Minnesota AG: Thrift store giant misleading the public

Minnesota Attorney General Lori Swanson is accusing Savers, the fast-growing for-profit thrift store chain, of deceiving the public about their donations to local charities such as Vietnam Veterans of America and the Courage Kenny Foundation.

Savers pockets much ­— and in some cases all — of the used-good donations it solicits in the name of several local charities, the AG's office said in a new compliance report out Monday. In an interview, Swanson called the private company's lack of transparency around its fundraising through charities a nationwide problem.

Swanson said she's considering legal action and is forwarding the compliance report to the U.S. Internal Revenue Service.

"Everything's on the table right now," Swanson said. "Part of it's going to depend on what the charities do to fix the problem."

The charities have 45 days to report to the AG's office on how they will monitor Savers as a professional fundraiser acting on their behalf, and ensure donations are properly handled.

Savers, which is based in Bellevue, Wash., operates about 15 stores in Minnesota under the names Savers, Unique Thrift and Valu Thrift. The company, in a statement on Tuesday, said Swanson's report is "based on incorrect assumptions and a misunderstanding of our working relationships with our nonprofit partners and, as a result, inaccurately depict the valuable work that Savers and our nonprofit partners perform in the state of Minnesota."

Swanson said her office started investigating the matter about a year ago, using secret shoppers, after receiving consumer complaints of people being confused about where donations are going. The report Monday highlighted numerous "regulatory concerns" in the relationship between the billion-dollar Savers conglomerate; Savers' fundraising subsidiary Apogee Retail; and several local charities they work with including the Lupus Foundation of Minnesota, Courage Kenny Foundation, True Friends and Vietnam Veterans of America.

The company's basic model works like this: Savers and Apogee Retail use the names of charities, and their tax-exempt status, to solicit donations of used clothes and household goods via mailings, phone calls, the Internet, donation bins in parking lots and advertising in its stores. The for-profit thrift stores sell the items, with Savers and Apogee and the charities supposedly all getting a portion of the profits, while donors get to deduct the value of the items from their taxes.

At issue is how the arrangement is presented to people who think they are donating to a particular charity. A key finding in the report is that donations are commingled, meaning items aren't sorted by charity but jumbled together.

As part of the investigation a financial analyst in the AG's office went to a Unique Thrift Store in St. Paul and put three items in a drop-off bin. A clerk handed her a receipt for the Courage Center Foundation.

When the analyst said she wanted her donation to go to the Lupus Foundation, she was given a Lupus receipt, the analyst said in an affidavit. When she asked a manager how the store would know those items needed to go to the Lupus Foundation he "threw his arms in the air and said, 'It doesn't matter. The whole thing goes to the same place.' "

In the case of used clothes, Savers pockets most of the proceeds from the donations and gives charities little, the report said. Someone who donates a box of old dresses can claim it as a charitable contribution for what they deem a fair amount on their taxes. But Savers or Apogee may pay the charity only 40 cents per cubic foot of clothing donated — just pennies per dress.

In the case of non-clothing donations such as furniture, Savers gives charities nothing at all, the AG's office said. In 2013, the practice in Minnesota resulted in $1.16 million not being paid to charities, according to the report.

"All over in written materials it says: 'Every time you donate, we pay local charities,' and they don't, and they admit to us they don't," Swanson told the Star Tribune.

The investigation focused on Minnesota, but Swanson said she has no reason to believe the company's model is different elsewhere. Savers' website says it works with 140 nonprofit charities in the United States, Canada and Australia and that over the past 10 years the company has paid them more than $1.5 billion. No profit data is available for the privately held company.

Savers has 330 stores in the United States, Canada and Australia. The company is owned by two private equity groups, Leonard Green & Partners and TPG, as well as its chairman Thomas Ellison and Savers management.

A company spokeswoman declined to make an executive available for comment. On Monday company spokeswoman Sara Gaugl issued a statement saying Savers is working closely with the AG's office and "remains dedicated to working openly, honestly and transparently with all of our nonprofit partners."

The statement continued: "We provide our nonprofit partners in Minnesota a reliable and essential source of funds for the vital work they do in the community, such as furthering medical research, offering support to veterans and their families, and rehabilitation services and care for children and adults with disabilities. Likewise, our retail stores are able to offer low-cost and high-quality merchandise for consumers, strong career tracks and benefits for our more than 650 employees in Minnesota, as well as benefits to the environment through the reuse and recycling of goods."

Ed Stracke, CEO of True Friends, a charity that works with Savers, said he just received a copy of the report Monday and needs to read it. True Friends is the Annandale-based parent of Camp Courage and Camp Friendship and other camps for people with disabilities.

"We honor the wishes of our donors when it comes to giving," Stracke said.

Laurel Hansen, thrift business director for Arc's Value Village Thrift Stores, said the five Value Village stores in Minnesota are not affiliated with Savers but are part of Arc Greater Twin Cities, a nonprofit that helps people with intellectual and developmental disabilities. When asked about Savers' business model with charities, she said: "It's not the choice that we make."

Hansen urged people to choose a nonprofit and donate directly to it.

"Not only does the donation benefit the charity directly, it also stays in our community and provides community services here," Hansen said.

The report made several compliance recommendations. Savers must register with the state as a professional fundraiser, which means it must file reports with the attorney general's office disclosing the financials of its fundraising campaigns. If Savers is not compensating charities for non-clothing donations, then it should stop soliciting such donations and tell people that those donations are not tax-deductible, it said.

It also instructed the charities to do a better job monitoring donor campaigns. They need to start auditing Apogee's records, which they have not been doing, the report said, and make sure donations aren't commingled.

Jennifer Bjorhus • 612-673-4683