Operating a retail business has always been a risky endeavor, but the potential rewards make it an enticing opportunity for entrepreneurs. In recent years, resale and consignment stores have grown in popularity, appealing to bargain hunters and those concerned about sustainability. For someone considering opening a consignment store, an important question arises: is a consignment store a viable and profitable business model? There are many factors to consider when evaluating the money-making potential of a consignment store.
What is a Consignment Store?
A consignment store allows customers to sell their used items to the store. The store then sells the items and splits the profits with the original owner. Typical consignment store merchandise includes used clothes, books, furniture, and home accessories. Some specialized consignment stores focus on specific categories like designer fashion, children’s items, or sporting goods. A key distinction between a consignment store and other resale shops is that the consignment store doesn’t pay upfront to acquire inventory. The business model reduces overhead expenses and startup costs.
The Consignment Store Business Model
When a customer brings items into a consignment store to sell, the store and the consignor agree on a split of the eventual selling price. A typical arrangement is a 50/50 split or a 60/40 split in favor of the consignor. The store will then tag and display the items for sale. Some agreements specify a time limit, such as 60 or 90 days, after which unsold items are returned. An advantage of this model from the store’s perspective is not paying for inventory that may not sell. From the consignor’s view, they can earn cash for unused possessions without dealing with the work of selling online or at a yard sale.
Factors in the Profitability of a Consignment Store
Deciding if a consignment store can be a money-making small business depends on evaluating many variables:
Location
Opening the store in an area with high foot traffic and visibility is ideal. Areas near affluent neighborhoods may yield higher quality consignments. Easy access and parking appeal to customers. High rent locations in shopping districts can eat into profits.
Local Demographics
A sizable population of middle and upper-middle class households looking for bargains on used goods can provide a customer base. A mix of families and style-conscious young adults are ideal target demographics. Access to schools and community centers helps spread the word.
Inventory Management
Careful screening of consignments for desirability ensures quality merchandise that sells quickly. Establishing policies for length of consignment avoids keeping stale inventory too long. Identifying and rejection inferior or unsellable goods keeps the offerings fresh.
Store Ambiance
An attractive, clean, and well-organized store encourages browsing and buying. Creative displays make products appealing. Categorizing similar items together makes navigation easy for shoppers. Wide aisles provide comfort and accessibility.
Pricing
Appropriately pricing both newly acquired inventory and long-term products ensures brisk sales. Start high but be willing to markdown slow sellers. Underpricing leaves money on the table. Overpricing leads to stale inventory. Factor in any costs of cleaning and repairing.
Store Staffing
Have enough floor staff to run the cash register, assist customers, process new consignments, and sort inventory. Hire employees skilled at evaluating consigned items, spotting treasures, and negotiating with consignors. Keep staffers motivated with commission incentives.
Expenses
Factor in recurring overhead like rent, utilities, insurance, advertising, salaries, credit card processing fees, supplies, maintenance, and taxes. Keep expenses in check starting out. Get the most value from every expenditure.
Technology
A point-of-sale system tracks sales, inventory, customers, and consignors. Security cameras deter theft. Invest in an engaging website and social media presence to promote the store. Offer online reservations for consignor appointments.
Customer Service
Create a welcoming environment for shoppers. Offer personalized service and attention. Be willing to negotiate prices. Provide tailoring for clothes. Follow up with consignors about payments. Build loyalty with repeat shoppers and consignors.
Sales Volume
Given fixed costs, the total gross sales volume must be high enough to cover expenses and make a profit. Attracting new consignors and buyers is an ongoing task. Special sales events can boost revenues. Extending hours provides more opportunity for sales.
What is the Cost to Open a Consignment Store?
The startup costs for a consignment store will vary based on size and other factors, but some typical expenses include:
– **Store lease or mortgage** – The biggest recurring cost. Can range from $3,000-$10,000 per month depending on size and location.
– **Inventory software** – $50-$200 per month. Tracks consigned items and handles payments.
– **POS system** – $500-$2,500 for hardware and software. Records sales and manages inventory.
– **Furniture and displays** – $5,000-$20,000 for racks, hang bars, shelving, display furniture, and decor.
– **Starting inventory** – $10,000-$30,000 to purchase existing store stock and make initial buys.
– **Store build-out/remodeling** – $20,000-$100,000 depending on needed changes to the space.
– **Advertising and marketing** – $2,000-$5,000 per month for promotions to attract consignors and customers. Ongoing expense.
– **Salaries** – $3,000-$12,000 per month for staff depending on location and number of employees.
– **Insurance** – $100-$300 per month.
– **Other** – Signage, equipment, supplies, professional services, permits.
Steps to Start a Consignment Store
Starting a consignment store involves many key steps:
– Research the local market and find an ideal space. Look for vacant stores or offices with high visibility.
– Build out and remodel the space to enhance the shopping experience. Have adequate lighting, racks, mirrors, and displays. Create defined sections for types of products.
– Obtain business licenses, tax IDs, and permits for the store. Register business name. Open business bank accounts.
– Install point-of-sale system, security equipment, and phone/internet. Set up inventory management system.
– Stock store with quality starter inventory obtained from auctions, existing stores, vendors or wholesalers.
– Determine consigning policies. Create contracts for consignors on commission splits and time limits.
– Hire and train friendly and knowledgeable staff to run the store.
– Promote store openings with advertising, PR, social media, and special events. Offer perks to early consignors and customers.
– Network with local sellers, groups, schools, and organizations to generate consignments.
– Provide excellent customer service. Be flexible on prices to encourage sales. Keep inventory fresh and appealing.
Tips for Consignment Store Success
Follow these tips to maximize the success and profits of a consignment store:
– Offer 50% or higher commission split for consignors as incentive to bring items.
– Quality control – Reject inferior merchandise that won’t sell. Inspect and test electronics.
– Categorize inventory into departments – clothes, furniture, baby items, jewelry etc.
– Merchandise displays must be clean, visually appealing, and updated regularly.
– Discount aging inventory periodically with sales promotions to keep stock moving briskly.
– Courteous and prompt communication with consignors builds a referral network.
– Train staff on assessing and pricing incoming consignments. Look up values online.
– Schedule special sales events like holiday weekends or back-to-school. Feature certain categories.
– Purchase retailer merchandise wholesale at deep discounts to supplement consigned goods.
– Use social media to highlight new consignments, sales events, and store hours/location.
– Simple store return policy (e.g. 7 days with receipt) reduces customer apprehension about used items.
– Offer tailoring or cleaning services for clothing consignments for a fee.
Should You Open a Consignment Store?
Consignment retailing has risks like any small business but also unique advantages. The consignment model helps minimize the two biggest costs – inventory and real estate. Lower startup costs mean less capital required. Consignment provides quality inventory without purchasing merchandise outright. Lower overhead allows opening stores in pricier locations with higher traffic.
The potential challenges of consignment stores include irregular incoming inventory, stale merchandise if turnover is low, and having to split profits with consignors. Consistent business is dependent on the flow of sellers bringing items to the store. Staffing costs may be higher due to the specialized skills needed in valuation and pricing.
Overall, a consignment store can be profitable if well-executed. The keys are converting high traffic to sales, quick turnover of inventory, quality consignments, and controlling expenses. Given sufficient revenues and margins, a consignment store can produce income rivaling other resale models. For entrepreneurs with retail experience and a passion for finding hidden gems, a consignment store is an appealing small business opportunity.
Conclusion
Running a successful consignment store is certainly possible if done with careful planning and execution. Choosing the right location, attracting quality merchandise to resell, and implementing good management and operations are critical factors. The consignment model offers some cost savings versus traditional retail but still requires a dedication to the fundamentals of retailing. For those with the commitment and passion for the consignment store business, the financial rewards can certainly follow.
