showed up with a semi truck of 15 whirlpool Jacuzzis,” he said. “We had no idea they were coming. They just showed up on our doorstep and dropped them off.”