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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.
Who is this business right for?
A consignment store owner needs to know his or her limitations and must also do well with dealing with people. It is essential that you are able to negotiate business terms, as you will be working with consignors in addition to your customers. If you are not able to negotiate terms with consignors that will allow you to make a large profit off of selling their items, then you will not be able to cover your operating costs or make a profit.
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 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.
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 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
- Money management
- Employee management
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 steps to start a consignment store?
Once you're ready to start your consignment store, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your consignment store is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your consignment store keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
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 to promote & market a consignment store
Promoting your consignment store business is second only to customer service. Use social media, send out fliers, and advertise on television if possible. When you do open, hold a grand opening to entice customers and consignors to come in and see your store. Word of mouth travels fast, whether it's good or bad, so keep that in mind while you are working with customers and consignors.
Recommended: A website is essential for promoting your business and attracting customers. Weebly is a great tool.
How to keep customers coming back
As part of your business plan, you should have researched the type of product that would do well, and whether you would set up as a niche boutique or start out with something less difficult to market. A niche boutique for a consignment shop can specialize things like selling sports equipment, dance equipment, hardware, etc. Attract customers by designing window scenes, offering discounts, or even holding a contest to win a product. Retain customers by treating them right. Regardless of what you chose and the caliber of customer, treat all of them like they are the richest and nicest person in the world.
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.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a consignment store. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, check out our informative guide, Sales Tax for Small Businesses.
Certificate of Occupancy
A consignment store is usually run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease office space:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a consignment store.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build office space:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business’ location to ensure your consignment store will be in compliance and able to obtain a CO.
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.
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.
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.