Steps for Starting a Consignment Shop

Owning a consignment shop can be a wise and profitable business decision. In 2023, the global secondhand and resale industry was estimated at $197 billion, and it is expected to increase by $100 billion by 2026. A consignment business model might be advantageous if you plan to sell clothing, furniture, or home decor. It allows for a low-cost inventory approach, as payment for items is only required after they are sold. This method appeals to many customers looking for unique, budget-friendly items.

So, how do you begin? The following guide will show you the steps to establish a consignment shop from the ground up.

What Is a Consignment Shop?

A consignment shop is a retail establishment where used or secondhand goods are sold on behalf of their owners. The merchandise owner receives a portion of the sales price after the item is sold, with the remaining profit going to the consignment shop. These shops vary widely in their focus, offering everything from clothing and furniture to art. Some target high-end goods, while others are less selective.

Consignment shops also differ in format; some operate exclusively online, others maintain physical stores, and others combine both approaches. Ownership can range from individual proprietors to large chains.

For instance, in clothing, consignment shops like Beacon’s Closet and Buffalo Exchange are popular for their selection of designer and vintage apparel. Furniture consignment shops, such as those in chains like Ikea, often feature mid-century modern items and antique pieces. Art consignment stores, including renowned auction houses like Christie’s, typically deal in paintings and sculptures.

Source: Statista

But Why Choose a Consignment Shop as Your Next Business Venture?

If you’ve always dreamed of running your own business and love sales but want to avoid managing a fixed inventory, starting a consignment shop can be an excellent choice. This business model is perfect for people who enjoy interacting with individuals rather than large manufacturers and want to impact their community positively. It’s also hard to ignore that the consignment market is rapidly growing and has significant potential, estimated to reach the $100 billion mark soon.

Opening a consignment shop can be secure, pleasant, and rewarding. These shops frequently update their inventories, sometimes weekly, providing a dynamic shopping experience where consumers often benefit from prices lower than traditional retail.

The consignment model is straightforward: individuals or small retailers supply your store with items. When an item sells, you split the revenue with the original owner, only paying out once a sale is made. This mutual benefit makes the model economically viable and attractive.

Plus, many successful consignment shops offer people the option to donate or sell their goods directly to the store. In these cases, you retain all the proceeds from the sale. This approach generates revenue for your business and supports the local economy by circulating money within the community instead of channeling it to large manufacturers.

What Are the Different Types of Consignment Shops?

Consignment shops come in various forms, catering to different needs and preferences. Here are some of the most common types:

• Online Consignment Marketplaces: Platforms like Etsy, eBay, and Tradesy fall under this category. These websites operate entirely online, providing a platform for users to buy and sell items. They often feature various products, from clothing and accessories to electronics and collectibles. Online marketplaces usually offer authentication and transaction processing tools to facilitate safe and reliable exchanges.
• Brick-and-Mortar Consignment Stores: These traditional stores have physical locations where customers can browse and purchase items. These shops are often specialized, offering products like books, clothing, or furniture. They provide a tangible shopping experience where customers can inspect items directly before purchasing.
• Pop-Up Consignment Shops: These temporary retail setups can appear in various locations for a limited time. They are popular with online retailers looking to engage with customers directly or test physical retail spaces without long-term commitments.
• Niche or Boutique Online Shops: Some online consignment shops specialize in specific items, such as luxury goods or vintage clothing. For example, Luxury Garage Sale offers high-end designer wear, while Vestiaire Collective focuses on luxury items and operates globally with a commitment to sustainable fashion.
• Mobile Consignment Shops: Often found at events like fairs and markets, these shops are essentially retail stores on wheels. They sell various items, typically smaller goods such as jewelry and clothing, and can move location based on customer presence and demand.

Each type of consignment shop offers distinct advantages, from the convenience and breadth of selection in online marketplaces to the hands-on, curated experience of boutique brick-and-mortar stores. Whether you’re looking to buy unique, second-hand items or sell your goods, there’s likely a consignment shop format that meets your needs.

11 Easy Steps to Start a Consignment Shop in 2024

Are you prepared to turn your business idea into a reality? Follow these 11 steps to launch your store successfully.

1. Select Your Niche

Before taking any steps to establish your business, it’s crucial to analyze the economic environment of your region to avoid financial losses and disappointment. Begin by investigating whether your business concept is viable in the market. This initial assessment doesn’t need to be exhaustive but should provide a sufficient overview to guide your decision on whether to proceed.

Start by aligning your business idea with your interests. Consider what products you want to sell and identify any items you prefer to avoid offering. Determine if there are other consignment shops within your chosen niche, how many, and the variety of items they stock. Identify other stores that might sell similar products if consignment shops are absent.

Finally, evaluate the market demand and demographics of your niche product(s). Understand the income levels and spending habits of potential customers. Assess if the customer base is substantial enough to support your business and its competitors. If the market seems limited, consider what unique aspects your store can provide to gain an edge over competitors.

2.   Deciding on Your Business Model

When setting up your business model, you face two primary choices:

(a)  Consignment vs. Buy-Outright

In a buy-outright model, you purchase items directly from individuals, becoming the sole owner of these goods. This allows you to retain all the profits once an item is sold. However, this method requires substantial initial capital since you need to acquire inventory upfront. It also simplifies inventory management by eliminating the need to track consignor accounts and balances. However, you assume the risk for any unsellable or defective items since returns to the original owners aren’t an option.

Conversely, the consignment model involves selling items on behalf of the owner, who retains ownership until a sale occurs. You then earn a commission from the sale. This model doesn’t require a large upfront investment, as you only pay the owner after their item sells. It typically places the responsibility for damaged goods on the owner, reducing financial risk for your business. This model is particularly beneficial if you aim to support your community, as it allows item owners potentially to earn more from each sale.

(b)  Physical Store vs. Online Presence

Choosing between a physical storefront and an online shop involves different considerations regarding overhead costs, customer reach, and operational logistics. Each has its advantages, and the choice largely depends on your target market and personal business goals.

Additionally, consider a hybrid model that incorporates elements of both buy-outright and consignment, combining physical and online sales approaches. This flexibility can optimize your inventory and sales strategies. Subsequent discussions will explore more detailed strategies on hybrid models and their benefits.

3. Create a Business Plan

A business plan is a detailed blueprint that defines your business objectives, strategies, and methods for achieving them. This document is crucial if you are looking to secure financing from investors or loans from lenders, as it must be included with your application.

Creating a business plan does not follow a universal format; however, it should encompass several essential elements:

• Business Description: Offer a detailed description of your consignment shop, specifying the types of merchandise you plan to sell and your intended customer base.
• Executive Summary: Provide a concise summary of your business, outlining your objectives and the strategies you will use to achieve them.
• Marketing Strategy: Outline your approach for promoting your consignment shop, detailing digital and traditional marketing efforts.
• Financial Projections: Present a profit and loss forecast for the first 12 months and a balance sheet. If you seek financing, specify the amount needed and your repayment plan.
• Management Team: Detail the background and qualifications of your management team members, highlighting their relevant experience.

Treating your business plan as a dynamic document and revising it as your business evolves and circumstances change is important. Regularly review and adjust your plan to reflect new insights and directions.

4. Organize Your Legal Matters

According to the business plan, it’s crucial to establish a legal business structure. For small consignment shops, consider the following options:

• Partnership: This structure is suitable for businesses with two or more owners.
• Sole Proprietorship: As the sole owner, you’ll attach a Schedule C form to your regular tax filing.
• S-Corp: Similar to LLCs, S-Corps provide a pass-through mechanism for tax purposes.
• Limited Liability Company (LLC): An LLC provides a distinct entity that offers some protection from personal liability.
• Non-Profit: Securing 501(c)(3) status is crucial for ventures that do not aim for personal profit.

Additionally, you should register for taxes and obtain any necessary licenses in your locality. For instance, many states require registration for sales and use tax.

5. Study the Neighborhood/Market

To select an appropriate neighborhood, visiting the local municipal office to obtain demographic and economic data such as income levels, age distribution, and marital status is advisable. Understanding these aspects helps you determine if there is a potential customer base for your store type.

Analyze the market for any unmet needs, ongoing trends, and established businesses.

• Is there an opportunity for a new furniture store?
• Could there be demand for luxury handbags?
• Are resale shops for children’s clothing prevalent?

This analysis will inform your decisions on what products to offer, how to set prices, and what competitive challenges to anticipate.

The importance of location cannot be overstated. If the area already has numerous thrift stores or one major player, think creatively about differentiating your store. Choose a spot with significant pedestrian traffic that caters to your target demographic. While developing an effective marketing plan is crucial, finding the right location can accelerate customer acquisition.

Engage with local competitors and contact similar businesses in different regions for insights. If direct interaction with competitors is uncomfortable, consider discreetly reviewing their store layouts and promotional strategies.

6. Make Up Your Budget and Secure Funding

Are you aware of the expenses of preparing your consignment shop for operation? It’s common for people to miscalculate the initial costs, which can lead to financial difficulties soon after they start.

To prevent problems, create a comprehensive budget covering all potential expenditures. Remember to account for minor expenses like internet service, cleaning services, and utilities.

Then, figure out the amount of money you need to borrow. If you aren’t using your own savings, consider applying for a business loan or seeking investors such as angel investors or venture capitalists.

Options for financing your consignment shop include:

• Business Loans: You can use business loans to cover initial expenses like lease improvements, purchasing inventory, and marketing costs. Business loans are available from banks, credit unions, and online lenders.
• Angel Investors are individuals with significant financial resources who invest in businesses they support. Compared to venture capitalists, angel investors usually provide smaller amounts of capital and may not require ownership in the business.
• Venture Capitalists: These investors are part of firms that provide capital to businesses showing potential for substantial growth. Unlike angel investors, venture capitalists generally invest larger amounts and require equity in the industry.

After securing the necessary funds, you can find a suitable location for your shop.

7. Choosing a Storefront for Your Consignment Shop

The size of the storefront you choose should match the type of items you intend to sell. For more oversized items like furniture, you will require more space. Conversely, a smaller footprint suffices for selling items like clothing.

The design and organization of your store are crucial. It should be arranged to allow customers to locate items quickly, and the interior should be visually appealing to enhance the shopping experience.

Consider these steps when searching for the right storefront for your consignment shop:

• Begin by reviewing online property listings.
• Explore local areas to spot vacant retail spaces.
• Ask relatives and friends if they know of any suitable spaces.
• Work with a commercial real estate broker to locate appropriate properties.

After identifying potential locations, arrange visits to see each space firsthand.

8. Purchase Necessary Equipment

The right tools are essential to managing a constantly changing inventory efficiently. Without suitable software and hardware, you might manually track your stock with a giant ledger. Selecting a practical point of sale (POS) system is crucial for your business operations. These systems track sales, handle payments, monitor inventory, and assist in financial management. A modern POS system simplifies business operations, allowing you to concentrate on customer service while it handles the more routine tasks.

Additionally, consider investing in the following equipment:

• Barcode Scanners
• Receipt Printers
• Label Printers
• Cash Drawers
• Payment Terminals
• Tablets or Mobile Devices
• Inventory Management Software
• Networking Equipment
• Backup Power Supply
• Office Supplies
• Retail displays
• Packaging bags
• Fitting rooms
• Clothing shelves and hangers
• Shopping carts and baskets

9. Find the Right Suppliers

There are several approaches to sourcing inventory based on your business model. Often, individuals possess valuable items but lack a platform to sell them. By entering a consignment agreement with your shop, they can earn money with minimal effort.

Similarly, other stores might use your space to clear out their inventory or evaluate market trends. For instance, a retailer from another state might test the market in your area to see if their products meet customer demand. It’s crucial to promote your shop effectively and connect with appropriate partners.

10. Setting Your Inventory System

You must attract consignors offering quality merchandise to succeed in the consignment business. Ensure your shelves are well-stocked before opening your store. You should incorporate several key practices to set up an effective consignment inventory system. First, it is crucial to implement robust inventory management software. This software should be capable of tracking items in real-time, providing accurate records of current stock, sold items, and returns. It should also be compatible with other business systems like ERP to ensure uniformity in operations.

Next, it is essential to establish clear terms with consignors. A well-defined agreement should outline the duration for which items will be held, detail the commission structure, and clarify procedures for unsold items. This clarity prevents misunderstandings and ensures that both parties understand their commitments.

Additionally, conducting regular inventory audits is necessary to keep records precise. This involves updating inventory levels as items are sold or returned and adjusting for items not selling as anticipated.

Finally, it is essential to organize your store and inventory efficiently. Proper tagging and categorization of each item facilitate easy tracking and retrieval. Such an organization also helps maintain a tidy store layout, which can improve the overall shopping experience.

11. Marketing Your Consignment Store

When you start your consignment store, effective marketing and engaging the community are essential:

• Create a professional website and engage in local advertising: It does not matter if you are focusing on in-store places; a website can be really helpful. Begin by developing a website that clearly explains your consignment terms, showcases your inventory, and provides store details. Use local advertising methods to connect with prospective customers in your area.
• Network and collaborate with nearby businesses: Partner with local businesses to access their customers and create excitement about your store. Consider planning joint events or promotions.
• Organize a launch event with special offers: Hold an event to introduce your store, drawing in many visitors. During the event, provide incentives like discounts for first-time consignors or limited-time offers to boost initial sales and encourage future business.
• Enhance visibility through outstanding customer service: Deliver exceptional service to every visitor. Happy customers are more likely to refer others to your store, enhancing its reputation and visibility.

Conclusion

Starting a consignment shop can be a promising and profitable venture, particularly given the growth of the secondhand and resale industry. By choosing a consignment business model, you can manage inventory costs effectively and appeal to customers seeking unique, affordable items. Key steps to establishing your shop include selecting a niche, deciding on your business model, and creating a solid business plan.

Organizing legal matters, studying the market, securing funding, and choosing a suitable location are also essential. Properly setting up your inventory system and marketing your shop will help attract consignors and customers. With careful planning and execution, your consignment shop can thrive in the growing resale market.

Frequently Asked Questions