How to Start A Consignment Shop Business

By Artie McDonald

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Kids grow up wanting to be astronauts.

Or firefighters.

Or professional athletes.

Not me.

I wasn’t exactly what you’d call a “healthy” child. When other kids were playing basketball, I was eating and watching TV. I didn’t kid myself, I knew I was never going to be in shape enough to chase dreams like those other kids.

But I was smart, and I was realistic.

Those other kids wanted to chase riches. I wanted to chase a sure thing and to know I was taken care of.

So I grew up being a little entrepreneur.

Struggling with figuring out what business to go into? A consignment shop could be your ticket to success.

In high school, I actually got to be pretty popular as a kid who knew how to get things. Nothing crazy, but I may or may not have had an older brother who worked in a liquor store…

Eventually, that built up into a little business.

People would need money for a big date or a concert or a night out, and they’d come to me for a loan. Well, I learned pretty quickly that “loan” in high school means “give”. So I changed it up. People still came to me for loans or money, but I started taking collateral. Jewelry, video games, books, DVDs, electronics…

I was basically a pawn shop before I knew what a pawn shop was. This was right around the time Ebay and Craigslist started up, and I took full advantage of that. I did really well for myself in high school and figured “Hey, I can do this for real!”

So I did.

I was smart, but not what you’d call “book smart”.

I didn’t see the point in college.

So I didn’t.

After high school, I went and worked for my friend Mikey’s dad in his pawn shop. I saved up some money and I took a loan from Mikey’s dad and eventually started up my own pawn shop. I figured it’s the same thing I was doing in high school, and people will always need money.

How hard could it be, right?

Turns out, pretty hard.

I didn’t last.

I had legal problems from not being as proactive as I should’ve been with some things. I was a little too forgiving with my return policy and rates.

The shop shut down after a couple years and got seriously depressed.  I went back to work at Mikey’s dad’s shop. I still owed him money, but he let me work it off.

And like I used to do when I was depressed, I ate my feelings.

I watched as my work made Mr. Cabrera money. Eventually, I had enough. I pulled myself out of my funk. I started eating better. And for the first time in my life, I started exercising. I even changed my view of college and started taking online classes.

And then I started getting creative. I made a deal with Mr. Cabrera: I got to sell some of the inventory online and in return I get a percentage of every sale.

Boy did that work out well.

Mr. Cabrera loved my idea and was more than happy to pay me for making him money. Eventually, he opened another store and asked me to run it.

Obviously, I said yes, but on the condition I get equity.

That store is now my store, along with the first. Mr. C retired and let me buy him out, and I’m happy to report that it’s been 7 years now and both stores are alive and well.

So what changed between my first failure and my current success?

A lot.

It takes failure to form success, and with this post, my failure should be a seed for your success.

If you’ve ever thought about opening your own consignment store, let this outline guide you.

Utilize online listings to further success so you’re not limited by geography

Step 1: Learn How a Consignment Business Works

It’s important to understand that when I talk about a consignment business, I’m using that term loosely. What I really mean here is a resale shop, and there are 4 kinds of those. The difference between them all is when someone gives up ownership of an item when they’re paid for it, and whether anyone helps sell the items.

A lot of people associate a consignment business with pawn shops and nothing else, especially since Pawn Stars came out.

Not knocking it, I love the show and it’s definitely raised revenues for me. Pawn shops are only one type of resale store.  There are also:

  • Consignment stores
  • Classified listings
  • Thrift stores

A pawn shop is a store where customers come in to either buy or sell a product. Sellers give up any claim of ownership for immediate payment. Or they can “pawn” the item, and get the money they need, but then buy back their merchandise with a nominal fee paid to the store. Here, all the risk falls on the store and whether they sell the product or not, the customer is paid the same.

I know a lot of people think of metal bars and bulletproof windows when it comes to pawn shops, but they come in all shapes and sizes. Even Plato’s Closet counts as a pawn shop.

As for consignment stores, these are when the shop sells the items on behalf of the owner. The item belongs to the owner right up until it sells, and the owner can take it back anytime – for a fee. The shop keeps a percentage of the sale, ranging anywhere from 25-60%.

There isn’t a lot of inventory in these shops, so items have little competition. But there also isn’t a lot of foot traffic either.

In my experience, consignment works really well with car dealers or luxury dealers with an online presence. Consignment comes in handy for high-end items which a person may not be able to properly sell on their own.

One well-known consignment business is high-end auctions, like Christie’s.

Classified listings are when a seller places an ad in a newspaper or online listing to move their products. Craigslist is a popular one or even the classified section in your local newspaper.

Classified ads eliminate the middleman, and can make a seller a lot more money than a pawn shop, thrift store, or consignment store. There’s just a small posting fee usually, but sometimes (like on Craigslist) the service is free.

I often list my inventory on various online sites to increase my reach and improve sales. Even if it’s not a business model, classified listings can be part of one.

Finally, there are thrift shops.

Yep, just like Macklemore loves.

A thrift shop is based on donations, and is usually a non-profit, but not always. A great example of this is the Goodwill store, which is actually a but not always. A great example of this is the Goodwill store, which is actually a for-profit business. but not always. A great example of this is the Goodwill store, which is actually a but not always. A great example of this is the Goodwill store, which is actually a for-profit business.

The Salvation Army is a true thrift shop.

But I accept donations too, and the money generated from those sales go to local charities. The biggest donation I ever got was an old car right after Hurricane Katrina And when I sold it, I took a small percentage and the rest went to the Red Cross.

Donations are popular because they count as tax deductible and people feel like they’re doing something good. But honestly, thriving off of donations is a tough business model.

Each type of secondhand store has its benefits, and it’s up to you to decide what model you want to has its benefits, and it’s up to you to decide what model you want to run.

For me, I combine all the above into one business.

You may want to pick just one, or a combination of several.

Figure out which model appeals to you and then learn exactly how that model works.

Step 2: Create a Plan

My first business failed because I didn’t have a plan. Don’t make the same mistake I made. Have a plan moving forward.

Look at what it’s gonna take you to go from wanting to open a consignment store to opening a consignment store to retiring. Don’t do what I did and open a store and then watch it to go from wanting to open a consignment store to opening a consignment store to retiring. Don’t do what I did and open a store and then watch it fail.

Learn about what you need to make it happen.

  • Money
  • Permits
  • Insurance
  • Taxes

Figure out where you want to be, what you want to sell, and who you want to sell it to.

Maybe you want to be a nice place for electronics. Or a second-hand bike shop? Those are really popular.

The point is that this is your business. You can’t just wing it.

By the time you’ve finished reading this post, you’ll have a better idea of what to put in your plan. But if you’re really not sure about anything, look up some business plan templates. If you can’t fill out anything at all there, then maybe you’re trying to get into the wrong business.

Step 3: Discover Earning Potential

The Association of Resale Professionals (NARTS) reports that the resale industry brings in about $16 billion annually, climbing seven percent each year. That’s including antiques, furniture, clothing, toys and household goods.

And the beauty of this business is that resale shops are the only business where economic struggles only help.

It sounds terrible to say, but the worse off the economy is, the better off my stores do. Everyday people struggling with bills come to my shops not just to make a buck, but also to look for deals and quality goods at a great value.

About 12 to 15 percent of Americans across all economic levels shop at consignment stores every year. Most of them are motivated by the savings, but some come by because of environmental concerns. I get a good amount of customers who buy my stuff so they’re not just getting another TV or bike made and adding to their carbon footprint.

One way or another, 75 percent of Americans have shopped at a resale store in some way.

The earnings potential is there, but it’s important to have clear expectations. It took years for me to really start making a profit.

In fact, at my first store, I lost money.pretty regularly up until I shut down.

Now, I clear about $300k per year per store

But I’ve been at this for years, and have built up a reputation for being able to find buyers.

Step 4: Set a Budget

Here’s another area where I messed up.

Keeping a budget is critical to sustaining your store.

I didn’t get that concept until after my first store shut down and I was left wondering what I could’ve done differently.

The truth is, I never used one. Not even when I started. If I wanted something to decorate the store I would just buy it, regardless of how much it was.

And I never really said no to a customer. Even if I had 10 watches and someone came to me with a watch for sale, I’d buy it.

I figured having a big selection is a good thing.

Now, I have a large selection of luxury watches – but that’s now. Then, I shouldn’t have done so.

I overspent on things I didn’t need in order to please customers I didn’t have.

So when you’re starting your store, think about the things you need and don’t need.

Start with your basic costs. You’ll need anywhere from $2,000 to $35,000 to get started. That means store space, business registration, marketing & promotions, and business systems. It should also cover insurance and taxes.

You should also figure out your margins as part of your budget.

If you’re focused on a consignment store, you can make your own terms. So you need to decide what those terms are.

With a budget in place, you’ll know how much spare cash you have on hand to invest in more inventory as a pawn shop.

When you’re ahead of your budget, you have more money to spend on ads and promotions to drive more customers into your store. Or to drive traffic to your site online. Or have your listing featured on auction sites.

But you can’t do any of that without knowing how much is available to you.

Set a budget and stick to it if you want your business to survive.

Step 5: Decide Which Products/Service to Offer

So the question here is why should someone go to your shop instead of a competitor?

What’s your unique selling point? Maybe it’s you, maybe it’s your service, maybe it’s your experience.

Figure it out, write it down, and make it your store’s centerpiece, literally and figuratively.

My store has developed a reputation for high-end resale jewelry. I give good prices and spend a lot on exposure, so I have a steady stream of customers coming in for new (well, for them) jewelry.

But I also run a consignment business for cars, and through my network of contacts, I can almost always sell a car within a month. And since I know I can move it, I actually take a lower fee for those big ticket items to encourage my clients to keep coming back.

Do you have an expertise in some field?

Make it known if you’re a coin collector. Or if you know more about rare stamps than anyone else.

A friend of mine specializes in vintage comic book collectibles. If you’re looking for a rare comic book or action figure he’s the guy to see.

People will come to you if you can do something better than anyone else (and they know you’re there).

Step 6: Decide on a Location

For most businesses, store owners want a glitzy, beautiful neighborhood with high-end customers lining up to pay top dollar for their stuff.

But for a resale gig, that’s not always the best idea.

Look, I’m not saying go set up shop in the poorest neighborhood you can find, but did you ever wonder why so many pawn shops are in poor areas?

It’s like I said before, the resale business thrives in times of economic hardship. And there’s always economic hardship in poor neighborhoods.

So really, the location of your store depends on what kind of store you want to have and who your customers are going to be.

My main store is right off the highway nestled in a well-lit shopping plaza in the “middle class” part of town. Easy to get to from anywhere, and in a part of town everyone feels comfortable visiting.

Figure out who you’re interested in serving and select a location based on those customers.

Once you’ve got that figured out, look for a place where customers will feel comfortable visiting. Find a well-lit area with lots of foot traffic to optimize business. And don’t forget to consider what your budget allows for rent.

Step 7: Find Suppliers

The good thing about a resale shop is that you don’t need to constantly order inventory.

But you do need some things to get started. They may include:

  • Signs
  • Logos
  • Business cards
  • Promotional materials
  • Hangers
  • Racks
  • Mannequins
  • Price tags
  • Cash register
  • Credit card readers
  • Computer sales terminals
  • Account and inventory control system,
  • Phone
  • Professional website
  • Security system

Go visit a pawn shop and look around at what equipment other shops utilize. Once you know what you need, you can start shopping for suppliers.

Step 8: Promote Your Consignment Store

No matter how great a business is, it’s nothing without customers.

So how do consignment shops find customers?

Well, you want consignors and buyers. Consignors supply your inventory and buyers take that inventory.

I use a variety of traditional and digital ads to bring in both.

Some options include:

  • Fliers
  • Print ads
  • Radio ads
  • TV ads
  • Yelp
  • Word of mouth (referrals)
  • Social media
  • Google ads
  • Craigslist

One big tip I can give you is to put a focus on your social sites. Pride yourself on service and quality. Have people leave with a smile, not feeling cheated. As your reviews go up, sites will show you in searches more effectively. And as sites show your shop in their results, your rating will continue to go up.

The two are linked together, and you can help both by treating your customers like people, not dollars.

Step 9: Create a Staffing Plan

It’s important to understand that you can’t do everything by yourself.

It’s not safe and it’s inefficient.

You can only serve one customer at a time, but having another employee on means you can service another customer.

If people have to wait, your customer service suffers, and they won’t come back.

The trick is finding the balance of employees to have scheduled.

You need to create a plan for hiring and scheduling.

  • Who do you want working for you?
  • How many people do you need?
  • Where will you find them?
  • What’s your interview process look like?

Just remember, your employees represent you and your store, so hiring and scheduling them properly should be a high priority.

Step 10: Create an Accounting Plan

As a resale store, you’ll need to make sure your books are kept in perfect order.

If the IRS decides to audit you (I’ve been audited 3 times over the last 8 years), you’ll want to make sure it’s as smooth and painless a process as possible.

Trust me on this, having your books in perfect order is the easiest way to make that happen.

Invest in some accounting software.

Quickbooks is a very popular one.

But my recommendation is to talk to an accountant to make sure you’re doing everything right.

Not only will this keep you safe from the IRS, but it’ll let you track your inventory and monitor if anything is missing.

Step 11: Get Into the Resale Community

Meeting other business owners in the resale community is very helpful to your success.

You can learn new trends, tips, and techniques to help your business grow.

VI highly recommend The Association of Resale Professionals.

There you can find everything from suppliers to meetups to bookstores, and a lot more.

It’s about $150 a year, and it’s worth every penny.

I wish I’d been a member when I had my first store. The tips and tricks I learned from other members could’ve saved me a lot of grief back then.

You should also look on Instagram and Facebook for other resale professionals. The more information you have available to you, the better.

And the resale professional community is the est place to get that information.

The Bottom Line

Opening (and running) a resale store is a lot of work.

But if you do it right, it’s not only rewarding, it’s a lot of fun. I love the people I meet every day and I love learning about new things they bring in. And the smiles on their faces when they leave thinking about what a “great deal” they just got always makes me grin.

Hopefully, you put this guide to use. If this was helpful for you and you want to learn more about starting a bar, has a 21 point checklist for starting your new business. Make sure you download this if you’re serious about getting started.

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