How to Start A Consignment Store
Starting a consignment store will cost more than $10,000, with average salaries for consignments shop owners varying from $40,000 to $60,000. Successful consignments entrepreneurs are innovative, crafty, and usually choose a niche for their business. You would need a suitable store front and a plan to attract customers and then products to start your consignment business.
When beginning a consignment business, opening a company check account helps you to buy and sell items without getting your finances caught in the mix.
Here’s how to start a consignment store ― as a brick-and-mortar store ― in ten steps.
- Decide on the correct version of the consignment store.
If you’re considering how to start a freight shop, the very first step is to try and identify exactly the kind of store you want to operate. There are several different kinds of consignment shops. The most popular stores appeal to individual sectors and have a niche or focus area that makes them stand out from other online or offline retail rivals. To make the most of your startup company, select a high-demand and hard-to-find product area to attract shoppers into your store.
Here are the most popular niche consignment stores to consider:
Designer goods consignment: Luxury and designer products are the main consignment products. Shoppers may purchase products that may otherwise go beyond their expenditures. People trying to get rid of gently used luxury items often want to sell them to a consignment store rather than donate to get a partial return on their investment.
Used book store: Secondhand books are another common type of consignments. In addition to standard paperbacks and hardcover books, some used bookstores deal with rare books, such as antiques and signed originals, or speciality books such as recipe books and teaching materials.
Children’s Wears: Clothing for children and babies is a common and profitable form of distribution store. Since parents often have to buy children’s clothing, many of them turn to secondhand stores as an inexpensive alternative. Plus, you’ll have a constant supply of parents looking to sell gently used clothes belonging to their children.
Online Consignment store: Over the last few years, online Consignment stores have become very popular, particularly for clothing and accessories. Opening an online Consignment shop offers you a more extensive customer base than a retail store.
Pop-up Consignment Store: If you’re not prepared to commit to a full-time shop, getting a pop-up shop is a perfect way to test your goods and locations before you dive. If you’re looking to start a Consignment business as a part-time enterprise or side event, getting temporary stores is also the right choice.
- Prepare a budget for your consignment business.
When you know what kind of store you want to run, the next step in starting a freight shop is to set the budget. First, consider your current income and savings to charge your account. What should you save and put aside for your new business venture? How much additional financing would you get from personal loans, corporate loans, company credit cards, and so on? Starting a consignment business needs a lot of cash in advance. Once you’re available, it will still take time to build up your sales volume.
After that, estimate the costs of opening the store. Include how much you will spend on the storefront, on the interior of your store, on signage and ads, and your initial purchase of the product. Now, estimate your monthly expenses for the time you open up. Include bills such as rent, computers, internet, and payment processing, and so on. However, there is also a factor in promotional budgets, staff wages, inventory purchase orders and other store supplies.
The most challenging part of setting a budget for a company that isn’t yet open is estimating the number of your monthly sales. This is particularly challenging for apparel and retail companies, as deals can fluctuate significantly depending on the season, holidays, weather, and economy and consumer sentiment. According to the Retail Owners Institute, the total inventory turnover of used goods retailers for 2018 was five. This indicates that they sold out and replaced their entire inventory a total of five times a year.
Keep this figure and your overall inventory value in mind when calculating your monthly revenue. Air on the side of caution, and a strategy for lower profits when you startup, so that you have enough cash flow to cover your expenses. Subtract your projected monthly payments from your projected monthly revenue, which will give you average monthly cash flow when you open up.
- Create a business plan for your consignment business
Once you figure out what kind of consignment shop you would like to open, you’ll need a solid business plan to piece together all of your ideas and form a strategy for making your store profitable. If you’re seeking outside or startup funding, such as a bank loan, your business plan will be evaluated during the approval process.
Here are the nine elements found in a typical business plan:
Executive summary: An introductory paragraph outlining your consignment shop’s purpose, mission, and why it will be successful.
Business description: Describe what need or market hole your consignment store is filling in the community, who your customers will be, and the talent on your team.
Market analysis: Write an overall outlook on the consignment and resale industry, including trends, what successful competitors are doing, and what your strengths will be.
Organization and management: an overview of who will be in charge of your company and the experience of your team members in the retail, freight or speciality areas of your shop.
Product line: describe what kind of goods you’re going to sell, how you’re going to sell them, and where your supply comes from. Include research on why you choose these products, such as sales trend data.
Marketing and Sales: describe your overall marketing strategy and your plan to attract and retain customers.
Funding requests: If you need outside funding, outline your needs and specify precisely how you will use the funds.
Financial projections: information about how the company will become stable and sustainable, including a forecast financial timetable of at least five years. If you’re borrowing money, have a timeline for how you’ll be able to repay the loan.
Appendix: Use this space for any supplemental documents, such as the logo or branding designs, sketches of what your consignment shop will look like, credit histories, licenses, permits, etc.
- Choose suitable store front.
Choosing a storefront is a crucial move that needs to be carefully considered. The location you choose can all but make or break your business. The decision can seem daunting. So, start by narrowing down the geographical position. You’ll spend a lot of hours in your parcel shop almost every day when you open it first. Think about how far you are reasonably able to drive and select places that are easily accessible from your home.
Spend some time in each area to familiarize yourself with the unique demographics and tastes of the neighbourhood, and to broaden the reach of other local businesses. There are several factors in choosing the right location for your company, but it’s all about choosing the area that will attract the most customers.
Ascertaining foot traffic will help you determine out how many walk-in customers you will expect at each venue. In addition to your proposed storefront locations, ask other local business owners questions about the traffic, the demographics of customers, and the community.
Also, remember specifics such as parking and signage. The Main Street location is perfect, but only if your customers can park easily in the vicinity of your store. Likewise, you’re going to want a place that makes for a large storefront sign. Some areas have specific guidelines on the size and form of signage that they authorize.
- Selecting the best legal structure
Choosing a legal framework for your consignment business is crucial in determining how you can collect and report taxes, your degree of personal responsibility, and how you will get paid from your company. There are several types of legal systems, but the three most frequently used in retail are sole proprietorships, limited liability companies (LLCs), and corporations.
Sole Proprietorship
When you don’t set up a legal structure for your business, this is the default. Functioning under a sole proprietorship essentially means you’re doing business as an individual and, therefore, are not separated from your business in any way. Sole proprietorships are common choices for freelancers, business consultants, and other individuals performing low-risk and low-visibility work by themselves.
With sole proprietorships, the company revenue is called personal income. This means that you can pay exclusive company taxes based on your income class. Although you are subject to self-employed taxes, you do not have to pay any corporate taxes, which is a bonus.
However, sole proprietorships are also at higher risk since you and your company is the same. Your personal belongings, such as your home and your car, are at risk if you have some case against your company or if you have declared bankruptcy.
Limited Liability Company
LLCs are legal structures for small businesses that protect your assets, such as your house and car, in the case of lawsuits or business bankruptcy. This is the most popular legal structure for small retail businesses and the one we recommend if you are planning on maintaining a single consignment storefront.
If you are the single owner of the LLC, you will likely still pay taxes the same way you would as a sole proprietorship but with the benefit of having your assets protected from liability. However, many states have separate LLC taxes, which may make it more expensive than operating as a sole proprietor.
To form an LLC, you need to choose an official name and file paperwork to establish your company, whereas a sole proprietorship does not require any paperwork. Luckily, the paperwork is not overly extensive can be filed quickly in a few steps using a tool like LegalZoom.
Corporation or C – Corp
Corporations are the most structured legal form for your consignment business. They have strict tax guidelines. When you create a corporation, it is a different and distinct organization in the eyes of the government and the IRS.
Corporations are the ideal structure for forwarding businesses that want to expand into multiple storefronts, become a public company, or want to secure a lot of outside funding. Out of the three legal systems, companies provide you with the most personal liability defence. However, in addition to personal income tax, you will need to pay federal corporate tax. Corporations are often tricky to set up and enable you to maintain comprehensive business records.
Organize Your Finances
No matter which legal structure you choose, getting your finances in order is a crucial step. This involves opening a business checking account to separate your personal and business finances right from the beginning. Having two separate accounts makes it easier to monitor your business’ cash flow and track expenses accurately and will make the process of filing taxes much more comfortable.
Chase is a great banking solution for retailers because they offer small business checking, business credit cards, and merchant services ― payment processing ― so that business owners can manage all of their cash flow in one place. Plus, Chase offers competitive rates and excellent customer service. Contact Chase to learn more about their small business retail solutions.
- Purchase Merchandise
Finding items to be sold in your consignment shop is more complicated than finding things for conventional retailers. Before you startup, you’ll want to have a purchase plan in place to ensure a steady stream of goods to be sold. You’re likely to use a variety of strategies to keep your store in stock.
Standard techniques for the procurement of secondhand goods include:
Becoming a member of the Association of Resale Professionals (NARTS): this technical group links resale buyers to suppliers through their directory.
Advertising to potential consignors: advertise in print and online regularly that you are buying carefully used products. Many of your future shoppers could also be suppliers.
Acquiring from flea and thrift shops: You can find some great discounts on items to be sold in your shop by browsing for flea markets and other thrift stores.
Finding an off-price supplier: off-price items are not second hand but are heavily discounted goods that are either over-stocked or slightly impaired. You can find them at trade shows.
- Design your Consignment Store
After securing a store front and identifying product sources, it’s time to start preparing your store layout strategically. How you set down your store can have a dramatic effect on in-store sales. A well-designed layout would welcome shoppers, make them feel relaxed and guide them to specific items.
The first thing you need to consider is what kind of floor plan you want. Most retail stores fall into one of three basic layout categories:
Loop or racetrack: ideal for speciality shops, showrooms, and retailers that want to guide shoppers along an exact route through the store.
Grid or straight: this floor plan is just what you’d expect: straight, linear aisles that are usually seen in grocery stores and box stores. A consignment bookstore can also follow this model.
Free flow method: this is a familiar concept for boutiques and enables a lot of innovation in the design process. Most of the clothing or decor shipment shops would follow this model.
Finally, you’ll need to set up your checkout counter. Well-positioned checkout will free up the floor space for showcasing items and allow customers to pass into more of your store. As a rule of thumb, try to place your checkout on the left side of your shop.
Shoppers naturally veer to the right side of the store, so that’s where you want to see the best of your products. Some department stores and larger retailers put their checkout counters at the back of the store. However, for smaller stores, setting the checkout to the front makes it easier for employees to attend the register and keep an eye on the entrance.
Set up POS System
Point-of-sale (POS) systems are cloud-based software applications that replace conventional cash registers and provide additional resources such as inventory tracking, sales reports, and customer and marketing data. Your POS system is the central centre for your business from which all transactions are processed. Look for a system that has all the functionality you need, like payment processing, at an affordable rate.
Some of the criteria we use to evaluate POS systems include:
Price: Most POS software programs charge a monthly fee, and some also charge extra for certain features.
Ease of use: Test out each POS with a free demo or trial to make sure the interface is easy to navigate, and also read user reviews.
Customer management tools: Almost all POS systems have a customer directory feature but, otherwise, they vary significantly in what loyalty, marketing, and customer feedback features are included.
Sales reports: Every POS solution will have some reporting tools, but some offer more details and features to create custom reports.
- Advertise your consignment business
You’ll need to start ads before you open your consignment business. Since you’re on a budget, make sure your plan is successful by selecting a mix of online and offline marketing.
As a new small business owner, your friends and family are going to cheer you up. Ask them to help you out by spreading the word about your parcel store. Approximately 92% of customers agree that feedback from friends and family are more than advertisements so that word-of-mouth marketing can be an effective weapon.
You will also need a website for customers to find your company. Building your website from scratch can be simple with the right tools. There are many easy ways to make a business website at little or no cost. It would be best if you had a registered domain and a hosting web facility.
Once your consignment shop is up and running, loyalty programs are a great way to encourage repeat customers and higher transaction amounts. Simple punch cards can be significant. However, using a loyalty program that’s tied in with your POS system offers deeper insights like that is using the program and how effective it is.
- Hire and train employees
Last but not least, before you open your store to the public, you need to bring a stellar group of employees to serve as the front lines of your business. If you haven’t employed an employee before, it can be daunting to follow the process. Follow a new recruiting checklist that details all the tricky steps you need to take, such as obtaining an employer identification number ( EIN), a state and local tax registry, and so on.
As the consignment business owner, you are not likely to have committed human resources (HR), team member. Using an all-in-one system will save you a lot of time and hassle by making recruiting, onboarding, paying, and rewards all on one platform more straightforward.
You’re going to want your consignment business staff ready to provide top-notch customer service from the moment you start your company. Providing excellent customer service is a skill that needs to be mastered. If you don’t start training your staff until you open up, they’ll be testing their service skills on your clients.
Instead, hold a week-long training boot camp before you startup. In addition to going through customer service scenarios and role-playing, teach employees about store policies and procedures, the things you’re selling, and any other related material.
- Plan and launch your grand opening
Hosting a grand official opening is a perfect way to launch your new business venture while also receiving some press attention. To get the highest turnout, hire friends and relatives, write a press release for local media and nearby businesses, create a Facebook event, contact the local Chamber of Commerce and post an advertisement in the local newspaper.
FAQ
Opening and running a consignment shop can be a tricky business.
What is a consignment shop?
A consignment shop is a store that sells secondhand merchandise, usually clothes and accessories. Consignment stores buy gently used goods and resell them to make a profit.
How does a parcel shop work?
As the owner of the consignment business, you can buy second hand products from buyers, skilled dealers, flea market sellers, and so on, and own those items before they are sold back to your store at a higher price.
How much does it cost to open a consignment store?
The exact price can vary a lot depending on your location and local real estate prices. However, opening a consignment store will cost roughly $10,000.
Why do consignment stores fail?
Part of learning how to start a consignment business is figuring out what not to do. There are many reasons why a consignment store could fail. Common causes include choosing the wrong store front location, not having in-demand products, too-small profit margins, and insufficient marketing.