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FDD Talk 2015: The Plato’s Closet Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on December 7, 2015

in FDD Talk 2017: Retail Franchises, Franchise Earnings, Resale Franchise, Retail Franchise

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Plato's Closet Greensburg PA

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the Plato’s Closet franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Plato’s Closet franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of Plato’s Closet’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average, high, and low gross sales and average gross profit for franchised Plato’s Closet stores that opened in 2013, 2012, 2011, 2010, 2009, and 2008 and prior, respectively, and had been in operation for the 12-month period ended December 27, 2014
  • 2014 average gross sales for the first, second, third, and fourth quartiles of franchised Plato’s Closet stores that had been in operation for the 12-month period ended December 27, 2014

Section I – Background Information

Plato’s Closet is a used-clothing retail chain with a target market focused squarely on teens and young adults (twenty-somethings). Founded in 1998, it began franchising in 1999 and has experienced steady growth in recent years, adding anywhere from 29-33 locations per year since 2011. Headquartered in Minneapolis, MN, the chain currently boasts more than 439 locations and plans to keep the growth going.

The chain is owned and backed by Winmark Corporation (formerly Grow Biz), a company that has become a leader in reselling high-quality used items. In addition to Plato’s Closet, Winmark operates a number of other used-item retail franchises, including Play It Again Sports, Once Upon A Child, Music Go Round, and Style Encore.

Plato’s Closet was awarded the #1 slot for best franchise investment in the $150K-$550K range by Forbes in 2014. Here’s how Plato’s Closet keeps the merchandise moving in the used-clothing segment:

Not Your Mama’s Thrift Shop

If you’re thinking “thrift shop” when it comes to Plato’s Closet, you’ve got the wrong idea in mind. The chain focuses exclusively on name-brand fashions such as Abercrombie and Fitch, Aeropostale, and American Eagle. Essentially, whatever name-brands are hot for teens and young adults, that’s what Plato’s Closet is looking to buy.

In addition to gently-used clothing, the shops also offer used accessories, CDs, books, games, picture frames, and more.

Affordability for the Younger Set

Since the items offered are used but in good condition, teens and young adults can get the trendy fashions they want without spending an arm and a leg, which is a very appealing value proposition for a market segment without a lot of cash to throw around on clothes.

Besides the $50 billion these young people spend on themselves to stay current with fashion trends, their parents and relatives spend another $170 billion every year buying them gifts.

A New Approach in Resale-Retail

Despite what you may be thinking, Plato’s Closet is not a consignment shop. Locations pay cash for used clothing on the spot, which means young people don’t have to wait around to see if items will sell. They can accomplish wardrobe turnover very quickly with the chain’s unique approach, bringing old items in, receiving cash, and purchasing items from the store with that cash.

As Easy as 1, 2, 3…4

The way Plato’s Closet works is a simple four-step process: 1) People bring their gently-used, brand-name clothing and accessories to a Plato’s Closet location; 2) While they shop, the location reviews what was brought in; 3) The buyer makes an offer based on the items’ style, condition, and what the store needs; 4) If the seller accepts, they get cash on the spot they can walk away or shop with. Simple!

A Business Model that Works

You’ll see in the financial details that the chain’s business model is working well. Pay particular attention to the average sales volume and gross margin – the numbers are impressive and help explain why Plato’s Closet has been part of the Franchise 500 listing from Entrepreneur Magazine for ten years running.

Section II – Estimated Costs

  • Please click here for detailed estimates of Plato’s Closet franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis

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