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How to Run a Successful Consignment Store

by Mark Applegate

Consignment stores are often sprinkled throughout mid- to large-sized communities, often located in strip malls or less expensive, stand-alone buildings. Most of these stores specialize in the resale of quality used clothing, sometimes limited to a gender or to an age range such as children's clothing. Other stores that consign merchandise sell tools, electronics or even automobiles. These stores have the potential to be quite lucrative. If you are considering opening one of these stores, regardless of what you will sell, there are some specific strategies that will position you to have the best chance of striking the consignment gold mine.

Starting on the Right Foot

Choose a location that is big enough to hold your merchandise and with a staging area in which to prepare your goods. You also need room to unload a consignor's merchandise and appraise its value.

Tailor your merchandising layout to what you hope to take in to resell. Purchase fixtures that are durable and pleasing to the eye if you plan to accept quality merchandise. If you choose cheap or worn fixtures and merchandise, your shop to look like a garage sale you will likely get only garage sale quality merchandise for consignment.

Draft a consignment agreement that clearly explains your conditions of accepting merchandise to resell. Explain the time frame in which you will attempt to sell the merchandise, your sales commission or merchandising fee and the ramifications of theft or other losses. Figure on allowances to cover credit card processing and returned checks.

Map a floor plan design of exactly what you plan to sell and stay within that design, if possible. Unless you plan on buying and selling large quantities of general merchandise, stick within your merchandise niche to simplify your marketing plan and build your clientele. If you are selling children's clothing, it makes no sense to accept a load of bathroom fixtures.

Consignment Essentials

Buy low and sell high. While this foundational concept is the basis for turning a profit in any sale, it is very important in consignment. However, both verbs are equally important. You must buy adequate, salable merchandise. Buying unsaleable, poor-quality merchandise at a low price is no more helpful that buying salable, high-quality merchandise at too high a price. Only accept merchandise that can be priced to satisfy both parties.

Avoid damaged goods unless your shop caters only to thrift shop customers. When customers see damaged goods, even if they are only a minority of the stock, the perception will be that they must check the quality of all of the merchandise closely and may not pay a premium for your goods.

Encourage sales by offering to split reductions in sales prices with consignors toward the end of the product's display agreement term. Offer even more favorable terms if your consignor will increase your inventory of high quality merchandise. You are better off selling the merchandise at a reduced price and collecting a smaller commission than returning it to your consignor unsold.

Print large, colorful signs that demonstrate the significant discount of buying from your store compared to new. Train your sales staff to engage customers and actively assist them, not merely act as cashiers.

Make available opportunities to try out merchandise. If you operate a clothing consignment shop, offer multiple changing rooms with full-length mirrors. If you sell hard goods, give your customers opportunities to hold and try your products in whatever way you can while avoiding thefts or injuries.

Purchase quality consignment shop computer software that will allow you to quickly discern which merchandise is nearing its term date. This software will also simplify reconciliation with your consignors and will lead to a more organized, efficient store.

Items you will need
  • Merchandise racks
  • Cash register with consignment software
  • Sign-printing gear

Tips

  • Offer a premium to your consignors if they will accept merchandise credit as opposed to cash for their sales.
  • If you sell clothing, buy brand-name merchandise that is cleaned and pressed so you can display and sell it quickly.
  • Make your shop a fun place to shop with lively music and displays that encourage customer loyalty and a positive experience.
  • Develop a customer loyalty program by rewarding frequent shoppers with a discount that comes from a shared reduction in the profit. The increased volume will make it worth the discount.

Warnings

  • Consult your insurer as to liability coverage to protect your assets from lawsuits should a customer hurt himself while handling merchandise.
  • Visit the U.S. Small Business Administration's website for tips on running your business and for help filing tax paperwork.
  • Guard against losses by using a check guarantor, mounting security cameras and training staff to be alert for shoplifters at all times.

Photo Credits

  • Comstock/Comstock/Getty Images