How to Start a Consignment Store

Part 1 - How to start a Consignment Store business - Background

A consignment store sells goods for consignors – people who pay a fee to a store owner to sell their goods. Consignment stores may have niche items or may contain everything from kitchenware to clothing. Though starting a consignment store may sound easy, it takes a great deal of knowledge and money to start such a business. Creating a business plan before diving into starting a consignment shop will help ensure that you stick to guidelines and budgets in order to minimize the riskiness of your new business venture. It is important to know where you will be getting your inventory from. Unlike a regular retail store, you will not be able to get your inventory from popular retail suppliers. Your inventory will be coming from individuals who are trying to sell your products. Before agreeing to stock a certain item, you must be sure that you are likely to be able to sell the item for a large enough profit. Being able to negotiate favorable terms with consignors is an essential skill to have.

Our guide is in 3 parts:

• Part 1 - How to start a Consignment Store business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

What are the costs involved in opening a consignment store?

Some of the costs involved in opening consignment stores are yearly, some may be monthly, and some may be weekly or even daily. Costs may include:

• Permits and licenses for local, county and state, including certificate of occupancy and a sales tax certificate. If you sell soda and water at your store, even via a soda machine, you may have to have a permit for that.

• The cost of the building, whether you purchase it or rent it.

• The cost of revamping the interior and/or exterior of the building, if applicable.

• Counters, shelving and other display units.

• Marketing to buyers and consignors.

• Office supplies.

• Point of sale system.

• Security system.

What are the ongoing expenses for a consignment store?

Ongoing expenses may include utilities, rent or mortgage, permits and licenses, payroll if you have employees, office supplies, and taxes. Taxes may include state, local, federal and sales tax. Of course, you need to pay the consignor his or her share of the item that sold.

Who is the target market?

A consignment store has two types of clients: consignors and buyers. Consignors are usually those who want to sell items they no longer need. Buyers are those looking for a deal on an item that might be out of their reach if they were to buy it new.

How does a consignment store make money?

A consignment store makes money by selling consignor’s goods. The store may charge an upfront fee to show items, take a fixed percentage of each sale, or it may do both.

How much can you charge customers?

How much you charge depends on your product. In most cases, the items you have are used, so you will only be able to get so much for those items. Don’t forget the amount you have to pay the consignor. That price needs to be agreed upon prior to you accepting the item. Consignment shops take between 25 percent to 60 percent of what the item sells for. Thus, if a person consigns a cocktail dress for $500, the consignment shop owner would get up to 60 percent of that cost, depending on what your agreement with the consignor is.

How much profit can a consignment store make?

Consignment stores generally charge from 25 percent to 60 percent of the sales price of a sold item.

How can you make your business more profitable?

Make your business more profitable by:

• Helping your consignors properly price their items. For example, you wouldn’t take in a bicycle that is worth $20 and try to sell it for $50, or it will just sit in the store.

• Choose a fee that most people in your neighborhood will pay. Those in higher scale neighborhoods might be willing to pay up to 60 percent for a consignment fee, while other neighborhoods may pass by your store if the consignment fee is over 30 percent.

• Don’t skimp on advertising. Advertise to consignors and buyers alike.

By keeping prices within reason and advertising to obtain new inventory and new buyers, you should be able to make a highly profitable consignment store.

Day-to-Day and Growth

What happens during a typical day at a consignment store?

The owner of a consignment store has several duties to do, some every day and some a few times a week, including:

• Cleaning the store

• Straightening out inventory

• Marketing the store via mail, e-mail, social media and other outlets

• Locating new consignors

• Customer service

• Paying bills

• Ordering office supplies, bags and other inventory needed to conduct business

• Closing out sales

• Notifying current consignors of sales and the need for new product

• Paying consignors

What are some skills and experiences that will help you build a successful consignment store?

You’ll need a myriad of skills to build a successful business, or you’ll need to have the means to hire and pay people who have those skills. Consignment store business skills include:

• Customer service

• Sales and marketing

• Inventory management

• Accounting

• Money management

• Employee management

What is the growth potential for a consignment store?

In the ideal location, a consignment store could show extensive growth as long as the city has many people who want to put their items on consignment and you have buyers that are willing to purchase those items. In certain areas, clothing may sell better than furniture, while in other areas, you may do well with non-clothing items, such as furniture and other home and garden items.

What are some insider tips for jump starting a consignment store?

The most important part of starting any business is to create a business plan and to research the neighborhood. To jump start a consignment store business, you should also:

• Make sure you can fill your shelves before you open the doors.

• Ensure that you have enough inventory to rotate through as you sell more, and that you have consignors lined up to sell their products.

• Make sure your inventory is what those in your neighborhood are looking for.

• Create an attractive store.

• Keep smaller items near the cash register to encourage impulse purchases.

• Partner with local businesses to drive sales to them while they drive sales to you.

How and when to build a team

When customer service starts pulling you away from completing administrative tasks, such as paying consignors, taking inventory, pricing goods, and accounting; or when customers are consistently waiting for you to finish with another customer, it’s time to get some help in the store. If a customer has to wait, he or she may not come back to your store.

Read our consignment store hiring guide to learn about the different roles a consignment store typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.

Part 2 - Is a Consignment Store business the right fit for you?

Part 3 - Action plan to launch your Consignment Store business in 90 days