Spectacular (Re)Sell Through

Turning Your Old Clothes Into $200 Million

Two hundred million dollars. 

That’s what Megapaca, under the guidance of founder and CEO Mario Peña, is making each year from the clothes, toys, and housewares that Americans throw away. 

Golf clap for you, Sr. Peña. 

In this issue, we turn our attention to Megapaca, a company disrupting the global resale apparel industry. More than just a resale operation, Guatemala-based Megapaca has created an end-to-end operation generating more brand value amongst its Central American customers than Walmart.

How has he done this? It’s simple.

He’s built an operation centered on a deep, core understanding of his customers’ emotional motivations, shopping behaviors, and economics. 

Used clothing? It’s not a bug. It’s a feature. 

Megapaca stands as the largest importer and retailer of used clothing in Central America. Last year alone, the company imported a staggering 45 million pounds of used goods from the U.S.  It racked up 12 million transactions, selling a remarkable 70 million items in its 115 stores in Guatemala, Honduras, and El Salvador.

Deep, Hyper-Local Customer Types — and Appealing to Each

To grasp the challenges facing Central American middle-class consumers, it's essential to consider their economic reality — vastly different from that of more affluent individuals like Mario Peña, who grew up in relative privilege.

This disparity became clear to Peña one day when a family gardener fell and scraped his knees while working.

Concerned, Peña went to check on the man, only to be taken aback by his response. The gardener, seemingly unfazed by his injuries, simply remarked, "Thank goodness it wasn’t my pants." For him, the cost of replacing a pair of pants outweighed the pain of a minor injury.

This moment offered Peña a glimpse into the financial priorities of the region’s middle class, where even small expenses can have an outsized impact on daily life.

The core of Megapaca's business model lies in a deep, hyper-local understanding of Central American retail customer segments. The company understands what Peña learned as a young boy, and what Sandhya Jain-Patel, a multi-cultural brand advisor, and I discussed in a recent interview.

Culture is not a monolith. Segments are not monolithic.

Megapaca understands this. The brand has strategically positioned itself to cater to the needs of several middle-class apparel buyers:

• Premium, trend-conscious customers

• Core, one-stop shoppers

• Rural resellers

Megapaca’s Three-Tiered Sales Strategy fuels a virtuous inventory cycle.

The company maximizes margins by focusing first on premium customer sales, offering higher-priced, trend-forward items. Once those racks are cleared, the remaining inventory is marked down week by week, incentivizing foot traffic from its core demographic. 

Rural resellers purchase the leftovers at rock-bottom prices to sell in economically disadvantaged and less accessible parts of the country, ensuring Megapaca’s inventory moves efficiently while serving diverse market needs.

Megapaca’s Premium Strategy Targets Fashion-Forward Professionals

For Guatemala’s urban young professionals, who seek the latest fashion trends, Megapaca’s Premium Customer segment has become a key focus. These shoppers aren’t just looking for basics — they come to browse for trendy items from the U.S. Megapaca has tapped into this demand by leveraging influencers to shop and showcase their finds, creating buzz around the store's fashionable offerings. 

The company goes a step further by tracking customer preferences, using sell-through data and algorithms to identify popular items and their sources. When a particular brand or style proves to be a hit, Megapaca strategically sources more from the same suppliers, marks up the prices, and drives profits from the premium segment. 

Zara, for example, is a coveted brand in Guatemala, where only one physical Zara store exists. Megapaca capitalizes on this demand by identifying and merchandising Zara clothing in its premium section — sold without discount.

Core, One Stop Customers

The core market is the largest customer segment for Megapaca. These customers are looking for a simple, consistent experience at a good value. 

Almost 80% of Megapaca’s customers are women, who shop at Megapaca for their families, their spouses as well as (sometimes — I feel you ladies) themselves. Megapaca is their trusted one-stop-shop offering clothes, toys, shoes, and household goods at affordable prices.

The allure lies not just in the affordability but in the convenience of finding everything they need under one roof.

“Nos gustan venir en familia porque siempre encontramos algo para cada uno” — La madre

This core market is crucial for Megapaca's overall success. These customers are the backbone of Megapaca's consistent traffic, returning frequently in search of new deals across store departments to keep their families well-supplied. 

Low-Budget and Resellers

Now for the magic of this model.

Megapaca boasts an impressive sell-through rate exceeding 80%, far surpassing the average 33% of U.S. thrift stores. That’s because Megapaca has a built-in liquidation customer — resellers.  These customers buy the cheapest merchandise, taking it to markets and the countryside to sell.

Shockingly, these resellers make up over 20% of store sales. This entirely relieves Megapaca of the cost and complexity of liquidating inventory.

A Reason to Return

Megapaca’s sales model itself gives a compelling reason to keep all customers coming back to the store.

Megapaca's stores operate using a unique Dutch auction system. Once an item enters the store, it joins others from the same week, initiating a weekly discount cycle that can span up to nine weeks and culminating in a 90% discount. 

This discounting journey is guided by color-coded dots on price tags, allowing associates to rotate merchandise down weekly. This Dutch auction model, where prices decrease until a buyer emerges, creates a shopping experience where discounts are always fresh.

The pricing structure is the mechanism that drives the virtuous sell-through cycle.

In Guatemala City, a professional might pay full price for a stylish club outfit, while the rest of Megapaca’s inventory finds its way to shoppers across the economic spectrum — from young families and working moms to resellers catering to low-income coffee farmers.

As items move down the racks week by week, unsold pieces eventually land in the super-cheap section, where individual resellers purchase them and transport the goods to rural areas for resale. 

Forget the American notion of treasure hunting in a cluttered thrift shop.

Megapaca takes a different approach, investing in team members to maintain organized, clean, and highly shoppable stores. Cleaners patrol the aisles, wiping away shoe scuffs after try-ons and keeping racks in pristine condition.

This meticulous attention to detail is more than just about aesthetics — it’s a strategic move.

By keeping stores well-organized, Megapaca ensures that shoppers can quickly navigate the space, find what they’re looking for, and stay within their budget. The result is a seamless, efficient shopping experience that caters to both high-volume customers and bargain hunters alike.

A Guatemalan-First Brand

Megapaca has become part of the cultural fabric of Central America. Beyond a place to shop, it's a cultural phenomenon embedded in the daily lives of the region's residents. 

The brand's influence goes beyond retail; it's become a symbol of Guatemala and the Guatemalans who shop there.

Jose Rivera, a back office manager, told a story to Bloomberg about getting coffee one day. On the way back to Megapaca’s warehouse, Rivera stops at a Cafe Barista drive-thru. As the attendant passes his black coffee through the window, he notices the logo on Rivera’s shirt. “I love Megapaca,” he says. “I need to get back, it’s been too long.”

Like Buc-ee’s, the brand's distinctive and local-first presence has elevated Megapaca to a status that surpasses even Walmart among locals.

An Audacious Bet: Entering the U.S. Market

In a bold move, Megapaca opened an online store in 2023 targeting the U.S. market. Are they aiming to sell Americans their own clothes back? 

No. We suspect it's a move to capitalize on the substantial migration of Central Americans (and their economic value) to the United States. Close to four million Guatemalans, Salvadorans, and Hondurans live in the U.S., which is substantial considering the population of these countries is approximately 34 million people. 

And just like its deep understanding of local customers, Megapaca understands that a core desire of its U.S.-based cohort is to send dollars home. Its site is based on letting U.S.-based family and friends purchase in USD and enables delivery or in-store pickup in Central America.

While the company has seen tremendous success in Central America, where it is the leading importer of used clothing, its U.S. venture is still in its early stages. Megapaca is banking on the growing demand for second-hand apparel in the U.S., where more consumers are turning to thrift shopping and sustainability-focused fashion. By using a data-driven approach, similar to its operations in Guatemala, Megapaca is attempting to build a strong foothold in this expanding market.

Despite these efforts, the company still has to prove its model in the competitive U.S. resale space, where established players like ThredUp and Poshmark dominate. However, their strategic targeting of a niche Central American market could provide a unique edge.

Megapaca’s True Edge: Operational Efficiency

As we delved deeper into Megapaca's success, it became clear that driving foot traffic into stores is only part of the equation. What truly sets this retail giant apart is its unparalleled ability to minimize operational costs by extracting maximum value from every step of the supply chain.

This efficiency isn’t a matter of chance; it’s the result of a holistic approach to retail, where each process is meticulously optimized for peak performance. From sourcing to sorting and merchandising, Megapaca fine-tunes every aspect of its operations, ensuring that no opportunity for profit is overlooked.

In The Most Efficient Operation I’ve Ever Seen, we delved into Megapaca’s fascinating sourcing and sorting operation — unveiling the mechanics behind its ability to turn second-hand goods into a retail powerhouse.

Remember, the path to success is paved with continuous learning and embracing fresh perspectives.

Let's stay connected, share ideas, and elevate your consulting business.

Stay curious, friends.

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