Speaker 1: Have you ever wondered what happens to those old Levi's
Speaker 1: and tired nikes that you drop off at a clothing
Speaker 1: drive or leave in a donation bin. Well, there's a
Speaker 1: good chance that at least some of the clothes you
Speaker 1: give away will end up in Guatemala. It's the number
Speaker 1: one importer of used clothing from the US. In part
Speaker 1: that's because of one company that buys up tons of
Speaker 1: donated clothes and re sells them in Guatemala. In across
Speaker 1: Central America, it's called Megapaca.
Speaker 2: So most people in the US or even outside of
Speaker 2: Central America have never heard of this company. But if
Speaker 2: you go to Guatemala in particular, it is a household name.
Speaker 2: The brand recognition is higher than Walmart, It's higher than Zara.
Speaker 1: Bloomberg's Adam Mintor visited Megapaca's vast operation in a Squintla,
Speaker 1: Guatemala to see how it's transforming the business of secondhand clothing.
Speaker 1: He reports that Megapaca is now expanding with the aim
Speaker 1: of becoming a household name in a new, much bigger
Speaker 1: market the US where the clothes come from in the
Speaker 1: first place. I'm West Kasova today on the Big Take
Speaker 1: mega Paka turns discards into dollars. Hey, Adam, how's it going.
Speaker 1: It's going okay. I've been looking forward to talking to
Speaker 1: you about this story because it's about a company I
Speaker 1: have never heard of. And you've been covering the clothing
Speaker 1: recycling industry for a long time, You've written books about it,
Speaker 1: and yet this company, Megapaca, kind of escaped your notice
Speaker 1: for quite some time. Tell us about this company. Yeah,
Speaker 1: it did.
Speaker 2: Like a lot of people who follow US clothing and
Speaker 2: sort of the globalized export of it. I had been
Speaker 2: focused for so long on West Africa, East Africa, Pakistan.
Speaker 2: We see all these pictures, but in fact, Central America
Speaker 2: is the largest destination for US used clothing and Megapaca
Speaker 2: is the number one importer in Guatemala and for that
Speaker 2: whole region. And I just happened upon them because I
Speaker 2: was at a conference in Costa Rica where they presented,
Speaker 2: and I was just knocked out by the scale and
Speaker 2: sophistication of what they do, and I thought, this is
Speaker 2: something I have to write about.
Speaker 1: And everything they sell is used clothes from the US.
Speaker 2: Everything they sell is used clothes from the US. In fact,
Speaker 2: that's a feature, it's not a bug. Their marketing is
Speaker 2: everywhere all over Guatemala.
Speaker 1: So yam Omegapaca, Megapaca is mizienda in Guatemala.
Speaker 2: You will see their signs, these really elaborate graphics printed
Speaker 2: on their trucks and it'll all say one hundred percent
Speaker 2: imported from the United States. It's a selling point. They're
Speaker 2: very proud of it, and people are very keen to
Speaker 2: get it. Guatemalan consumers, like consumers everywhere really these days,
Speaker 2: are very fashioned forward. They're very cued by what they
Speaker 2: see on the internet. They're interested in the same fashions
Speaker 2: as somebody in Brooklyn might be.
Speaker 1: Tell us how this company started and where they are now.
Speaker 2: So like all great entrepreneur heal stories, they started very modestly.
Speaker 2: An entrepreneur, Mario Pania, looking for a business. He originally
Speaker 2: thought he was going to import automobile parts from the US,
Speaker 2: and he actually went to the US looking for automobile parts,
Speaker 2: and he decided that was too hard, and he heard
Speaker 2: about clothing. He knew, being Guatemalan that there was a
Speaker 2: demand for secondhand clothing. There was an opportunity there, and
Speaker 2: so he rented a car. I believe he had about
Speaker 2: thirty five thousand dollars in capital, and he just started
Speaker 2: driving around the US to thrift stores looking for clothing
Speaker 2: that he could export back to Guatemala. And I believe
Speaker 2: he drove around for three weeks until he found his
Speaker 2: first load in New Jersey. And so they started out
Speaker 2: importing clothes into Guatemala and wholesaling them to small pacas.
Speaker 2: And if you've ever been to Guatemala or Central America,
Speaker 2: you'll have recognized the pockets. They're just small stall street stalls,
Speaker 2: often with hand lettered signs, that are selling bundles of used,
Speaker 2: imported clothes. And so Mario thought, well, we'll just wholesale
Speaker 2: to them. And then one day, as he described it
Speaker 2: to me, the power bill came due and they needed
Speaker 2: cash fast, and so they basically opened their warehouse and
Speaker 2: said all comers come and buy clothes, and at the
Speaker 2: end of the day they'd made sixty six dollars. And
Speaker 2: as he said to me, I realized, then we're in
Speaker 2: the retail business, not the wholesale business. And so they
Speaker 2: started opening stores very slowly over the last twenty years
Speaker 2: that have become an absolute retail juggernaut across Guatemala and
Speaker 2: other Central American countries.
Speaker 1: So Adam, like you say, you went and saw this
Speaker 1: operation in Guatemala, can you describe it, because it's astonishing
Speaker 1: just how sophisticated it is.
Speaker 2: So when you walk into this warehouse, your first impression
Speaker 2: is chaos. I sometimes think of it as like popcorn popping,
Speaker 2: because you see garments flying everywhere and you're thinking, there's
Speaker 2: no order to this. But it's incredibly sophisticated. When a
Speaker 2: shipping container comes in, there's a first sort, that's what
Speaker 2: they call it, and it's just very basic. We're going
Speaker 2: to sort out the men's clothes from the women's clothes,
Speaker 2: from the children's clothes, from the shoes, and whatever trash
Speaker 2: is in there. Stuff that just can't sell that'll get
Speaker 2: sorted as well. Those are the new employees who do that.
Speaker 2: They're just learning the business. But the magic really starts
Speaker 2: happening in the second sort, and that's where you see
Speaker 2: how these thousands of garments that are coming through the
Speaker 2: system per hour really get divided and turned into a
Speaker 2: profitable business. So in the second sort, you have more
Speaker 2: experienced employees who can sort the men's genes from the
Speaker 2: women's long sleeve blouses from the children's trousers and they're
Speaker 2: doing hundreds Each of these employees are doing hundreds of
Speaker 2: these an hour, and when you watch it, I mean,
Speaker 2: it's kind of overwhelming. I felt exhausted. I don't know.
Speaker 2: I don't know how they do it and continue being
Speaker 2: able to stand and can concentrate. But they're very committed
Speaker 2: and they seem to really get some enjoyment about getting
Speaker 2: this right, in part because if they do well and
Speaker 2: they're being watched at all times for just the performance,
Speaker 2: they can make it to the pricing stage. And that's
Speaker 2: where Megapaca's very best, most experienced employees are, and it's
Speaker 2: where Megapaca really makes its money. That's where you have
Speaker 2: to figure out what each of these garments is going
Speaker 2: to be worth when it hits the racks. And that's
Speaker 2: not just somebody standing there saying, hmm, this looks like
Speaker 2: a five dollars blouse to me. What they're provided is
Speaker 2: computerized data on a screen in front of them that
Speaker 2: tells them what similar garments have sold for in Megapaca
Speaker 2: is now, as a few weeks ago, one hundred and
Speaker 2: twenty three stores across Central America plus the websites, and
Speaker 2: that gives them a range of prices. They can then
Speaker 2: take those prices and look at the condition of a
Speaker 2: specific garment and say this garment should be priced high
Speaker 2: on the continuum potential prices that this type of garment
Speaker 2: has sold at, and that pricing data is then fed
Speaker 2: back into the system and it's tracked to the store
Speaker 2: and they're judged on whether they hit it right. Is
Speaker 2: somebody going to pay that price? I mean, if you
Speaker 2: see five hundred gap T shirts over the course of
Speaker 2: a week, you know you're going to have a pretty
Speaker 2: good idea of where they wear, you know, And so
Speaker 2: they're looking at that stuff and then going right back
Speaker 2: to that algorithm printing out the price tag which has
Speaker 2: a QR code on it. That QR code when it
Speaker 2: goes to the shop, say in Guatemala City, will allow
Speaker 2: Megapakat to say, Okay, this kind of thing from Fargo
Speaker 2: North Dakota sells poorly in this store, but maybe that
Speaker 2: same kind of garment from Fargo North Dakota sells really
Speaker 2: well in a different Guatemalan megapaca. It's that detailed, it's
Speaker 2: incredibly sophisticated, and it's nothing like being in a popcorn popper,
Speaker 2: which is what I thought I was in what I
Speaker 2: walked in there the first time.
Speaker 1: You mentioned that shoes coming in is another lucrative part
Speaker 1: of the business, and you describe what happens to a
Speaker 1: shoe that arrives in their facility. Paint us a picture
Speaker 1: of that.
Speaker 2: What Megapac does is what a lot of small secondhand
Speaker 2: dealers I've seen in Mexico do, which is they upgrade them,
Speaker 2: they up value them. And the way you do that
Speaker 2: is you wash them. Well, it's one thing to be
Speaker 2: a small guy with a street stall, you know in Esquintola, Guatemala,
Speaker 2: who buys ten shoes a week and washes them clean.
Speaker 2: What Megapaca has is an entire washing line. It's on
Speaker 2: the second floor of the distribution warehouse, and it's incredible.
Speaker 2: You've got a little over a dozen employees who are
Speaker 2: receiving shoes that have scuff marks, maybe some of them
Speaker 2: are muddy. They've been donated to, you know, thrift stores
Speaker 2: in North America, in the United States, and they need
Speaker 2: to be cleaned up. In the space of two to
Speaker 2: three minutes, they are able at these wash basins to
Speaker 2: turn these use looking shoes into relatively new looking shoes.
Speaker 2: And it's profitable. As it was described to me, a
Speaker 2: wash shoe adds two to three dollars of value to
Speaker 2: that shoe, so it's really worth it for Megapaka to
Speaker 2: do this. And it's just one more example of how
Speaker 2: Megapaka is squeezing as much value as it possibly can
Speaker 2: from these closet it imports. But even more to the
Speaker 2: point from a sustainability standpoint, they're making them more attractive.
Speaker 2: They're turning the trash into treasure.
Speaker 1: So Adam, there's another dimension that you describe to their
Speaker 1: pricing system, which is once they've fixed this QR code
Speaker 1: and given it what they think is the proper price,
Speaker 1: it goes on the racks and then they start to
Speaker 1: see whether it sells.
Speaker 2: What Megapaca does is it employs what's called a Dutch auction,
Speaker 2: which is a Dutch auction is when you take an
Speaker 2: item and you drop the price until somebody buys it.
Speaker 2: And so what happens is a new garment goes on
Speaker 2: the rack and it's selling at one hundred percent the
Speaker 2: price that was affixed in the distribution warehouse with the
Speaker 2: QR code. After a week, if it doesn't sell at
Speaker 2: that price, it goes to another rack. Where it sells
Speaker 2: at ninety percent of the price a ten percent discount.
Speaker 2: If it doesn't sell after that, it goes to another rack.
Speaker 2: But this is a nine weeks cycle until you're left
Speaker 2: with what doesn't sell. But what's remarkable about this system
Speaker 2: is that everybody kind of gets their own price points.
Speaker 2: So the fashion forward Guatemala City lawyer who wants, you know,
Speaker 2: a nice new suit at a discount, they can go
Speaker 2: in there and buy Megapaca's price one hundred percent, and
Speaker 2: as the price comes down, you get different people buying
Speaker 2: the stuff till you get maybe to the ninety percent discount,
Speaker 2: which is towards the end, you know, where maybe it's
Speaker 2: farmers coming in from the hills around Guatemala City looking
Speaker 2: for the stuff at their price point. Megapaka claims that
Speaker 2: they are able to sell eighty percent of the stuff
Speaker 2: that comes in to their stores. Most secondhand retailers in
Speaker 2: the US only sell about a third of the stuff
Speaker 2: on their racks, So it's extraordinary and there's a lot
Speaker 2: packed into that, because you know, there is this feeling
Speaker 2: that there's so much new stuff going on the racks
Speaker 2: there that if you don't get into the store today
Speaker 2: or tomorrow, you're going to miss something. It won't make
Speaker 2: it to the twenty percent off side. So really it's
Speaker 2: there's that huge brand recognition that it's just so important,
Speaker 2: especially to Guatemalans who are looking for apparel.
Speaker 3: Like everyone, they like a good deal.
Speaker 1: That's Jose Rivera, he's Mega Paca's back office manager. He
Speaker 1: says the company puts a lot of attention on the
Speaker 1: store experience, both for customers and employees.
Speaker 3: You know, if you go to one of our stores,
Speaker 3: we always like look for the details. You know, it
Speaker 3: has to be well lit, we're organized, it has to
Speaker 3: smell well. If you go to the restroom, it's going
Speaker 3: to be a clean restroom. So just just part of
Speaker 3: the whole shopping experience. This has come just back to
Speaker 3: the beginnings that Maria and Gustavo always wanted to build
Speaker 3: a company that you wanted to come to work for.
Speaker 3: You know, it was funny, it was just not work.
Speaker 3: It was also an enjoyable experience. All of these are
Speaker 3: just extensions of the core values that are ingraining our company.
Speaker 1: Adam. So far, we've talked about how Mega Paka is
Speaker 1: taking advantage of the flow of clothes from the US
Speaker 1: into Guatemala where people really want to buy it. But
Speaker 1: now you right, the company has a whole different model
Speaker 1: for expanding, right.
Speaker 2: Mario Pania, who's the co founder of the company, has
Speaker 2: always been a very ambitious man. And once they had
Speaker 2: conquered Guatemala, if you will, right around the middle of
Speaker 2: the last decade, he told me that he sat down
Speaker 2: as partners, and I loved the phrase he used. He said,
Speaker 2: we can sit around and rub our bellies, or we
Speaker 2: can expand.
Speaker 1: Here's Jose Rivera again.
Speaker 3: This has always been an ongoing conversation since the beginning.
Speaker 3: They always had in their mind to have a big company,
Speaker 3: you know, so the natural step is always keep growing
Speaker 3: to the next country.
Speaker 2: And so over the last eight years they've expanded into Honduras.
Speaker 2: El Salvador in the southern part of Mexico. Certainly wasn't smooth.
Speaker 2: Anytime you've during an international expansion, there's challenges, but they
Speaker 2: feel that they've got that under control.
Speaker 1: And so Mario then.
Speaker 2: Got to the point where he's ready to exercise his
Speaker 2: true ambition, which is to be the world's largest retailer
Speaker 2: of second hand clothes. And as he said to me,
Speaker 2: the only way to do that is to achieve in
Speaker 2: the United States, you need to expand there and you
Speaker 2: need to own the US market.
Speaker 3: The US has always been like the Holy Grail, you know,
Speaker 3: like one day we're going to hit the US.
Speaker 2: And so that's what they're doing.
Speaker 1: After the break how Mega Paka intends to capture US customers.
Speaker 1: As we just heard, Megapaka is bringing its business to
Speaker 1: the US, and Adam says, for now, they're starting fairly small.
Speaker 2: The question always was how do you do this? You know,
Speaker 2: is Megapaca just going to go in open stores and Texas,
Speaker 2: in Utah and California, places which might be good markets
Speaker 2: for them. No, They've launched a US website just this
Speaker 2: month and they're going to see how it goes one.
Speaker 2: It's going to give them data on how people shop
Speaker 2: Mega Pakat in the US. Right now, the clothes that
Speaker 2: are going on the website in the US are clothes
Speaker 2: that would have gone to Guatemala. So it's one of
Speaker 2: the partners that they buy from in South Carolina. They
Speaker 2: are taking those clothes and they're basically diverting them into
Speaker 2: the US market instead of sending them down to Guatemala.
Speaker 1: Adam says that Megapaca has its eye on particular customers
Speaker 1: in the US.
Speaker 2: The people they're targeting are the millions of Central American
Speaker 2: migrants into the US, the Central American expats who've grown
Speaker 2: up with and grown to love megapaca megapacas.
Speaker 1: Jose Rivera explains it this way.
Speaker 3: We're going after the Latino market. You know, that's the
Speaker 3: biggest minority in the US, So we're just trying to
Speaker 3: give them a feel of home. You know, go to
Speaker 3: a store where they where there's someone that speaks their languages,
Speaker 3: that they have their music, people welcome you. That's what
Speaker 3: we're aiming at, not as specifically the markets that we
Speaker 3: already are based, but just the whole Latino market.
Speaker 2: If you go when you look for Megapaca marketing in
Speaker 2: the US right now, you're not going to find it.
Speaker 2: But if you want to go find Mega Pocket marketing
Speaker 2: about their US website in Guatemala, you'll have no problem
Speaker 2: finding it. Because what they're doing is they're going on
Speaker 2: WhatsApp and saying, Hey, tell your uncle in Texas that
Speaker 2: Mega Packet is in the US, and if you buy something,
Speaker 2: you get twenty five percent off a Guatemala Mega Pocket.
Speaker 3: The first thing that we started is We advertise it
Speaker 3: in the in Guatemala, Honduras and Alsabathers. You know, tell
Speaker 3: your relatives in the US that Megapaca is. It's there,
Speaker 3: and they can go to our webs and they and
Speaker 3: they can buy. We also have decals on our trucks.
Speaker 3: We also have advertising in our stores, and we're also
Speaker 3: advertising on social media in the US.
Speaker 1: I asked Rose Rivera where he sees the company headed
Speaker 1: in the US five years or ten years from now.
Speaker 3: So everything that we've been doing for years in the
Speaker 3: countries that we're at right now, it's been just like
Speaker 3: the preparing grounds for us to launch in the US.
Speaker 3: So this is the website just gives us a better
Speaker 3: idea where where a customer base is at. And if
Speaker 3: we're getting a lot of orders, let's say from La
Speaker 3: we know that that's where we we have to put
Speaker 3: a story. We get in a lot of orders from Houston,
Speaker 3: you know, from San Francisco, whatever those those orders are
Speaker 3: coming from, the well the majority of them, we know
Speaker 3: that that's a good place where that our customer base
Speaker 3: is at, and that's where we have to put the
Speaker 3: first stores.
Speaker 1: When we come back. What happens to all the clothes
Speaker 1: Megapaca isn't able to sell Adam, You're right about how
Speaker 1: the rise and fast fashion of these clothes that are
Speaker 1: so cheap, and of the moment that people in America
Speaker 1: buy them, where them a little bit, men just toss
Speaker 1: them aside, has given great momentum to this industry.
Speaker 2: Yeah, well we know this. There's very good data out
Speaker 2: there that Americans are wearing their garments lest they're wearing
Speaker 2: them fewer times and for shorter periods of time, and
Speaker 2: they're hitting the donation bins much quicker. What are those
Speaker 2: garments that are hitting the donation bins. It's cheap clothing,
Speaker 2: what we call fast fashion, as you allude to, and
Speaker 2: that has really driven the growth of the global second
Speaker 2: hand apparel industry, not just in Guatemala, but all over
Speaker 2: the world. Is created excess supply. And it's interesting because
Speaker 2: you know, it's not just the US where clothes are
Speaker 2: being thrown away at a great rate. The fastest going
Speaker 2: exporterer is actually China, which makes a lot of sense
Speaker 2: because Chinese consumers have access probably to more and more
Speaker 2: easily access fast fashion than anywhere else in the world,
Speaker 2: and they too are throwing it away. I mean, so
Speaker 2: you have this giant global churn of all this extra clothing.
Speaker 2: You have all this supply and it's ready made for demand.
Speaker 1: Adam, you said that some of the clothing that comes
Speaker 1: into the facility in Guatemala, despite all their care, can't
Speaker 1: be used and they have to throw it away. And
Speaker 1: even those items aren't necessarily destined for a landfill.
Speaker 2: No they're not. I mean. One of the exciting things
Speaker 2: about Megapaka is that they've also gotten into the clothing
Speaker 2: recycling business, and so they have an entire wing of
Speaker 2: their site and their company called Nova Fiber, and what
Speaker 2: they've done is imported European fabric recycling technology. So they'll
Speaker 2: take those unwanted garments and it's not just unwanted garments
Speaker 2: from the US. They are surrounded by new clothing manufacturers.
Speaker 2: They're factories all around them in Escuintala. They'll send their cuttings,
Speaker 2: unwanted pieces of fabric to Megapaka and Nova Fiber, and
Speaker 2: those scraps and unwanted clothing will become something called shoddy,
Speaker 2: which is this very low quality fabric mix that can
Speaker 2: be used and is used as insulation. It's used in
Speaker 2: mattresses as mattress padding, and in fact, Megapaka sells that
Speaker 2: it stores mattresses made with shoddy produced in the Nova
Speaker 2: Fiber facility, So they're really committed as much as possible
Speaker 2: to using everything that comes in and in fact, some
Speaker 2: of that shoddy has actually been sent back to the US.
Speaker 2: In fact, while I was there, their first shipment of
Speaker 2: shoddy to the US arrived at a company in Arizona.
Speaker 2: So you see the circularity happening between Guatemala and the US.
Speaker 2: It comes from the US, goes back to the US,
Speaker 2: and that's just going to grow.
Speaker 1: After reporting all about it and spending time with them,
Speaker 1: what's the thing that surprised you most about this operation?
Speaker 2: Well, I think the thing that surprised me most was
Speaker 2: the how algorithmically determined its pricing and its stores are.
Speaker 2: This is so far ahead of what other people are
Speaker 2: doing in the industry. I mean, you have very large
Speaker 2: secondhand retailers. For example, in Japan, book Off Corporation, which
Speaker 2: is a company I've spent a lot of time with.
Speaker 2: They're quite sophisticated, but they don't have this kind of
Speaker 2: algorithmically determined pricing. Goodwill is much larger than Megapaka, and
Speaker 2: they do some amazing things and they have their own
Speaker 2: challenges and their nonprofit, but they don't have this algorithmically
Speaker 2: determined pricing. And so if we can make this a
Speaker 2: more sophisticated operation, I think it raises the brand of secondhand.
Speaker 1: Adams was so interesting. Thanks for taking us along for
Speaker 1: the ride, Thanks for coming, Thanks for listening to us
Speaker 1: here at The Big Take. It's a daily podcast from
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Speaker 1: to Big Take at Bloomberg dot net. The supervising producer
Speaker 1: of The Big Take is Vicky Virgolina. Our senior producer
Speaker 1: is Catherine Fink. This episode was produced by Jilda Decarli
Speaker 1: and Sam Gebauer. Kilde Garcia is our engineer. Our original
Speaker 1: music was composed by Leo Sidrin. I'm West Kasova. We'll
Speaker 1: be back tomorrow with another Big Take.