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”.

Consignment sales can be very erratic. One day you will sell $50 worth of stuff, and the next $1000 worth. And that $1000 may happen inside of one hour, while all the rest of the day you had nothing to do but polish furniture or fold clothes.

This can be particularly true for consignment stores that sell high-priced items, like furniture. If you have even a few really valuable, museum-quality pieces, it is not impossible that you could bring in an entire month’s worth of sales in one day.

To make up for how up and down things can be, some consignment store owners find it better to track sales on a weekly basis instead of day by day. You’ll need some way to track each sale of course, and it will probably make your CPA happier if you do track sales on a daily basis, but for inventory projections and sale planning, look at your business on a week to week level rather than a day to day level.

That said, there are trends in consignment sales, and while every store is different consensus among consignment store owners does sound a bit like this:

- Thursdays and Fridays are typically the strongest days of the week.

- Mondays are the worst. Some consignment stores find it gets so bad that they just close on Mondays. If you are in an area where a lot of other stores are closed on Mondays, this might not be a surprise to your customers at all. It would also be nice for you, because you’ll get a day off during a business day, which gives you an opportunity to run errands during business hours. A word to the wise about this theory, though: Just because the store is closed does not mean you won’t have work to do.

Holidays tend to work out like this:

- The week after Christmas may be huge for you, because many people have Christmas money to spend and want to make the most of it. Its also a nice opportunity to nudge your sales just one more bit before the year closes out.

- Don’t feel too bad if you close the store for July 4th and Labor Day. These holidays tend to be very quiet anyway, especially if you do not live in a tourist town.

- Do stay open for Memorial Day.

The best months of the year are, in order:

- April and October

- May and November

- June, September and December

- March and August (back to school sales help here)

The worst months are January, February and July. So there you go: do well enough to take that Caribbean cruise for two weeks in early February, and rent that cabin in the mountains for two weeks in July.

Catering Your Store to a Niche Market

When you start up your consignment store, one of the biggest decisions that you need to make is what kind of market you are going to cater to. Many consignment stores choose to hit as many potential customers as possible by offering a wide range of items. While this is a good strategy, but it can be a lot of work managing every type of merchandise, rather than a few select types. For this reason, there are many consignment shop owners who choose to cater to niche markets, rather than offering a one-stop shop to all.

Types to Choose From

There are several different types of consignment store merchandise that you can sell. There is also no reason why you can’t sell a combination of a few types if you feel they fit together nicely.

1. Antiques: The sale of antiques is big in North America. What was once old is new again to many people. Many decors actually center on antiques and bargain hunters know that consignment stores are an antique gold mine. Some antiques that you may sell include furniture, glassware, collectibles, lamps, books and kitchenware.

2. Books: Everyone loves books and second-hand books tend to be widely sought after. Many readers would rather spend two dollars on a used copy of a book than buy it new for $10 to $20 at the bookstore. As a second-hand bookstore, or consignment book store, your life will revolve around books. There is a lot of business in books as people read more now than ever before.

3. Clothing: Probably the biggest area of business for any consignment store is clothing. By specializing only in clothing at your consignment shop, you can take in a lot of money without having to stock anything else. People need clothing and the bargain hunters out there know that there is plenty of nice clothing at consignment stores.

4. Music and Videos: As technology changes, what was once new is now old and easily replaced. That being said, there are many people out there who still buy vinyl records, or who prefer watching movies on VHS. Those who aren’t fans of new technology can be your biggest customers with this type of consignment store. However, that doesn’t mean you won’t still sell CDs, DVDs or even MP3 players. When new technology comes out, there are always those who buy it right away, and there are always those who are happy with older models of new technology.

5. Sporting goods: Every year, millions of kids, teenagers and adults enroll in sports programs. With each enrollment comes the need for equipment, and that is where a consignment store can come in. By stocking skis, hockey equipment, golf equipment, baseball equipment and anything else relating to sports, you can make good money by capitalizing on the bargain hunters out there looking for sports equipment. If someone wants to try golf for a year, they won’t buy new clubs, they will buy used clubs. You can do great business by stocking a year-round supply of sporting equipment.

By choosing to specialize in certain areas of merchandise, you can make it much easier for yourself to manage the consignment store. You will be able to know what you sell and what you don’t sell. You won’t have to worry about people seeing the consignment store as a place where anything and everything is dropped off to be sold. When you specialize, you make yourself a much more valuable shopping destination for those niche clients looking for a good deal.

What to Do When Things Go On Consignment

Most of the items that you sell at a consignment store are going to be priced quite low. Typically, your items will cost between five dollars and $50 in total. This means that most of the people who shop with you will be buying items with cash. However, there may be items in your consignment store that will cost more, even hundreds of dollars more, and that brings in the question of layaway.

What is Layaway?

Layaway is a program where a customer will buy an item from a store when they donít have the money to buy the entire product. To buy the product, they put down a deposit and pay for the product over the course of a few months or weeks. Once they have paid for the product in full, they can take the product home. As the store owner, you get money down on a product, and the customer gets the ability to reserve a product even if they donít have enough money to buy it at that point.

Forgotten Layaways

For whatever reason, even though they have put money down, many customers forget about their layaway products. When this happens, the product usually goes back out on the shelves. For the customer this is wasted money, for you, it is extra profit. For example, you are selling a computer for $300 and the customer puts $50 down, but never buys the rest of it, you can put that computer back on the shelf. You sell it two weeks later for $300 and you have made $350 in total.
If you have ten customers, who all put $50 down on products they never purchase off layaway, you make $500.

The Layaway Agreement

To protect yourself when items sit on layaway, un-purchased, you need a layaway agreement. A layaway agreement will help you put products back on the shelf, legally, rather than allowing them to sit in the back collecting dust. You may get the deposit but the deposit is only a fraction of what you could make if you sell the product. There are several items that you should have in a layaway agreement.

You can choose not to have a layaway program, but a better option is to reserve it for regular customers who you know will buy the product. Another alternative is to enforce a policy of 50 percent down on the product. You should also require that the product be bought within 30 days after it has been put on layaway. If the customer cannot purchase the item within 30 days of putting 50 percent down on it, then it is a product they should probably wait on buying anyways. Also, make sure customers know that if they don’t pick up the product by the agreed upon expiry date, they lose their deposit.

Having a product on layaway can be good for you but you need to have some rules in place to ensure you donít get a lot of products that are never bought and not sitting on your shelves. Layaway agreements are also good for your customer because then they know exactly what they are getting into and there are no surprises. They sign the layaway agreement knowing that they are reserving a product and that they have a set amount of time to buy that product.

Finding the Software That Makes Business Easier For You

Computers have made our lives easier, and they have revolutionized business in the process. Even consignment stores have found the efficiency computers bring to be incredibly important. While some consignment store owners may wrestle with the decision to computerize their shop, there are many who feel it is impossible not to. Some of the items that can make it easier to run a consignment store include a computer, printer, software, bar code reader, receipt printer and a computerized cash register.

Why Implement A Computer System?

With a system in place that computerizes your store, you will save several days work at the end of the month trying to organize your receipts and finances. With a computerized system, you can actually post the point of sale right into the consignorís account when the item is purchased. This makes it easier for you to manage your cosigners and what they are owed.

When you have a good system in place, you can get daily, monthly and yearly reports on sales, items donated and anything that has not been paid to a consignor. You can see what sells better in the store and what you donít sell much of. In short, it makes your entire store more efficient and easier to run.

Price Tags

Price tag software can help you make price tags that are clear and well-designed to catch your customerís eye. With price tag software, you can program several different formats; including having a single price that is marked down to a different price. An example of this is

Pants $14.99
After 2/27/10 $12.99
After 3/27/10 $ 8.99

With markdown tags that are entered in software and printed off the computer, you can avoid handwritten reductions which saves you time.

Making Managing Consignors Easier

Managing your consignment contracts can be difficult at times, especially if you have a large amount of consignors. For every consignor, you need to assign merchandise to them and you have to monitor when the merchandise is sold so that you can pay the consignor their share. Without a computer system, this can be incredibly time consuming. If not for anything else, having a computer system and consignment software in place will make your life much easier with consignors and their contracts.

You can enter all your consignors into the software with all their merchandise to them. At this point, with your point of sale computer, you can set up an alert so that when the consignor’s merchandise is sold, you know about it. With that information, you can now make sure the consignor gets their share quickly and easily. The easier and quicker they get their money, the more often they will work with you when they have more merchandise they want to sell at your consignment store.

It would take days to sort through receipts and inventory to see what has been sold so that you can get the consignors what they are owed, if you didn’t have the computer software system in place. With this system, you save hours and in the world of business, time is money. This is why more and more consignment shops are paying the extra cost to get systems put in place that make their lives easier and their shops more efficient.

The world is computerized, and consignment shops need to be as well.

Knowing the Difference is Important

There is often a great deal of confusion between re-sale, consignment, thrift and second-hand stores. Usually, consumers will see these types of stores as one and the same, but they are not. In fact, there are some vital differences to these types of stores.

Second-Hand and Thrift Stores

Second-hand stores come in many different varieties. Generally, they are based upon the types of merchandise they sell. If you own a second-hand store, you will want to focus on a certain type of merchandise. There are some second-hand stores that are much more generalized, which broadens their customer base.

Some of the types of second-hand stores that can be found include antiques, books, clothing, electronic, music and video and sporting goods. What you sell within a second-hand store is completely up to you as the owner. Thrift stores work on the same principle as second-hand stores.

Consignment Stores

Consignment stores work in a different manner than all the rest. With consignment store, a business owner will get their merchandise from clients and sell that merchandise for a profit. Generally these stores get about 60 percent of the sale, while the consignor will get about 40 percent.

These are popular stores to run because they take little investment in order to build up an inventory. As well, there is no need to pay for any product unless it is sold, which brings down costs greatly.

Resale

Unlike consignment stores, which get their merchandise from clients and sell them, resale store owners buy used items and sell them. This means they have to buy the items first, which can increase start-up costs. While this type of store requires more investment up front, profits can also be very good because there is no splitting of the costs.

The Benefits of These Stores

Some benefits that these stores enjoy include the fact that there is more freedom for the business owners. They can stock whatever they wish, sell it for however much will bring them a profit and there is a lot of profit. There is also a great deal of interaction with customers, which is great if the owner is a people person and wants to help others. These stores are also good for the environment. Instead of allowing items to go to the landfills, second-hand stores act like a recycle depot, allowing others to pick up what they need, at a cheaper price than buying it new.

Its the ability to be your own boss that’s what causes many people to get into these businesses. They have no one telling them what to do and they make the decisions on what is stocked and how much of a profit they can make. The income potential that can comes from generating revenues on used goods is a big benefit of these types of businesses. There can be a lot of mark-up on these items. A store owner can buy something for two dollars at a garage sale and sell it for six dollars, making three times the profit.

Lastly, these stores can be started right away because no training is needed to sell the items and there is a good quantity of used items out there that need to be sold. All one needs is a small budget to take advantage of flea markets, eBay and garage sales, along with some space to store the items.