It is an extremely wise idea to get some real-world experience in the resale business before you attempt to launch your own consignment or second-hand store. Even a few days spent at this effort will teach you volumes of critical information that you need to know to make your store a success. In fact, after writing the business plan, getting a bit of resale experience should be next on the list of your must-do consignment store planning.
So, where to get this experience? Here are several ways to go about it
1) Run one to a few garage sales
Almost anyone can benefit from clearing out their house for a garage sale. If your house is one of the very few that have no junk, try to help a friend or a relative. Hunt down used appliances, clothing, sports gear, gardening gear, tools and whatever you can find. Get some practice in marking items clearly and in getting people to come to the sale. See which kinds of signs work best, and carefully watch how people review the merchandise you have for sale.
2) Get a flea market booth
This is a terrific way to ramp up your business before you have to start paying for a retail location (OK, actually, you will be paying for a retail location, but a booth is cheaper than a lease). You will need several portable tables and a clothes rack if you are selling clothes.
Doing a booth for a month will teach you a tremendous amount about pricing and how people shop. If you have a website, or if you are gathering a list of email address to send a grand opening announcement to, be assertive about getting people to fill out their names and information. That customer list will become your best marketing tool.
3) Work in a Consignment Store
Even a short stay and a Salvation Army or a Goodwill Store is much better than nothing. You may run into some issues of competition if you are working in a consignment store that sells similar things to what you want to be selling. Its up to you if you discuss your business plan with your current employer, but honesty generally is the best policy.
Working in the rows will give you intimate knowledge of payment options, stocking, traffic flow, layaway policies, security and a bunch of other issues that you can not learn just doing a garage sale or a flea market booth.
4) Work at an Antique Store or a Antique Show or an Auction House
Antiques are a world unto themselves, but if you are going to be selling furniture or high-end housewares in your consignment store, the issues around antiques are going to come up, and you had better know about them sooner or later. Another nice benefit to doing these shows, or working in a store, is that you’ll meet all sorts of people “in the biz”. One of them who wants to unload a bunch of their inventory for cheap might be a goldmine for your stores startup inventory.
Many consignment store owners recommend buying an existing store rather than starting your own from scratch. There are pros and cons to doing this versus starting up from nothing.
The Pros of Buying an Existing Store
- The location is already decided, and you have a good idea how well it works for the store
- The clientele are established, both consignors and buyers
- There are existing financial records, so you know much, much more about how the store is performing than when you do a startup.
- If you do an “asset purchase” you will be getting all the store’s inventory, the building lease (or the building, if they own it) and all the equipment uses to run the store. Getting all the inventory and all the marketing materials and all the equipment in one fell swoop is a gigantic time-saver, and you will probably spend much less to buy them this way than you would if you bought the equipment a la carte at retail prices.
- If you do a “stock purchase” you will be buying everything in the store and all the financial obligations and monies owed.
The Cons of Buying an Established Store
- You must do a thorough investigation of all parts of the current store, especially their legal and financial health and obligations, or you could be walking into a nightmare. You will need to hire a lawyer to review the terms of the sale, and a CPA to review the books of the store.
- If the store has a bad reputation, even with some customers, you are buying that bad reputation. Putting up an “Under New Ownership” sign may help a little, but once people have a judgment about a store it is hard to change it.
- The store may not be profitable, and you may end up spending a lot of money with a lawyer and a CPA and doing negotiations with an unrealistic owner before you have to let go and move on
- The store may have hidden legal or financial problems that (for whatever reason) do not turn up during your due diligence research
After you’ve weighed all those issues, it may still be a very good choice to buy a store. So how much should you expect to pay for a consignment store? It varies widely — typically business valuation can be 3 years profits or 3 years sales. If the building is owned instead of leased, that will also affect the price. Historically a consignment store can go for anywhere between $20,000 to $250,000, depending on how large it is, where it is, and how much business it is doing.
If you can, try to get a clause put into your purchase agreement that lets you work in the store for two weeks, then gives you the option to re-negotiate the contract after that period. Or, just ask the owner if they will let you help out for two weeks to really get a handle on how the store is operating. Those two weeks will be time well spent.
Another critical thing to know is why the current store owner wants to get out. Maybe they want to retire, or maybe their health requires them to work less. They may also have burnout, and while almost every business owner alive has had a case of burnout at one time or another, if there’s is severe, and they say they just want to get out of the business as fast as possible, you need to ask more questions about how they got so desperate.
Finally, if a current owner ever gives you any resistance about getting financial information, or any other information about the store, put up your problem radar immediately. If they flat out refuse to supply you with something, that is a serious red flag that could be the proverbial “deal-killer”.
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