How to Start a Consignment Business

Date: October 07, 2013

The consignment-store landscape is increasingly competitive, but a little preparation will go a long way when you enter the market.

Contemplating getting into the consignment business? You’re not alone, says Bonnie Kallenberg, owner of four such stores in and around Atlanta.

After all, as president of the National Association of Resale and Thrift Shops, she regularly hears from people who are considering opening their own consignment shop. She also hears from them while working behind the counter at her own Finders Keepers consignment stores. Unfortunately, she says, too many of those potential entrepreneurs seem to be clueless about what they’d be getting into if they followed through on their plans.

"More and more people are coming to me and asking about how they can open their own stores because they were downsized, or they lost their jobs, and they think opening a store like mine would be great for them," Kallenberg says.

That’s all well and good, she adds, "but it costs money to open a consignment store. Maybe not as much as it costs to open a regular retail store, but you still have to have some money."

What else should people pondering the consignment business keep in mind before launching? Here are a few pointers from both Finders Keepers' Kallenberg and Beth Thompson, co-owner (along with Lori Ronca) of Decatur, Georgia-based HomeGrown, which sells original works created by local artists.

1. Pick some brains.

Kallenberg recommends talking to industry veterans before jumping in yourself. "There's a real learning curve to this business," she says, and chatting up those already running a consignment store could "save you tons of time, tons of money and tons of aggravation."

Take Action: Pick the right advisors for your business network

2. Start with a vision.

And then stick with it. That’s one of Thompson's main pointers to potential consignment-store owners. "If you don't go into the situation with a clear vision, you can get sideswiped very easily."

Adds Kallenberg: "Before you open, you have to have an idea as to where you will be situated within the marketplace. Are you going to be a lower-priced store with higher turnover, a mid-priced, mid-turnover one, like a department store, or one that's high-priced but with less volume, like a boutique?" If you’re aiming for the high end, by the way, Kallenberg warns that "it's going to require more marketing, more work."

It's usually better to gain some experience before "going the boutique-y route," she adds. "Start by learning your market and learning what's hot and not within that market and build some volume--because you need some volume to pay your bills."

Take Action: Monitor tastes and trends using Twitter

3. Consider your location… very carefully.

When it comes to opening a consignment business, "you really have to consider location—and on multiple levels,” advises Kallenberg. "A place that's around the corner, off of the main street—it might be cheap, but no one will ever find you. In this business, you’ve got to be where people can see you."

Kallenberg suggests that you “shouldn’t base your location decision on, ‘Oh, the rent’s cheap.’ If you do, you may cheap yourself right out of business."

Take Action: How location, location, location affects your business

4. Market yourself to consigners.

"The biggest challenge related to starting a consignment business is getting your consigners," stresses Thompson. "Because without consigners, you have no inventory—unlike a retail store, which can just go buy inventory and then sell it."

She and Ronca addressed that challenge by making a Facebook page devoted to their soon-to-be-opened store well in advance of its opening. "That was step one—even before we had a formal website," Thompson says. "We also generated an e-mail that we sent to pretty much everyone we knew."

Take action: Get your company started on Facebook

Another option, according to Kallenberg: "Once you get your space, put up a banner that says, 'Now accepting consignment.' Because you can't open an empty store, and you can't stock the store with the contents of your closet, even if you're the worst clothes hoarder in the world."

5. Ignore insurance and taxes at your own peril.

Ask Kallenberg what consignment-store owners-to-be need to know about insurance, and she'll say she's far from an expert, adding "all I know is that I pay a ridiculous amount per month" for it. "Taxes and insurance can really take things over the edge," for those in the consignment industry, she says, mainly because they’re aspects a lot of people ignore while contemplating getting into the business. "Rent, power, counters, hangers—you know and think about all of those things before opening a store. Payroll taxes? Workers' comp insurance? They're not always things the average person thinks about before starting one of these businesses."

Take action: Do you have enough insurance – and the right kinds?

6. Remember that nothing's perfect.

Or at least you shouldn’t worry about your consignment store being perfect from the start. "Back in the day, when the consignment industry was just getting started, most shops opened on shoestring budgets, and little money was spent to make things perfect," Kallenberg says. Today, "so many store owners go deep in debt to have shops that could rival Anthropologie or Nordstrom."

Her advice to those hoping to follow in her successful footsteps for clothing and furniture consignment: Try to be more like T.J.Maxx or Kohl's, which Kallenberg describes as "nice and clean, but basic and on a budget."

Take Action: Make the most of your shop’s first impression

7. Get professional help.

Another way of putting this piece of advice, says Thompson (while channeling Spanx founder Sara Blakely): Do what you do best and find someone else to do the rest. "I think that is brilliant advice for any small business owner—a lot of whom try to learn how to do things they’re just not good at or they're just not interested in and then fail miserably as a result."

Take Action: When you should hire consultants – and when not to bother

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Words to the Wise

  • Stay on top of trends: To make it as the owner of a consignment shop, "you have to be aware of what’s going on around you at all times," Kallenberg advises. That means noticing trends and reacting to them as quickly as possible.
  • Take care of your consigners: Although providing top-notch service to customers is vital to succeeding in this particular industry, says Thompson, it's just as important to "serve your [consigners] well and make sure their experience is positive." That includes paying them on time, providing them with an accurate inventory and "ensuring they have all of the information they need to be successful."
  • Know your clientele: "You really need to get to know who your customers are and what they want, so you’re not stuck with a bunch of inventory that doesn’t move," says Sam Levine of Fury Extraordinary Women's Consignment in Seattle.
  • Spend some money on advertising: Kallenberg has become well acquainted with that word since she took the reins at Finders Keepers more than a decade ago. "I have always spent money on advertising—from newspaper ads, to billboards, to television," she says. Not only that, but "whenever I reduce the advertising budget, I eventually can tell it in sales, [and] whenever we start a new campaign, I notice an uptick immediately."

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