You will need a prime location and a strategy to acquire customers and merchandise in order to start a consignment store. Consignment shops can be expensive, and the average salary for owners of consignment shops is between $40,000 and $60,000. Consignment shop owners who are successful are creative and crafty. They also tend to choose a niche.
Opening a business checking account is a great way to start a consignment shop. You can purchase and sell products without worrying about your personal finances. Chase Business checking provides small business accounts with low fees and unlimited cash deposits. For the first time, Chase Business Complete Checking account holder are eligible for a $300 bonus. Register at Chase
In just nine steps, you can start a consignment store as a brick and mortar shop.
- 1 1. Select the right type of consignment shop
- 2 2. 2. Create your Consignment Shop’s budget
- 3 3. Make a business plan for your consignment shop
- 4 4. Choose a Storefront
- 5 5. Acquire Merchandise
- 6 6. 6.
- 7 7. Advertise Your Consignment Shop
- 8 8. Hire & Train Employees
- 9 9. Plan and launch your grand opening
- 10 How to start a consignment shop Frequently Asked Questions (FAQs).
- 11 Bottom line
1. Select the right type of consignment shop
The first step in starting a consignment store is to decide what type of store you want. There are many types of consignment shops. There are many types of consignment shops. The best ones cater to a particular audience and specialize in a certain area. This helps them stand out among other online or offline retailers. Choose a product that is highly sought-after and/or difficult to find to make your business more profitable.
Consignment of Designer Goods
Consignment items that sell designer and luxury goods are very popular. You can buy products that are otherwise out of your budget. To get a partial return on their investment, people who are looking to dispose of designer items that they don’t need often choose to sell them to consignment stores over donating.
The apparel resale market will hit $41 billion by 2022, according to ThredUP
Another popular category for consignment is secondhand books. Some used bookstores also sell hardcover and paperback books.
Consignment stores that sell clothing for babies and children are a very popular and lucrative type of business. Secondhand shops are a great option for parents who need to buy clothes for their children’s growing bodies. You will also find a steady supply parents who are looking to sell their children’s gently used clothes.
Online Consignment Shop
Online consignment shops have been very popular in recent years, especially when it comes to apparel and accessories. An online consignment shop allows you to reach a larger customer base than a store in your local area.
Pop-up Consignment Store
A pop-up store is a great way for you to try products before you commit to opening a full-time shop. Temporary stores are a great option if you’re looking to start a consignment shop as a side hustle or part-time venture.
“My business partner, and I started our seasonal consignment sales business in a pop-up shop two years ago. This resale model is great because it reduces overhead and the time constraints of traditional consignment shops. It also allows us to offer higher commission rates for our consignors. We set up a shop on Friday and have consignors drop their items off on Friday. The shop is open on Saturday for shopping, which can last up to six hours. On Saturday we pack up the goods and leave.
— Jenna Morton, Co-founder, Grapevine Events
2. 2. Create your Consignment Shop’s budget
After you have decided what type of consignment shop you want, you need to set a budget. First, consider your income and your savings to determine your budget. How much can you save for your new venture? What amount of outside financing are you able to obtain from personal loans, business loans and business credit cards? Consignment businesses require a lot upfront cash. It will take some time to grow your sales volume once you are open.
Next, estimate your expenses for opening your store. Next, estimate how much you can afford to open a storefront and outfit it with signs and marketing. Also, consider the cost of purchasing your first product. Estimate your monthly expenses once you open. Set bills such as rent, phone, internet, and payment processing should all be included. You should also consider advertising budgets, employee salaries and merchandise purchase orders.
Predicting your monthly sales volume is the hardest part of setting up a budget for an unopened business. Retail businesses and apparel are particularly affected by seasonal fluctuations in sales. The Retail Owners Institute reported that used merchandise retailers had an inventory turnover rate of five percent in 2018. This means that they sold all their inventory and then replaced it five times in 2018.
When estimating your monthly sales, keep this number and your total inventory worth in mind. Be cautious and expect lower sales to start your business. This will ensure that you have sufficient cash flow to pay for expenses. Add your monthly expenses to your monthly sales and you will get an estimate of your monthly cash flow when you open.
Tip: Retail is a seasonal business. Most retail businesses make a lot of money around Christmas and the holidays. You will also see spikes in revenue during back-to-school shopping and spring holidays like Mother’s Day or Father’s Day. You may have a fluctuating monthly sales so make sure you have enough cash to cover the slower months.
3. Make a business plan for your consignment shop
After you have decided on the type of consignment shop that you want to open, you will need a business plan. This will allow you to put together all your ideas and create a plan for how to make your store successful. Your business plan will be reviewed if you are applying for outside funding or startup financing, such as a loan from a bank.
These are the elements of a typical business proposal.
- Summary: A paragraph that outlines the purpose and mission of your consignment shop, as well as why it will succeed.
- Business Description: Describe the market need your consignment shop fills in the community. Describe who your customers are and how your team will work together.
- Market analysis Give an overview of the consignment and retail industry, including trends, successful competitors, and your strengths.
- Management and organization: Describe who will run your business, and what experience they have in consignment, retail, or your area of specialization.
- Product line Describe the products that you plan to sell, their pricing, and where they will be sold. Include research about why you are choosing those products, such sales trends data.
- Marketing and Sales: Discuss your overall marketing strategy and how you plan to attract and retain customers.
- Requests for funding: Please outline your requirements and indicate how you intend to use the funds.
- Financial projectionsComplete details about how your business will be stable and profitable. This includes a projected financial timeline for at least five years. Include a plan for how you will repay the loan if you borrow funds.
- Appendix This space can be used for any additional documents such as logos or branding designs, sketches of your consignment shop, licenses and permits, credit histories, etc.
Use the format and software that you feel most comfortable when writing your business plan. Many people prefer to use traditional word processors like Microsoft Word and Google Docs. PowerPoint can be used to create your business plan. You can also use business planning software to create templates and help you navigate the process.
“Yes, a business plan is essential if you are to succeed. You should make realistic projections of your costs and then reverse engineer the sales that you would need to cover them. Talk to a CPA (certified public accountant) if possible, to get an objective assessment of your numbers. A CPA can help you decide the right type of business to set up and how to handle sales taxes. They can also advise you on whether or not you can write off donations for items that you don’t sell.
Deanna Thompson, Blogger, Cash Closet
The Best Legal Structure
It is crucial to choose the right legal structure for your consignment company. This will determine how you collect and report taxes, how much personal liability you have, and how much you will be paid. There are many legal structures available, but the most common in retail are corporations, sole proprietorships and limited liability companies (LLCs).
This is the default if you do not set up a legal structure to your business. A sole proprietorship is essentially a business that you operate as an individual. You are not separate from your business. Solo proprietorships are a popular option for freelancers and business consultants who do low-risk, low-visibility work.
Sole proprietorships are considered personal income if your business revenues are included. Sole proprietorship taxes are based on your personal income bracket. You are not subject to self-employment taxes. However, this is a benefit.
Sole proprietorships are more risky because you and the business are one. If your business is sued or declared bankrupt, your personal assets such as your home and car are at risk.
Limited Liability Company
LLCs can be used to protect personal assets such as your home and car in the event of a lawsuit or bankruptcy. This is the best legal structure for small retail shops and we recommend it if you plan on having a single storefront.
You will pay taxes as you would for a sole proprietorship, but you have the added benefit of being protected from liability if you own the LLC. But, there are separate LLC taxes in many states, which can make it more costly than operating as a sole proprietor.
An LLC is a legal entity that you must choose a name and file paperwork. A sole proprietorship, however, does not require paperwork. The paperwork isn’t too complicated and can be completed in just a few steps with a tool such as LegalZoom.
Corporation or C-corp
The best legal structure for consignment businesses is a corporation. They follow strict tax guidelines. The IRS and government see a corporation as a separate entity when it is created.
Consignment companies that plan to open multiple stores, go public, or seek out funding from the outside world can use corporations as a structure. Corporations offer the best personal liability protection of all three legal structures. You will have to pay federal corporate taxes in addition to personal income tax. It is also costly to create a corporation and you will need to keep detailed records about your business.
Organise your finances
It doesn’t matter what legal structure you choose; getting your finances in order will be a critical step. To separate your personal and business finances, you need to open a business checking account. Two separate accounts will allow you to track cash flow and expenses more accurately, and make it much easier to file taxes.
Chase offers great banking solutions for retailers. They offer small business checking and business credit cards as well as merchant services (payment processing) so that owners of businesses can manage all their cash flow from one location. Chase also offers great customer service and competitive rates. For more information on their retail solutions for small businesses, contact Chase
4. Choose a Storefront
It is crucial to carefully consider the location of your storefront. Your business’s location can make or break it. It can be overwhelming to make this decision. Start by narrowing down your geographic area. When you open your first consignment shop, you’ll spend a lot of time there. Consider how far you can commute to get to your consignment shop, and then choose locations that are easily accessible from your home.
Spend some time exploring each neighborhood to get to know the people and their preferences. Also, look out for other local businesses. While there are many factors to consider when choosing the best location for your business location, it comes down to choosing the one that will bring in the most customers.
Choose a storefront that gets a lot of foot traffic for increased sales and visibility
How many walk-in customers can you expect at each location? This is what foot traffic allows you to determine. Ask other local business owners about traffic patterns, shopper demographics and the neighborhood where you are interested in opening a storefront.
Also, be aware of details like signage and parking. It is ideal to be located on Main Street, but it must be easy for customers to park nearby. You’ll also want to have a large storefront sign. You may have to adhere to strict guidelines regarding the types and sizes of signs that are allowed at certain locations.
5. Acquire Merchandise
It is more difficult than selling merchandise at traditional retailers to find merchandise for your consignment shop. To ensure that you have products to sell, it is important to have a purchasing strategy in place before your shop opens. You will likely use multiple tactics to keep your store stocked.
These are some of the most popular secondhand product sourcing methods:
- Joining The Association of Resale Professionals: This professional association connects resale buyers and suppliers through their directory.
- Advertise to potential consignors:Publish in print or online frequently that you are buying gently used items. Your potential buyers could also be your suppliers.
- Shopping at flea and thrift shops There are many great products that you can sell in your shop by browsing through flea markets or other thrift stores.
- Locating an Off-Price Supplier: Although they aren’t secondhand, off-price products can be deeply discounted if they are in excess or slightly damaged. These products can be found at trade shows.
After you have secured a storefront, and found product sources, it is time to strategically plan your store layout. The layout of your store can make a big difference in how it sells. A well-designed layout will make shoppers feel welcome, help them find the right products, and make them feel at ease.
First, decide what floor plan you would like. The three most common layouts for retail stores are:
- Loop: This is best for specialty shops, showrooms and retailers who want to direct shoppers along a particular path through the store.
- Grid: This floorplan is exactly as you would expect. It has straight, angular aisles similar to those found in grocery or box stores. This model may also be used by consignment shops.
- Free flow plan This plan is very popular with boutiques as it allows for a lot of creativity during the design process. This model is used by most consignment shops for apparel and decor.
The last thing you need to do is position your checkout counter. A well-placed checkout will allow you to display products more effectively and encourage customers to shop in greater numbers. Your checkout should be on the left-hand corner of your store.
The right side of a shop is where shoppers naturally gravitate. Many department stores and large mall retailers have their checkout counters located at the back of their store. For smaller retailers, however, it is easier for staff members to reach the register from the front and keep an eye at the entrance.
Select a POS System
Point-of-sale systems (POS) are cloud-based software programs. They replace cash registers and provide additional tools like inventory management, sales reports, customer data, marketing, and customer data. Your POS system will be the hub of your business and handle all transactions. You should look for a system with all the features you require, including payment processing, at an affordable price.
Lightspeed Retail POS simplifies the process of running a retail store
POS systems are evaluated using a variety of criteria, including:
- Price POS software programs typically charge a monthly subscription fee. Some also charge additional for specific features.
- Easy of use: Get a free trial or demo to see if the interface is intuitive and to read user reviews.
- Customer management tools Almost all POS systems include a customer directory, but they differ in the loyalty, marketing and customer feedback features that are available.
- Sales reports Every POS solution has some type of reporting tool, but some provide more detail and options to create custom reports.
Lightspeed is a popular choice for brick-and-mortar shops. This POS is small in size but has big-business functionality. It includes custom report builders, loyalty programs, and payment processing. Lightspeed offers a free 14-day trial.
7. Advertise Your Consignment Shop
Advertising is essential before you open your consignment shop. You’ll need to make sure that your marketing strategy is cost-effective, as you are limited on funds. This can be done by combining offline and online marketing.
Your family and friends will cheer you on as a small business owner. Ask your friends and family to spread the word about your consignment store. Word-of-mouth marketing is a powerful tool that can help you reach more people.
A website is essential for customers to locate your business. With the right tools, creating your own website can be simple. You can create a website for your business in a few easy steps. A domain name and web hosting are required.
Olive My Stuff, a consignment shop in Connecticut, has a professional website with information on shopping and consigning
Loyalty programs can be a great way for your consignment shop to increase repeat customers and boost transaction amounts. Simple punch cards are effective. A loyalty program that is tied into your POS system can provide deeper insight such as who uses the program and its effectiveness. Lightspeed is a sophisticated loyalty program you can add to Lightspeed POS for a monthly charge.
8. Hire & Train Employees
Last but not least, you must hire a solid team of employees before you open your store to the public. It can be difficult to navigate the hiring process if you’ve never hired employees before. You can follow a new-hire checklist which outlines all the steps needed to obtain an employer identification number (EIN), register in state and local taxes, etc.
It’s unlikely that you will have an HR team member as a consignment shop owner. An all-in-one solution such as Zenefits will save you a lot of time and stress. It simplifies hiring, onboarding and payroll. Zenefits offers a free trial.
Train Your Employees
Your consignment shop staff should be ready to offer top-notch customer services from the moment that you open your store. It takes practice to provide great customer service. You can’t expect your employees to be able to provide great customer service if you don’t train them before they open.
Instead, host a week-long training boot camp prior to opening. You can also use role-playing and customer service scenarios to train employees.
9. Plan and launch your grand opening
A grand opening celebration can be a great way for your business to get started and also gain some media coverage. You can get maximum attendance by inviting your friends and family to help you draft a press release. Notify the Chamber of Commerce and post an advertisement in the local paper.
“A lot of companies make the mistake of staying under the radar up until launch. You have zero chance of selling if no one knows your plans and when they will be opening. Six weeks before your launch, start creating excitement. Be active on social media. Get in touch with potential customers to start a conversation. You can build anticipation by using attractive photos and even incentivize sales in the early days.
Plan a grand opening to celebrate the launch of your new business
How to start a consignment shop Frequently Asked Questions (FAQs).
It can be difficult to open and run a consignment store.
What is consignment shopping?
Consignment shops sell secondhand clothing and accessories. Consignment shops purchase gently used items and resell them at an increase in profit.
What is a consignment store?
You will be the owner of the consignment store and purchase secondhand goods from professional suppliers, flea markets vendors, customers, etc. These items will then become yours until you resell them in your shop for a higher amount.
What is the cost of opening a consignment shop?
The price of your property and the local real estate market can affect it. It will cost approximately $10,000 to open a consignment shop.
Why do consignment stores fail?
Learning how to open a consignment store is only half of the battle. A consignment shop can fail for many reasons. Common reasons for a consignment shop’s failure include the wrong location, insufficient marketing, low profit margins and not having in-demand items.
The National Association of Resale and Thrift Shops has estimated that the consignment and resale industry in the United States generates approximately $17 billion annually as of 2018. By 2022, the entire apparel segment of the resale industry is expected to generate $41 million. There’s no better time than now to open a consignment store.
You will need to be organized in order to run a successful consignment company. A dedicated business checking account allows you to easily report taxes, track expenses, manage income, and make tax payments. Chase Business Checking provides affordable solutions at convenient bank locations. For the first time Chase Business Checking account holder, you can get a $300 bonus. Register at Chase