In a leased office in the Minneapolis suburbs, a company you have almost certainly never heard of runs one of the most profitable operations in American retail. It employs fewer than 90 people. Its net profit margin is close to 50%, a figure most luxury houses and software companies never touch. Its stock has compounded for two decades. And it does all of this on the back of teenagers selling their outgrown jeans and parents unloading a closet their toddler grew out of.

The company is Winmark Corporation, and it has branded itself, accurately, as "the Resale Company." You know its stores even if you do not know its name: Plato's Closet, Once Upon a Child, Play It Again Sports, Style Encore, and Music Go Round. Roughly 1,350 of them dot the strip malls of North America, and together they sold more than 1.6 billion dollars of used merchandise in a single year. Winmark itself owns none of those stores. It is a franchisor. It collects a royalty on every used onesie and every secondhand hockey stick, and it keeps almost half of its own revenue as profit.

For anyone thinking seriously about resale, Winmark is the most instructive case study in the country, and it is instructive for a reason the sustainability-brand headlines miss. The famous brand programs of Patagonia, Levi's, Eileen Fisher, and IKEA resell their own product. Winmark's stores do something different and, for an independent retailer, far more relevant: they buy used goods from the public, price them, and sell them for a profit. That is exactly what a used department is. Winmark simply did it 1,350 times, refined the model over four decades, and turned it into a cash machine.

"Profit is fiction, cash is fact. Diversification is overrated. If you find a good idea, pile in."

This is the deep story of how it works, what it earns, why the model works, where it strains, and what a single shop owner can actually take from a company that made a fortune buying other people's used stuff. Everything here is drawn from Winmark's own filings and investor materials, its brand sites, and credible reporting. Winmark is public, so its corporate numbers are audited and hard; the store-level numbers are softer, drawn from franchise disclosure summaries, and I label them as such.

The backpack that started an empire

The whole thing began in 1983 with a backpack nobody would buy. Martha Morris, in Minneapolis, had a nearly new backpack she had paid around two hundred dollars for and could not resell. The frustration gave her an idea: a store for used sporting goods, a place where gear people bought, used a few times, and outgrew could find a second owner. She borrowed about fifteen thousand dollars, took over a former tombstone shop near a cemetery, and opened the first Play It Again Sports. In its first year it sold roughly a hundred and twenty thousand dollars of used equipment.

The founding detail that matters most is a pivot she made early. Morris started on a consignment basis, displaying other people's gear and paying them only when it sold. She soon shifted to buying goods outright instead, paying sellers on the spot and owning the inventory herself. That change, from consignment to cash purchase, is the single most important decision in the entire Winmark story, because it is the model the company would eventually scale to more than a thousand stores. It looks like a small operational choice. It is actually the foundation of everything.

The business caught the eye of two franchise consultants, Jeffrey Dahlberg and Ron Olson, whose firm began working with Morris in the late 1980s. The franchising operation was incorporated in Minnesota in 1988, and the pair acquired it around 1990. Growth was fast: by the end of 1991 there were well over a hundred franchised stores across dozens of states and into Canada. In 1993 the parent renamed itself Grow Biz International, went public in August at ten dollars a share, and began stacking new resale concepts on top of the sporting-goods original. It acquired Once Upon a Child in 1992 and franchised it in 1993, entering used children's goods, a category with a bottomless natural supply because children outgrow everything. It built Music Go Round for used instruments. And in 1999 it developed Plato's Closet in-house, aimed at teenagers and young adults reselling brand-name apparel. That brand would become the giant. Other concepts were mistakes, and how the company handled them is the second-most-important part of its history.

The near-death, and the discipline that followed

By the late 1990s, Grow Biz had gotten sloppy. It had chased growth into categories that did not hold up and had sold franchises, in the words of the man who would fix the company, "to anyone who could come up with the money." It had launched Computer Renaissance for used computers, Disc Go Round for used CDs, and ReTool for used tools. In 2000 the company posted a loss and stood close to the edge.

The turnaround came from John Morgan, an investor with a background not in retail but in equipment leasing. Morgan had co-founded a leasing company, Winthrop Resources, in 1982 and sold it to TCF Financial in 1997 for three hundred and forty million dollars in stock. He was, by his own description, "a Warren Buffett man," a disciple of concentrated bets and hard-nosed cash discipline, known for buying Warren Buffett's actual wallet, with a stock tip inside, for two hundred and ten thousand dollars at a 1999 charity benefit. He took control of the ailing franchisor in March 2000 and later called it "the worst six months of my business career."

What Morgan did next defined the company. He pruned it. He sold Computer Renaissance, which had grown to more than two hundred stores. He exited Disc Go Round. He shut down ReTool, reportedly observing that "people don't normally sell old tools." He renamed the surviving company Winmark in 2001. And he tightened the franchise system with a rigor it had never had: "We really screen the franchisees. And we don't give them a second store until they've proven they can run the first."

The categories Morgan kept, apparel, children's goods, sporting equipment, and musical instruments, share a quiet but decisive trait: they are durable and they depreciate slowly. A used baseball glove or a brand-name jacket holds its value for years. A used computer, in the era of Moore's Law, was nearly worthless within eighteen months, and used CDs were about to be annihilated by digital music entirely. The lesson buried in the divestitures is one of the most valuable in this feature, and we will return to it: resale works in durable, slow-depreciating categories and fails in fast-obsoleting ones. Morgan learned that with the company's money so you can learn it with a blog post. He ran Winmark until 2020, and his philosophy still governs it: "Profit is fiction, cash is fact," and "Diversification is overrated. If you find a good idea, pile in." Winmark piled into resale, and only resale.

How the machine actually works

Strip Winmark down to its operating core and it is beautifully simple. Every one of its stores runs the same loop Martha Morris settled on after that backpack: buy used goods directly from the public for cash, price them, and sell them for a profit. The details of how that loop runs are what make it work at scale, and they are the details an independent would have to get right too.

Start with the buy. A customer walks into a Plato's Closet or an Once Upon a Child with a bag of used items. No appointment. The store buys, in the brands' own language, "all day, every day." Staff inspect the items, decide what they will take and what they will decline, and make an offer on the spot. Accept it and you walk out with cash in hand, or, if you choose, store credit worth more than the cash, often with a bonus on top. The rejected items go home with you. That immediacy is the model's core promise, and it is a deliberate contrast with the alternatives: consignment makes the seller wait and pays only if the item sells, while donation-based thrift pays nothing but a tax receipt. Winmark's stores pay you now and take ownership now. In exchange, they pay a fraction of what they expect to resell for, commonly put at roughly twenty to forty percent of the eventual ticket in cash. Those figures are not audited by Winmark, so treat them as directional, but the principle is exact: the store buys low enough to make a profit while carrying the risk that an item might not sell.

The pricing is not guesswork, and this is where the franchisor earns its keep. Winmark equips every store with a proprietary point-of-sale and inventory platform it calls the Data Recycling System, built specifically for buying used goods. It gives the person behind the counter standardized pricing to guide what to offer and what to charge, and training teaches every franchisee, regardless of prior experience, how to evaluate, buy, and price used merchandise. In other words, Winmark took the hardest, most judgment-dependent part of resale, deciding what a used thing is worth, and systematized it into software and a curriculum. That is the difference between one clever secondhand shop and a thousand consistent ones.

Then there is the supply, the quiet genius of the whole thing. Winmark's stores do not buy from wholesalers. They buy from the neighborhood. The same community that shops the store also stocks it, walking in with the goods, so supply refreshes itself continuously and locally, with no purchase orders, no import lead times, and no wholesale cost. Winmark says each location, on average, extends the life of more than a hundred and twenty thousand items a year and pays out more than four hundred thousand dollars back into its local community; across the system, its brands have kept more than two billion items in use since 2010. The five brands aim that machine at different categories. Plato's Closet, the largest, did roughly six hundred and fifty million dollars in system-wide sales in 2024; Once Upon a Child, the second largest at around five hundred and eighteen million; Play It Again Sports, the original, around three hundred and thirty million; then Style Encore (women's apparel, launched 2013) and Music Go Round. Every one runs the same buy-sell-trade loop; only the merchandise changes.

The most beautiful business model in retail

Now the part that makes investors stare. Winmark does not own or operate a single one of those 1,350 stores. Every store is owned by a franchisee, who fronts the capital, signs the lease, hires the staff, buys the inventory, and takes the operating risk. Winmark's role is to license the brand and the systems and collect a royalty, generally around five percent of each store's gross sales, plus modest franchise fees. That structure produces financials that look almost fictional for a retailer.

In its 2024 fiscal year, Winmark reported revenue of about eighty-one million dollars and net income of nearly forty million, keeping close to half of every dollar of revenue as profit. Its operating margin ran about sixty-five percent and its gross margin around ninety-six percent, numbers that belong to a software company, not a chain of secondhand stores. Fiscal 2025 was bigger still: revenue around eighty-six million, net income around forty-two million, with royalties nearly ninety percent of revenue. And it did all of this with about eighty-nine employees at headquarters, supporting a system generating over 1.6 billion dollars in retail sales.

"This worked when there was no internet. It works when there is internet."

The reason the margins are so extreme is the franchisor structure. The franchisees absorb the messy, capital-hungry, labor-intensive parts of retail, the rent, the payroll, the inventory, the markdowns. Winmark absorbs almost nothing and skims a royalty off the top. This is the crucial distinction to hold onto: those spectacular margins belong to the franchisor collecting royalties, not to the store operator selling the jeans. They are two very different businesses stacked on top of each other. What Winmark does with the profit is a study in capital discipline: it returns almost everything to shareholders, roughly two hundred and fifty million dollars of buybacks and a hundred and ten million in dividends over about a decade, including recurring large special dividends. It has returned so much capital, funded partly with debt, that its balance sheet carries negative stockholders' equity, an accounting result that would alarm you in a fragile company and signals aggressive shareholder returns in a durable one, with interest coverage around thirty times. Winmark's market value has grown from a few tens of millions when Morgan took over to roughly one and a half billion by 2026. In 2021 it even wound down its old equipment-leasing arm to become a pure-play resale franchisor, choosing focus over diversification exactly as Morgan's philosophy would predict.

Why buy-sell-trade wins

Winmark's success is not an accident of branding. The buy-sell-trade model has structural advantages worth naming one by one, because each is a reason the model might work for a smaller operator too.

  • Cost of goods. A conventional retailer buys from a wholesaler and marks up. A Winmark store sets its own cost of goods at the counter, typically a small fraction of resale price, producing store-level gross margins reported in the neighborhood of sixty to sixty-seven percent. The store controls its own input cost on every item.
  • Self-replenishing local supply. Because the community both sells to and buys from the store, inventory renews itself continuously without purchase orders, lead times, or a dollar of wholesale spend. The store converts a neighborhood's castoffs into salable goods on terms it dictates.
  • Recession resilience, both blades of the scissors. In a downturn, value retail gains customers trading down while the supply of used goods rises as households sell to raise cash. A resale-industry survey during 2008-2009 found roughly two-thirds of resale stores reported sales increases, averaging about thirty percent. Most retail formats fear a recession; buy-sell-trade tends to thrive in one.
  • Category discipline. Winmark stayed in durable, slow-depreciating goods and abandoned fast-obsoleting ones. Any resale operation lives or dies on whether its category retains value after first use, and Winmark's portfolio is a monument to choosing correctly.
  • Refusing e-commerce where it does not pencil. Winmark deliberately keeps Plato's Closet and Once Upon a Child store-only, offering online sales only for higher-ticket brands like Music Go Round where average orders top two hundred and fifty dollars. As the CEO put it, "selling a couple of onesies online doesn't make sense for anyone." The unit economics of shipping a ten-dollar used garment are hopeless, and local resale avoids shipping altogether.

The view from inside a store

The franchisor's economics are dazzling, but they are not the economics an independent should benchmark against. Opening a Winmark franchise is a real capital commitment: franchise disclosure summaries put the total initial investment for an Once Upon a Child or a Plato's Closet somewhere in the range of roughly three hundred thousand to four hundred and fifty thousand dollars, covering the store, fixtures, initial inventory, the required computer system, fees, and working capital. In return, a healthy store generates meaningful revenue, with average unit volumes for Plato's Closet reported around one to one and a third million dollars, though these figures come from franchise disclosure summaries, vary by cohort and year, and should be verified against the current documents rather than taken as promises.

The store keeps a strong gross margin thanks to that low cost of goods, but out of it must pay rent, payroll, the roughly five percent royalty, an advertising contribution, and markdowns on merchandise that does not move. What is left is a good small-business profit, not a fifty-percent net margin. Keep the two businesses separate in your mind: the franchisor earns royalty-machine margins; the operator earns retail margins on a well-run store with an unusually cheap and self-replenishing inventory supply, whose unit economics are genuinely attractive on their own terms. One more store-level strength: franchise renewal rates run near one hundred percent, about as strong a real-world endorsement of the underlying unit economics as exists.

The honest critique

A research-grade account has to include the friction, and most of Winmark's is a direct consequence of the features that make it work. The loudest complaint is about what sellers get paid: the common refrain is that stores "lowball," paying perhaps twenty to forty percent of eventual resale, and someone who expected more feels shortchanged. Viewed honestly, that is not malpractice but the mechanism of the model itself. The store pays cash immediately and takes the risk that an item may never sell, and it can only do that profitably if it buys well below resale. The gap that frustrates sellers is the same gap that funds the business; the fair criticism is that it can generate steady negative word of mouth among sellers who do not understand it, which store credit at a higher rate is the usual way to soften.

The second friction is labor: because every store is franchisee-owned, wages and conditions vary by location, and a resale store is a labor-intensive operation dressed up in an asset-light franchisor's clothing. The third is curation consistency, since buying decisions are made by individual staff, so a seller can be accepted at one location and declined at another. The fourth is online resale, Poshmark, ThredUp, eBay, Facebook Marketplace, OfferUp, though the pure-play online resellers have mostly struggled to make money even at scale while Winmark's stores remain profitable and its cash-on-the-spot convenience remains genuinely differentiated. The final and most important caveat is the one already raised: the extraordinary margins that make Winmark famous belong to the franchisor, not to the person running the store.

What an independent retailer can actually take from this

Here is the payoff, and it is genuinely encouraging, because Winmark's model is the closest thing in American retail to the used department a shop owner would actually build. You cannot replicate Winmark the franchisor. You can absolutely borrow Winmark the operating model, and doing so is one of the best-validated moves in retail.

  • Buy outright for cash, not consignment. Paying the seller on the spot and owning the inventory gives you control over pricing, curation, and markdowns, and gives the customer the speed and certainty that make people choose your counter over a marketplace listing. Set your cash offer around a third of intended resale, and offer store credit at a more generous rate to keep those dollars circulating in your store.
  • Source locally, and let your community be your supplier. Your cost of goods is set at the counter, not by a wholesaler, and an independent is inherently local in a way Winmark had to build a thousand stores to become.
  • Pick your category with discipline. Resale works in durable, slow-depreciating goods and fails in fast-obsoleting ones. Choose inventory that holds value through a second life, and refuse the categories that do not.
  • Run for turns and price with discipline. Because you own the inventory the moment you buy it, dead stock is your money sitting on a shelf. Buy well, price to move, and mark down aging goods deliberately.
  • Lean into the recession hedge. A used department is one of the few retail additions that strengthens when the economy weakens, on both the buying and selling side.
  • Manage the payout conversation. Be transparent about how offers are set and how store credit gets sellers more. Winmark can absorb payout grumbling across a national brand; your local reputation is more fragile.

What you cannot copy is worth naming so you aim at the right target. You will not have Winmark's brand recognition, so the hardest part for you will be the one Winmark solved with a thousand storefronts and forty years: manufacturing a steady stream of sellers through your door. You will not inherit its proprietary pricing systems, so you will build pricing judgment yourself. And you will not enjoy the franchisor's royalty economics, because you are running a store, not licensing a thousand. Those are real limits. None of them changes the fact that the operating model underneath Winmark, buy used for cash, source locally, choose durable categories, price for turns, is fully available to you, and it has been validated more thoroughly, over more years and more stores, than almost any other model in retail.

The deepest lesson of Winmark is that resale is not a gimmick or a sustainability gesture. It is a real, durable, high-quality business, one that a disciplined operator built into one of the best-performing companies in the country by doing the unglamorous thing well, over and over, for decades. Winmark proved the model at national scale. The independent version, one great store instead of a thousand licensed ones, is exactly the used department you are thinking about, and the mechanics that make it work are no secret. They are just a matter of doing them with discipline.

This feature relies on the public record. Winmark Corporation is publicly traded, so corporate financials (revenue, net income, margins, store counts, capital returns) are drawn from its SEC filings and investor releases and dated to their fiscal year. Franchisee-level figures (initial investment ranges, average unit volumes, store-level gross margins) come from Franchise Disclosure Document summaries via third-party aggregators and should be verified against Winmark's current FDDs before being relied on. Seller-payout percentages and employee-pay and consumer-complaint material are drawn from consumer guides and review sites and labeled as anecdotal or estimated. Store counts, dividends, and market values change over time; figures are stated as of the dates given.

Sources

Funkhouser Strategy helps independent and mid-market retailers make the calls that move the P&L, resale included, with senior operator judgment and no vendor agenda.