Rather than fight, Arvold agreed to change the name to Second Run. The change is effective Saturday, the store's fifth anniversary.
"We don't have the resources to fight," Arvold said. "We just decided to change the name. We really had no choice legally."
Palin came under heat as John McCain's running mate when it was disclosed the Republican National Committee spent $150,000 to outfit the Alaska governor and her family during the presidential campaign.
Palin told reporters at the time the clothes were neither her idea, nor her property. In an interview with Fox News in October, she said she was a frugal shopper and her favorite shop was "a consignment shop in Anchorage, Alaska, called Out of the Closet."
Ged Kenslea, spokesman for AIDS Healthcare Foundation, the owner and operator of the Out of the Closet thrift store chain, said if it weren't for Palin, the duplicative name "wouldn't have landed on the radar."
"We've invested a lot of time, energy and money or resources branding Out of the Closet, tied specifically to our HIV/AIDS mission to provide care and advocacy regardless of a patient's ability to pay," Kenslea said. "She was very gracious and agreed to change the name of her store."
Arvold said Palin was last in the store a few days before McCain made her his surprise pick for vice president in late August, and sent a note Arvold a photograph from the campaign trail, showing her wearing a pink Dolce & Gabbana jacket she bought at the store.
