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Is Opening a Consignment Business Right for You?

Is Opening a Consignment Business Right for You?

Fueled in part by America’s recent recession and by our growing interest in recycling of all types of things, consignment stores are growing in popularity.

According to America’s Research Group, about 15 percent of Americans will shop at a consignment/resale shop this year. When you compare that percentage to the 11 percent of Americans who shop in factory outlet malls, the 20 percent in apparel stores and 21 percent in major department stores, you can see that consignment stores have become an important part of the retail landscape.

Are you considering a consignment store as your new small business? Consignment shops sell everything from clothing to housewares and furniture. You can even specialize in music, toys or arts and crafts.

A consignment shop can offer a lower overhead as compared with traditional retail stores, because your consigners provide your inventory, and they are paid out only when their items sell. Consignment shop owners sell items from multiple consigners and share a portion of the profits.

It could be a lucrative business opportunity. However, there are some important factors to keep in mind. Here are four steps to launching a successful brick and mortar consignment store.

Determine Your Niche

First, realize that not all consignment stores fit the same mold. Determine your marketplace. Do you aim to be a boutique-style high fashion shop, a mid-priced department store-like shop or a low-priced shop with a high turnover? Your inventory, your pricing and your marketing will be different, according to your choice.

If your vision is a high-end store, for example, you may need to start small and build more volume as you build your reputation and your customer base.

Start With What You Know

Sell items that you know about and are passionate about. If you are opening a women’s clothing shop, for instance, you should have some knowledge about the designers you sell. This knowledge will help you gauge pricing and help you market your merchandise effectively.

You also need to know your community. What types of retail stores – both new and used – do well in your area? Where are they located? Are there any needs that are being unmet? How can you fill them?

Consider Your Location

A big part of knowing your community is knowing where your store should be located. Sure, a storefront that is off the beaten track may cost you less in rent, but what difference will that make if your customers cannot find you?

A location in a high-traffic area of your town will have a higher rent, but it may be worth it in the long run as you work to build your clientele. You can keep costs down by being creative – but minimal – with your displays and with the layout of your store. Also, don’t be afraid of a small space until you build your business

An added challenge with a consignment business is that you have to attract your consigners as customers. Locate and market your store to attract the very people who have the items you want to sell. Remember that without consigners, you have no inventory.

Use Social Media

Well in advance of opening your store, get the word out to friends and neighbors. By creating a Facebook page prior to opening, for example, you can generate interest and excitement about your store. You also can begin to accept inventory.

You also might consider sending an email announcing your shop to friends and co-workers. Offer a discount to consignors who shop in your store. Put up flyers about your shop wherever you can and in online sites such as craigslist.

Do Your Legal Homework

As a consignment store owner, you will need to apply for a tax license. Also, check with your local authorities about zoning restrictions, fire codes, occupancy permits and other legal details for opening a retail store. Talk with your insurance agent about the best policies for your business. How many employees will you have? Research your obligations on worker’s compensation insurance as well.

Talk with other consigners and with your attorney about the contract you need with your consignors. Usually, the consigners maintain ownership of their items while they are in your store. When they are sold, you earn a percentage of the sale and pay the consigner the rest. If items do not sell within the timeframe specified by your consignment contract, the contract can be renegotiated or the items may be returned to the consigner.

Since you do not own your inventory, it is critical that you have an efficient point of sale (POS) system. There are many POS systems from which to choose. Look for one that offers basic functions and that will allow you to add features as your business expands.

Opening a consignment store can be a great way to own your own business. With a little foresight and planning, you can be on your way to a fulfilling, challenging and lucrative career. For more information, visit the Association of Resale Professionals.

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by Tricia Drevets // Regular Contributor to Businessing Magazine. Tricia Drevets is a freelance writer who specializes in business and communication topics. A community college speech and theater instructor, Tricia lives in beautiful Southern Oregon.

Opinions expressed by contributors are their own.