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Consignment shops are where you rent out your personal items to a shop owner in exchange for money. They are popular among avid collectors. The consigner can also get paid back if he or she decides they want the item again. Here’s how to set up one of these successful business models!
A excellent location and a plan for collecting clients and items are required to open a consignment business. Starting a consignment business may cost more than $10,000, with consignment store owners earning between $40,000 and $60,000. Successful secondhand business owners are clever and creative, and they usually specialize in one area.
When launching a consignment shop, you’ll want to create a business checking account so you may buy and sell items without having your personal funds mixed up.
In nine easy steps, you may open a consignment business as a brick-and-mortar location.
1. Select the Correct Consignment Shop
If you’re trying to figure out how to launch a consignment business, the first step is to figure out precisely what sort of store you want to operate. Consignment stores come in a variety of shapes and sizes. The most successful shops cater to a certain demographic and have a speciality or focus area that distinguishes them from other online and offline retailers. To earn the most money with your new company, choose a product category that is in great demand and/or difficult to locate in order to attract customers to your store.
Consignment of Designer Goods
Consignment stores are known for selling high-end and designer stuff. Shoppers may buy items that would otherwise be out of their price range. People who want to get rid of lightly used designer items typically sell them to a consignment shop rather than donate them in order to obtain a partial return on their investment.
According to ThredUP, the clothes secondhand industry will reach $41 billion by 2022.
Bookstore with Used Books
Another popular consignment item is used books. Some secondhand shops specialize in rare books, such as antiques and autographed editions, or specialist books, such as recipes and textbooks, in addition to standard paperbacks and hardcover books.
Children’s Clothing
A popular and lucrative sort of consignment business is one that sells clothing for toddlers and newborns. Because parents often need to buy clothing for their growing children, many turn to secondhand shops as a cost-effective solution. You’ll also have a continuous flow of parents eager to sell their children’s gently worn clothing.
Online Consignment Store
Online consignment businesses have grown in popularity in recent years, particularly for clothes and accessories. When compared to a local business, starting an online consignment shop provides you a larger consumer base.
Pop-up shop
If you’re not ready to commit to a full-time storefront, a pop-up shop is a terrific opportunity to try out different items and locations before making the leap. Having temporary outlets is an excellent alternative if you want to establish a consignment company as a part-time endeavor or side work.
“Two years ago, my business partner and I launched our seasonal pop-up consignment sale company. We like this method of resale because it eliminates the expense and time restrictions of a typical consignment store, allowing us to operate it as a part-time business while still paying greater commissions to our consignors. For instance, on Friday, we set up a location, have our consignors drop off stuff on Friday night, open for five to six hours of shopping on Saturday, then pack everything up and leave on Saturday night.”
Jenna Morton, Grapevine Events Co-Founder
2. Make a budget for your consignment shop.
Setting a budget is the next stage in how to establish a consignment business after you’ve decided what kind of store you want to create. To create a budget, think about your present income and savings. What can you put aside and save for your future business? How much money can you acquire through personal loans, business loans, business credit cards, and other sources? Opening a consignment shop requires a large sum of money up front. It will take time to grow your sales volume after you’ve opened.
Next, figure out how much it will cost to launch your shop. Include how much you can spend on a storefront, interior decor, signage, and marketing, as well as your first product purchase. Calculate your monthly expenditures after you’ve opened. Include fixed costs such as rent, phones, internet, and payment processing, among others. Budgets for advertising, staff pay, goods purchase orders, and other business supplies should all be considered.
Predicting your monthly sales volume is the most difficult component of creating a budget for a new firm. Sales may change dramatically based on the season, holiday, weather, economy, and customer confidence, which is particularly difficult for fashion and retail firms. Used goods stores had an average inventory turnover rate of five in 2018, according to the Retail Owners Institute. That implies they went through and replaced all of their inventory five times throughout the course of the year.
When forecasting your monthly sales, keep that figure in mind, as well as the entire worth of your inventory. To ensure that you have adequate cash flow to pay expenditures, err on the side of caution and anticipate for lower sales when you first launch. Subtract your projected monthly costs from your projected monthly sales to get an estimate of your monthly cash flow when you open.
Retail is a very seasonal industry. Around Christmas and the winter holidays, the bulk of retail enterprises make a lot of money. Back-to-school shopping, as well as spring holidays like Mother’s Day and Father’s Day, saw an increase in sales. Because your monthly sales may fluctuate, have additional cash on ready to handle weak months.
3. Develop a Consignment Store Business Plan
You’ll need a good business plan to pull together all of your ideas and establish a strategy for making your consignment shop successful after you’ve decided what kind of consignment shop you want to operate. Your company plan will be assessed throughout the approval process if you’re seeking outside or starting finance, such as a bank loan.
The following are the nine components of a standard business plan:
- An executive summary is a paragraph that summarizes the goal, objective, and reasons for your consignment shop’s success.
- Describe what need or market gap your consignment shop is providing in the neighborhood, who your consumers will be, and the talent on your staff in your business description.
- Write a market study that includes trends, what successful rivals are doing, and what your strengths will be in the consignment and resale business.
- Management and organization: Outline who will be in charge of your company and what expertise your team members have in retail, consignment, or the specialization of your shop.
- Line of products: Outline the kind of things you’ll offer, how you’ll sell them, and where you’ll get your supplies. Include statistics on why you’re choosing those particular items, such as sales trends.
- Marketing and sales: Describe your overall marketing strategy as well as your customer acquisition and retention strategy.
- Requests for money: If you need outside funding, describe your requirements and how you intend to utilize the cash.
- Financial forecasts: Include a predicted financial timeline of at least five years in your description of how your firm will become steady and successful. If you’re taking out a loan, be sure you have a strategy in place for repaying it.
- Appendix: Include any extra papers in this section, such as logo or branding designs, drawings of your consignment business, credit histories, licenses, permits, and so on.
Use the structure and tools that you are most familiar with while drafting a business plan. A typical word processor, such as Microsoft Word or Google Docs, is used by many individuals. You may also use PowerPoint to construct a presentation structure for your company strategy. There are other software tools that provide templates and coach you through the process of creating a business plan.
“Yes, you must have a business strategy if you want to be successful. Make reasonable expense forecasts and then reverse engineer the sales you’ll need to support them. If possible, speak with a CPA [certified public accountant] to receive an unbiased perspective on whether your figures make sense. The CPA may also advise you on what sort of company to start, how to manage sales taxes, and whether or not you can deduct contributions of products you don’t sell.”
Blogger Deanna Thompson, Closet Full of Cash
Select the Most Effective Legal Structure
It’s crucial to choose a legal structure for your consignment company since it determines how you’ll collect and report taxes, your amount of personal responsibility, and how you’ll get paid. There are numerous other legal forms, but sole proprietorships, limited liability companies (LLCs), and corporations are the three most popular in retail.
A sole proprietorship
This is the default if you don’t set up a legal structure for your company. When you run a sole proprietorship, you’re effectively running a business as a person, and you’re not separated from your company in any manner. Sole proprietorships are a common choice for freelancers, business consultants, and other self-employed people who do low-risk, low-visibility work.
Your company revenue is considered personal income if you own a sole proprietorship. This implies that sole proprietorship taxes will be calculated depending on your particular income bracket. While you must pay self-employment taxes, you are exempt from company taxes, which is a benefit.
However, since you and your firm are one and the same, sole proprietorships carry a higher risk. If your company is sued or you declare bankruptcy, your personal assets, such as your home and vehicle, are at stake.
Limited Liability Corporation (LLC)
LLCs are legal entities that safeguard your personal assets, such as your home and vehicle, in the event of a lawsuit or company bankruptcy. This is the most common legal form for small retail enterprises, and it’s the one we suggest if you just have one consignment shop.
If you are the only owner of the LLC, you will most likely pay taxes like a sole proprietorship, but with the added advantage of having your personal assets shielded from responsibility. However, many states impose their own LLC taxes, which might make it more costly than running a business as a single proprietor.
A sole proprietorship does not require any paperwork, whereas an LLC requires you to choose an official name and file paperwork to establish your company. Fortunately, the paperwork isn’t too extensive and can be completed in a few steps with the help of a tool like LegalZoom.
C-corporation
For your consignment company, corporations are the most organized legal form. They have very severe tax regulations. In the viewpoint of the government and the IRS, forming a company creates a wholly new and different organization.
Consignment firms who wish to grow into many locations, become a public company, or acquire a large amount of outside capital may consider becoming a corporation. Out of the three legal types, corporations provide the greatest personal liability protection. You will, however, have to pay federal business tax in addition to personal income tax. Forming a corporation is extremely costly, and it requires the keeping of meticulous financial records.
Organize Your Financial Situation
Getting your money in order is critical regardless of the legal form you pick. This entails creating a company checking account immediately once to keep your personal and business funds distinct. Having two distinct accounts makes it simpler to keep track of your company’ cash flow and spending, as well as simplifying the tax filing process.
Chase is an excellent banking option for shops since it provides small business accounts, business credit cards, and merchant services payment processing, allowing company owners to handle all of their cash flow in one location. In addition, Chase provides affordable rates and excellent customer service. To discover more about Chase’s small company retail solutions, contact them.
4. Decide on a storefront.
Choosing a storefront is a crucial decision that must be carefully studied. Your choice of location may make or ruin your company. It might be difficult to make a choice. As a result, begin by focusing on a certain geographic area. When you initially establish your consignment business, you’ll be there practically every day for significant periods of time. Consider how far you are willing to commute and consider regions that are conveniently accessible from your house.
Spend time in each region to get to know the local demographics and tastes, as well as to look for other local companies. There are numerous aspects to consider when deciding on the best location for your company, but it all boils down to which location will draw the most people.
For improved sales and exposure, choose a location with a lot of foot traffic.
Foot traffic analysis may help you estimate how many walk-in consumers you might anticipate at each site. Ask other local business owners about traffic, buyer demographics, and the area in addition to scouting out potential storefront sites.
Take into account features such as parking and signs. A Main Street site is wonderful, but only if clients can conveniently park close to your business. You’ll also need a site that permits for a large storefront sign. Some places have specific guidelines for the sizes and kinds of signs that may be used.
5. Purchase Merchandise
Finding items for your consignment business is more difficult than finding items for typical shops. To maintain a consistent supply of things to sell, you’ll want to have a procurement plan in place before you begin. To keep your business supplied, you’ll probably utilize a variety of strategies.
The following are some examples of popular secondhand goods sourcing strategies:
- Joining the Association of Resale Professionals (NARTS): Through its database, this professional association links resale customers with suppliers.
- Advertise to prospective consignors that you are buying lightly used things in print and online on a regular basis. Many of your prospective customers may also be vendors.
- Buying from flea markets and thrift stores: Searching through flea markets and other thrift stores may help you uncover some amazing prices on things to offer in your business.
- Locating a low-cost vendor: Off-price merchandise is not secondhand; rather, it is heavily reduced merchandise that is either overstock or somewhat damaged. Trade exhibitions are a good place to look for them.
6. Create a design for your consignment shop and furnish it.
It’s time to start methodically arranging your shop layout when you’ve secured a location and found product suppliers. The layout of your shop has a significant influence on in-store sales. A well-designed layout will greet customers, make them feel at ease, and point them in the direction of certain items.
The first decision you must make is whatever sort of floor layout you choose. The majority of retail establishments fall into one of three layout categories:
- Loop or racetrack: Ideal for specialist shops, showrooms, and businesses that wish to direct customers along a certain route.
- This floor layout is precisely what you’d expect: straight, angular aisles as you’d see in a grocery shop or a big box store. This model might also be used by a consignment shop.
- This is a common concept for boutiques since it gives for a lot of flexibility in the design process. This is the model that most consignment stores will use.
Finally, decide where you want your checkout counter to be. A well-placed checkout will free up floor space for product display and encourage customers to browse the rest of your business. As a general guideline, aim to put your checkout counter on the left side of your business.
Customers generally go to the right side of a business, so that’s where you should put your greatest items. The checkout counters in certain department shops and bigger mall businesses are located at the rear of the store. For smaller businesses, however, positioning the checkout at the front makes it easy for employees to attend to the register while keeping an eye on the entry.
Choose a Point-of-Sale System
Point-of-sale (POS) systems are cloud-based software applications that replace conventional cash registers and include features like inventory management, sales reporting, customer data, and marketing. Your POS system is the nerve center of your firm, where all transactions are processed. Look for a system that offers all of the capabilities you want at a reasonable price, including payment processing.
Lightspeed Retail POS makes operating a retail shop a lot easier.
The following are some of the factors we use to assess POS systems:
- Price: Most POS software solutions have a monthly price, and others have additional fees for certain functions.
- Ease of use: Try out each POS with a free demo or trial to ensure that the UI is user-friendly, and check user reviews as well.
- Customer management tools: While almost all POS systems offer a customer directory, they differ substantially in terms of loyalty, marketing, and customer feedback functions.
- Sales reports: While every POS system has basic reporting capabilities, others provide more information and facilities for creating bespoke reports.
We often suggest Lightspeed for brick-and-mortar establishments. With bespoke report builders, a loyalty program, and built-in payment processing, it’s a small company POS with big-business capability.
7. Get the word out about your consignment shop.
You’ll need to start promoting before you establish your consignment business. Because you’re on a budget, combine online and offline marketing activities to ensure that your plan is productive.
Your friends and family will be rooting for you as a new small company owner. Solicit their assistance in spreading the news about your consignment store. Because 92 percent of people trust recommendations from friends and family above advertisements, word-of-mouth marketing may be a highly effective tactic.
You’ll also need a website for clients to locate your company. With the correct tools, building your own website from the ground up may be simple. There are several low-cost or no-cost options for creating a company website. You’ll need a domain name and a web hosting provider.
Olive My Stuff, a Connecticut consignment business, features a professional website with shopping and consignment information.
Loyalty programs are a terrific method to drive return clients and bigger transaction amounts after your secondhand store is up and running. Punch cards may be quite useful. Using a loyalty program that is integrated with your POS system, on the other hand, provides more information on who is using the program and how successful it is. For a monthly subscription, Lightspeed provides a comprehensive loyalty program that may be added to Lightspeed POS.
8. Recruit and Train Workers
Last but not least, before you open your shop to the public, you’ll need to hire a fantastic team of workers to act as the face of your company. It might be difficult to navigate the hiring process if you have never done it before. Use a new hire checklist to keep track of all the details, such as acquiring an employer identification number (EIN), registering for state and local taxes, and so on.
It’s unlikely that you’ll have a dedicated human resources (HR) team member as a consignment business owner. By combining recruiting, onboarding, payroll, and benefits into one platform, an all-in-one solution like Zenefits may save you time and hassle.
Training
From the minute you open your consignment shop, you’ll want your personnel to be ready to deliver excellent customer service. Providing excellent customer service is a talent that takes time to master. If you don’t start educating your personnel before to opening, they’ll be practicing their customer service skills on you.
Rather, organize a week-long training boot camp before opening. Teach staff about store regulations and procedures, the things you’re selling, and any other essential information in addition to working through customer service situations and role-playing.
9. Create a grand opening strategy and launch it.
Hosting a grand opening ceremony is a terrific way to get some press publicity while also launching your new firm. To get the most people to come, invite friends and family, write a press release for local media and companies in the area, create a Facebook event, tell your local Chamber of Commerce, and place an ad in the local paper.
“A common mistake made by many businesses is being under the radar until they debut. You have no chance of earning any sales if no one knows what you’re doing or when you’re opening. At least six weeks before your launch, start developing anticipation. Participate in social media. Interact with potential consumers to start a dialogue. Build excitement with intriguing photographs, and you could even be able to incentivise sales in the early stages.”
Thompson Mercy
To commemorate the start of your new firm, have a grand opening.
Most Commonly Asked Questions (FAQs)
What exactly is a consignment store?
A consignment shop is a business that sells used goods, most often apparel and accessories. Consignment shops buy gently worn items and resale them for a profit at a higher price.
What is the process of running a consignment shop?
You will buy used products from clients, professional suppliers, flea market sellers, and so on as the proprietor of the consignment business, and you will own those things until they are resold in your store for a greater price.
What is the cost of starting a consignment shop?
Depending on your region and local real estate rates, the precise price might vary significantly. However, starting a consignment shop can set you back about $10,000.
What causes consignment shops to fail?
Learning what not to do is an important part of learning how to open a resale store. A consignment store might fail for a variety of reasons. The inappropriate storefront location, lack of in-demand items, too-small profit margins, and inadequate promotion are all common factors.
Conclusion
According to the National Association of Resale and Thrift Shops, the resale and consignment business in the United States produces around $17 billion in yearly income. By 2022, the secondhand industry for garments alone is expected to be worth $41 billion. As a result, there has never been a better moment to open a consignment store.
To run a successful consignment company, you’ll need to be well-organized and have all of the necessary equipment. It’s much simpler to record taxes, monitor costs, and manage money when you have a specialized business checking account.
