This might not be the first shop that comes to mind when buying things in Iceland, but I have send maaaany people here already and many of them have come back really happy. The reason?

The Red Cross second hand store has a lot of knitted Icelandic sweaters (lopapeysa) for decent prices. Many of the sweaters are new knitted, so they are not even second hand, but knitted by volunteers that get wool and knit sweaters especially for the Red Cross shop. You will also find knitted socks, gloves or scarfs there.

So if you are looking for a bit cheaper sweaters, this is the place to be. And it is just nice to thrift shop too of course! Definitely a hidden gem for that. And right across the street you will find Hertex (from the Salvation army). They also have some knitwear, but usually not that much.