We are proud to share a recent article published by past Ontario Hub Coordinator and PhiLab member Kristen Pue. Her article was published in the Nonprofit and Voluntary Sector Quarterly.
This blog post provides an overview of the main points of a recently published research note on the use of retail by nonprofits. You can access the full paper online.
Philanthropy researchers have often looked at funding as a way to understand nonprofits, their role in society, and to whom they are accountable. Although nonprofit revenue mixes differ from place to place and from organization to organization, there are generally three sources of nonprofit funding: government, philanthropy, and earned income. The last of these, earned income, refers to “the sale of products, services, processes, expertise and intellectual property for monetary return” (Lasby, 2013, p.1). Earned income is also sometimes called “trading activities”, “social enterprise”, or “fee-based” revenue.
Although earned income receives the least attention from nonprofit studies research, it is in fact an important, and growing, element of nonprofit revenue. Indeed, one study found that earned income is the largest nonprofit revenue source, exceeding government and philanthropy (Salamon et al. 2004).
Earned income matters. Understanding this revenue source can help us to improve our comprehension of several other trends in the sector, from the hybridisation of nonprofits to pressures underpinning nonprofit commercialization and trade-offs that nonprofits experience when they adopt market approaches. In particular, learning more about the different kinds of earned income can help us to understand which types are more likely to pose challenges for nonprofits – creating mission drift or influencing decisions about who can access a service and how.
There is an amazing variety of earned income activities, some of which include:
- membership fees;
- user, program fees;
- admission, performance fees;
- conferences and symposia;
- event or presentation services;
- rental fees; sale of goods;
- tuition, training materials;
- food, food services;
- newsletters, magazines;
- advertising sales;
- information products; and
- consulting services (Lasby, 2013).
When a nonprofit decides to buy property and rent it out as a revenue-raising activity, it likely encounters different challenges than when it raises revenue through recreational program user-fees or, again, by putting on an annual conference. The general trend toward nonprofit commercialization certainly matters. But researchers should also be studying how these different types of earned income can affect nonprofits differently.
My research note, now available online in Nonprofit and Voluntary Sector Quarterly (find it here), looks more deeply at one kind of earned income: retail, the sale of goods to the ultimate consumer. Retail is an interesting type of earned income activity because of the non-revenue purposes that it can serve. In the paper, I provide data on the use of nonprofit retail operations (NROs) by local nonprofits connected to major international nongovernmental organization (INGO) movements like the Red Cross/Red Crescent movement, Amnesty International, and Greenpeace.
For nonprofits, opening a “charity shop” might not primarily be about raising money. My paper introduces ten objectives that an NRO might support. Revenue is, of course, one objective included in the list. But other NRO objectives include things like engaging vulnerable beneficiaries, providing employment to people who are often excluded from the job market, and promoting the second-hand market. I then connect those objectives to five different “NRO formats”:
- General retail;
- Social consumption-promoting retail;
- Brand-promoting retail;
- Sale of mission-linked goods; and
- Thrift shops.
This paper introduces data on the use of nonprofit retail by a sample of nonprofits in twelve countries. Comparing nonprofit sectors cross-nationally is difficult because of the differences in legal regimes that exist, as well as the primarily local nature of nonprofits. To overcome this challenge, I identified a sample of international nonprofit movements with a presence in numerous countries, and then compare the behaviour of those nonprofits cross-nationally. The World Wildlife Fund (WWF) is an INGO, but we can compare the differences between, say, WWF Canada and WWF Germany.
To select the INGOs that I would include, I used a list from Stroup and Wong (2017) in which they identified the most influential INGOs. I then selected twelve case countries for comparison: Australia, Canada, France, Germany, Hungary, Ireland, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States.
The dataset includes 193 national affiliates (e.g., WWF Canada) corresponding to 22 INGOs (e.g., WWF). Once I had selected the organizations to include in the dataset, I collected data on the use of retail by each organization – whether the organization used retail or not, as well as certain characteristics like the use of online versus physical retail.
I found that, overall, roughly one-third of organizations use nonprofit retail. However, national affiliates of certain INGOs are more likely to use retail than others. As well, there are variations in the use of retail across countries, but the picture is not as straightforward as social origins theory (Salamon and Anheier 1998) might predict. The data also revealed that online retail is much more common than physical retail – suggesting that the archetypical second-hand thrift shop may not be the dominant form of nonprofit retail today. Indeed, if we return to the typology that I introduced above, brand-promoting retail was actually the most common.
The data suggest a few directions for future research on nonprofit retail. First, the cross-national variation in the sample does not, on its face, corroborate the expectations of social origins theory – that is, that liberal regimes like Canada, the US, Australia, and the UK – will use nonprofit retail the most. Future research should seek to first, validate or invalidate the representativeness of this data and, second, explore this phenomenon more fully. Other explanatory variables, such as the prevalence of environmental movements and geographical proximity to the UK, should be explored. Second, there are potentially interesting areas for research of within-country NRO use. The finding that INGOs varied in their use of retail suggests that mission type is a potential variable of interest for understanding retail use. Finally, the typology of NRO formats provides an entry point for analysing models of nonprofit retail beyond the thrift shop – something which is especially important in light of the prevalence of online retail amongst the sample nonprofits. Interpreting trends in nonprofit retail today requires understanding the mix of commercial and non-commercial objectives at play in each particular NRO. One avenue might entail the use of survey methods to obtain data pairing information on NRO formats with self-reported data on the purposes of nonprofit retail. A study of this nature could explore whether there are systematic associations between the format of an NRO and how nonprofit organizations think about retail.
Earned income merits more study than it has to-date received as a component of the nonprofit revenue mix. In particular, nonprofit retail is of interest given the non-revenue purposes that it can serve, which in some cases be of equal or greater importance to the nonprofit using retail.
Food for Thought from PhiLab
Possible implications for foundations: How do commercial activities by charities impact foundation-charity relations? Private foundations, unlike public foundations and charities, cannot engage in mission-related commercial or business activities. What impact does this have on impact of private foundations?
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Lasby, David. (2013). Earned income-generating activities among Canadian charities. Toronto: Imagine Canada.
Salamon, Lester and Anheier, Helmut. (1998). Social origins of civil society: Explaining the nonprofit sector cross-nationally. Voluntas, 9(3).
Salamon, Lester, Sokolowski, Wojciech, et al. (2004). Global civil society: Dimensions of the nonprofit sector, volume two. Yorktown Heights, NY: Kumarian Press, http://ccss.jhu.edu/wp-content/uploads/downloads/2013/02/Comparative-data-Tables_2004_FORMATTED_2.2013.pdf.
Stroup, Sarah and Wong, Wendy. (2017). The authority trap: Strategic choices of international NGOs. Ithaca, NY: Cornell University Press.
Pue, Kristen. (2019). Selling out: A cross-national exploration of nonprofit retail operations. Nonprofit and Voluntary Sector Quarterly x(x): x-x.