Boom times for 'gently used' clothes

Children's Orchard CEO said the chain is logging double-digit sales gains in its stores that are located in cities badly hurt by the housing downturn.

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NEW YORK (CNNMoney.com) -- Unlike most retailers who are blaming the economy for their poor sales, one store chain is boldly declaring that an economic downturn can actually be a boon for its business.

Taylor Bond, CEO of Children's Orchard, sounds excited about the next 10 months and beyond.

The privately held chain, based in Michigan, sells used name-brand children's clothes, toys and furniture at more than 77 franchised locations nationwide. (See correction at end of story.)

Last year, the company took in $20 million in sales, up 5% from the previous year.

"Our sales are already up 5% so far this year," he said.

Bond said the very nature of its business puts the company in a prime position to take advantage of what he calls "a perfect storm that's coming."

"Recycling has become more acceptable today among consumers because of the 'green' trend," Bond said. "A shaky economy is making us attractive to everyone across the income spectrum. We have people pulling up to our stores in Mercedes as well as in trucks."

To his point, the National Association of Resale and Thrift Stores (NARTS), which represents more than 2,500 stores, expects the multi-billion dollar resale market to grow at a robust 5% pace, or more, this year.

That compares to a much slower 3.5% projected overall growth for annual retail sales in 2008.

"Our industry benefits every time the economy is tight and gas prices and heating bills are high," said Adele Meyer, the association's executive director. "People have to look for alternative ways to shop,"

Bond said Children's Orchard stores sell "gently used" clothing from such kids brands as GAPKIDS, Gymboree, Fubu Kids, Tommy Hilfiger Kids and Ralph Lauren at 40% to 80% less than the actual price.

So a $50 Gymboree dress costs as little as $7, and a $500 Peg Perego stroller can be picked up for $125 at a Children's Orchard store.

The company also gives cash or store credit for items that people bring in - as long as they're not stained or bad-smelling, and are in overall good condition, he said.

"In tougher economic times, you'd think more people would grab the cash," Bond said. Instead, more customers are opting for store credit, he said.

"To me it indicates their perception of how long the downturn may go on. So they're anticipating they'll be back a couple of times to the store," Bond said.

Debbie Goldberg, a stay-at-home mother of 3-1/2-year-old twins, has been shopping at a Children's Orchard store near her home in Manhattan Beach, Calif., for more than a year.

"Before I couldn't even tell you how much I spent on my kids," Goldberg said, adding that she would routinely shop at Gap (GPS, Fortune 500) and Macy's (M, Fortune 500).

"Now I plan ahead and I'm more conscious about spending on children's clothes, especially because they outgrow them so fast," she said.

She and her husband are managing their household budget in other ways, too, such as eating out less every week.

"I used to get a manicure-pedicure once a week," she said. "Now I try to go every three weeks."

Cheryl Boss, a working mom of two kids and one on the way, said she's shopping more frequently at the Children's Orchard store near her home in Ann Arbor, Mich.

Boss, an occupational therapist at a school, and her husband who's a college coach said they started shopping at the store for budget reasons.

"It's also nice to sell back clothes my children no longer wear and get store credit," she said. By doing this, Boss estimates that she saves $150 a month.

What's more, Boss said she's finding that the stigma attached to "used" children's products is "going away" even among her middle-income neighbors.

"Ann Arbor has well-off families but I don't see that attitude here," she said. "Most people just want to be savvy shoppers."

While Children's Orchard has done well in areas with lots of foreclosures or plant closing, Bond said it's also flourished in well-to-do areas.

"We've just opened our third store in Las Vegas and we'll probably open 10 new stores in mid-income neighborhoods this year," he said.

Craig Johnson, president of consulting group Customer Growth Partners, said a recession should spur both recycling and "trading down" trends among consumers.

"Many parents will shift from a Macy's to Target (TGT, Fortune 500) for children's clothing. Off-price retailers like TJ Maxx also stand to benefit," he said.

"Recycle, reduce, renew. Those are the trends we'll see in how people shop this year," Johnson said. "Any well-run retailer, whether its a reseller or not, that knows what its customers want and offers good value will do well."

- An earlier version of this story incorrectly reported that Children's Orchard operates 86 franchised locations nationwide, according to information supplied by the company. Children's Orchard operates 77 franchised locations.