Open a Consignment Shop

How to Open a Consignment Shop

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Thinking about opening a consignment shop? Consumers seem to love them, with 12-15% of customers shopping at a consignment/resale/thrift shop in a given year. That’s pretty significant given that only 11.4% of customers shop in a factory outlet mall each year, 19.6% in apparel stores, and 21.3% in major department stores. 

With each of the last two years seeing a 7% growth in the consignment industry, it looks like a good time to join this $28 billion field that’s expected to hit $64 billion in the next five years.

Benefits of Opening a Consignment Shop

There are plenty of benefits to opening a consignment shop. Here’s a look at what business owners can look forward to: 

  • Impressive profit margins: Selling single cups of coffee can bring a nice profit. Research shows the average cost to make a cup of joe is about $1, but consumers pay $3.50-$4.50. That’s a 300-400% markup, and a recipe for a successful business. 
  • Increasing demand: More and more people are visiting their local barista for their favorite beverage. An estimated 83% of Americans drink coffee, which may explain why consignment shops have a 7% annual growth rate.
  • Ability to specialize: Coffee is no longer a simple drink with cream or sugar. Customized drinks and specialty coffee orders have created a whole new language. Ordering a venti, half-whole milk, half 1%, no foam latte with whip and two packets of Splenda won’t raise eyebrows in your corner shop.

How to Open a Consignment Shop Checklist:

  1. Create a Business Plan
  2. Choose a Business Structure
  3. Determine Your Business Costs
  4. Create a Business Name
  5. Register the Business and Open Financial Accounts
  6. Purchase Equipment for Your Consignment Shop
  7. Market Your Consignment Shop

1. Create a Business Plan for Your Consignment Shop

If you want to sell, then you must write. “The time you invest in creating this document saves you money and keeps you on track for the long haul,” advises Deb McGonagle of Traxia. You’ll refer back to this plan as opportunities or challenges arise. 

Create your business plan by:

  1. Describing your store in detail: Will you run a low-priced store that relies on higher turnover, a high-end shop with fewer transactions, or something in between? Will yours be a secondhand clothing store or perhaps focus on collectibles?
  2. Setting SMART goals (Specific, Measurable, Attainable, Realistic, and Timely)
  3. Identifying potential problems and how you’ll solve them. For instance, what if you can’t find enough items to consign?
  4. Describing your ideal customer: Age? Working professional? Stay-at-home mom? College student? What brings her into your consignment store?
  5. Checking for tax breaks and local grants. Maybe capitalize on being a green business!
  6. Identifying what type of insurance you’ll need. 
  7. Settling on a pricing strategy: What percentage of the sale price will you keep? What will the item’s owner receive? Will you discount items after a certain time period?  
  8. Choosing a location: Up to 75% of your business could depend on where it’s located.

Determining how the business will grow. During the pandemic, online sales are a key area of growth for consignment stores.

2. Choose a Business Structure

You must register your new business with the IRS, which means you’ll need to choose a company structure. Some resale stores operate as sole proprietorships because it’s fast and easy to do business under your own name (or a DBA) and just report everything on your personal taxes. However, there’s no liability protection with a sole proprietorship, so if you face a lawsuit, your personal assets could be impacted. 

For this reason, some resale shop owners decide to register as a limited liability company (LLC). This structure avoids the double taxation of a corporation while still shielding your personal assets from liability. Research and choose the structure that best suits your legal and tax situation. 

You can file for an LLC online and learn what business license may be required with info from the Small Business Administration (SBA).

3. Determine Your Business Costs

The next step is to determine the costs of starting your consignment store. You’ll have fixed costs, ongoing expenses, and one-time costs to consider. 

Fixed costs are expenses that don’t change regardless of the volume of your business. These typically include rent, utilities, security system monitoring, and attorney or accountant fees. 

Ongoing expenses change as the business grows or shrinks. They can include payroll, ink, and shopping bags. Finally, you’ll have one-time costs like a cash register, counter, hangers, security system, and other startup equipment. 

How can you fund your startup costs? 

Funding your startup is really where the rubber meets the road. The great news is that you don’t need a ton of money to get started. Think $3,000–$10,000. Now, where’s that money coming from? 

Well, could you save it up? Borrow it from family and friends, or let them invest? 

If not, look into forms of government assistance for small business owners, as well as any Small Business Administration (SBA) loan programs. Maybe you could open a business credit card. If you’re going to borrow the money, a small personal loan from your bank may be better than a credit card in terms of picking up a lower interest rate on your debt.

Be sure you have a solid payback and backup payback plan for any money you borrow. You don’t want to harm relationships or your credit by being unable to make good on your word.

4. Create a Business Name

Now let’s have some fun and figure out a name for your consignment shop! Grab some paper and a pen or a whiteboard and markers. Brainstorm. Write down anything that comes to mind, no matter how out there. Try to come up with at least a dozen potential business names. 

Now, look at your list. What’s memorable here? What communicates the brand and feel of your shop? What isn’t already in use so that customers don’t confuse you with another business? Check to see if the domain name is available for your shop name. If it isn’t, keep brainstorming until you find one that not only has the corresponding web address available, but also the social media handles you’ll use. Check Pinterest, Instagram, Facebook, Twitter, and anywhere else the store will be. 

When you land on that perfect name, register the domain and set up social media presences.

5. Register Your Consignment Shop Business and Open Financial Accounts

Let’s move this from idea to reality. Using whatever structure you selected (e.g. LLC), register your business with state and local agencies. Visit the IRS site to get an employer identification number (EIN). 

Then take all of your paperwork to your local bank and open up a business bank account. It may be tempting to just mix business and personal banking at first, but don’t do it. That pierces the corporate veil, which could then affect your liability protection if something happens to the store — or creates a mess come tax time. 

To finish up your administrative corporate duties, think insurance, licensing, and zoning. A local insurance provider should be able to advise you on necessary insurance. Your local municipality can educate you about license and zoning requirements for the shop. Some insurance firms offer specialty consignment shop insurance plans.

6. Purchase Equipment for Your Consignment Shop

As with most retail stores, you’ll need a cash register, a point-of-sale (POS) program to track consignment-based sales, display counters, hangers, hanging racks, shopping bags, store decor, signage, a computer, a printer, and more. 

Will you offer fitting rooms? Think through how you’ll outfit those rooms (e.g. curtains/doors, benches). You may want to purchase T-shirts or other clothing for employees to wear, or you could simply ask them to wear name tags.

While the equipment list for a clothing-based consignment store isn’t extensive, envision your store in detail to be certain you’ve left nothing out. Mentally walk through the entire customer experience and back-end operations to create a full, specific equipment list for your consignment shop.

7. Market Your Consignment Shop

Remember that location is key to getting customers in your doors. Other ways to increase store traffic include registering your business on Google My Business, and getting listed in phone book and business directories. A search-engine-optimized (SEO) website will help both with being discoverable and in driving traffic to the online retail experience of your store. 

Create a social media marketing strategy across as many social media platforms as you (or a hired consultant) can manage. Consider Twitter, Facebook, Instagram, Pinterest, and LinkedIn so you can connect with customers, both current and potential. 

For real-world efforts, consider putting your consignment shop name and logo on your personal vehicle to turn it into a moving mini-billboard. Sponsor events at nearby schools or civic organizations. Offer to outfit models for a fundraising fashion show in exchange for your shop name being prominent in the event’s marketing materials. Contact local media and ask if they’d be interested in doing a story about your thrift store’s grand opening. 

The key to marketing is finding out where your target audience is and making sure your business has a presence there. Refer to this guide to consignment shop marketing for more.

Examples of Consignment Shops to Start

From the big consignment stores like ThredUp and Poshmark, to one-store specialty resale places like Great Lakes Gear Exchange and True Fashionistas, there are all kinds of consignment shop successes. As you research and learn from other consignment shop owners, you’ll find that having an online platform is crucial to success. If you have a brick-and-mortar presence as well, remember that the physical location can make or break the business.

Bottom Line

The consignment shop industry is growing, even during the pandemic (with online sales). It requires little up front cost or education, a quick timeline to revenue production, and an opportunity to help the environment. It’s a good time to think about opening a consignment shop.

Consignment Shop FAQs

  1. Where should I start my business?

    Choosing the right location depends on which factors matter most to you. We’ve broken them down by city to get you started.

  2. How can I be successful at starting a consignment shop?

    From treating it like a business (not a hobby) to investing your own money, Traxia identified 10 ways to position yourself for success as a consignment store owner.

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