After ten years in the industry, we understand why consignment shops fail.

Over the years, SimpleConsign has onboarded thousands of customers and observed the operations of numerous consignment shops. So, the team at SimpleConsign has excellent insight on how to open a consignment shop with details on what makes a store successful and factors that make it fail.

Several factors contribute to the failure of a consignment shop. These include poor financial management, lack of marketing, and inadequate inventory management. By analyzing these factors, SimpleConsign helps our stores avoid these pitfalls and set them on the path to success.

1. Lacking full business knowledge

Understanding the resale industry to run a successful consignment store is not enough. A range of business skills are necessary. As Bob Phibbs, "The Retail Doctor," highlights, owners must concentrate on the fundamentals - profit and loss, break-even analyses, and cash flow. These are the basics of running a small business.

Many new consignment shop owners are thrilled about fulfilling their lifelong dream of starting a consignment business, but many need more business management skills. They might know how to price their items but often overlook their overhead costs.

Even if they have an impressive inventory collection, they need to learn how to adequately merchandise and market it effectively. The quickest way to fail is to ignore the business's total cost. If you're unfamiliar with how to open a consignment store, find someone who is.

Setting up a board of directors can be helpful if you're a new consignment store owner. A board of directors is a group of experienced professionals who can help you create a business plan and guide you as your resale shop grows. Having a solid business plan alongside a group of experts in your corner can avoid costly mistakes and scale your business more quickly and efficiently.

Ideally, your board of directors should include people with experience in finance, marketing, and retail management. They can provide valuable advice on everything from business structure to inventory management to pricing strategies. Don't hesitate to contact people in your network who have opened a business and can help you build your board. It could be one of your best decisions as a new consignment store business owner.

2. Thinking you can go it alone

Phibbs explains, "You might be able to handle the workload of two or three individuals, but you cannot possibly be two or three people." Burnout, exhaustion, and the lack of a personal life are among the reasons why consignment shops tend to fail. When you're the only person responsible for managing inventory, accepting consignments, dealing with consignors and customers, maintaining the cleanliness of the shop, and so on, something will inevitably have to give.

Running a successful consignment store may seem exciting initially, but it can quickly become overwhelming when things go wrong. If you're wondering how to make your consignment store successful, remember this: It's essential to have a team of managers, sales staff, and other professionals who can help you manage the day-to-day operations of your consignment business. Don't focus on building a resale store. Focus on building a strong team to support you and help your business thrive.

3. Choosing the wrong merchandise

Selling merchandise rapidly and efficiently is crucial to succeed in the resale industry. Initially, many consignment stores accepted all items brought in by consignors to stock their shelves. However, successful consignment shops follow the "less is more" principle. 

In addition to carefully curating their inventory, they base their stock on sales data. At SimpleConsign, we find our most successful resale stores:

  • Regularly review sales data to identify your top consignors and best-selling items.
  • Change the sales floor frequently to make the same merchandise appear different and attractive to shoppers.
  • Move sale items to the back of the store to encourage customer browsing.

4. Viewing marketing as an extra

Many consignment shops cannot be found online through a basic Google search or social media page. Nowadays, customers start their shopping journey online. Just as you're searching Google for all the details on how to start up a consignment store, your customers are doing the same for where to buy and consign items. That's why having an updated Google listing with a photograph of your retail store and address is a must for attracting new customers in your target market.

If you are unfamiliar with the basics of advertising, it is crucial to find someone who is. Although some services may require an upfront fee, successful marketing should more than justify the expense.

5. Leasing or buying the wrong location

A big reason many consignment shops fail is poor location. Just because the rent is cheaper doesn't mean your sales will go further. It could mean there will be no foot traffic or sales at all. Phibbs writes, "Yes, you can save 30% with a location off the main road, but you'll probably give that 30% back – and more – with advertising to try to get them there."

Choosing a poor location goes back to failure reason #1 and understanding business fundamentals. Consider not only rent and overhead but also the demographics, work habits, and even the physical traffic patterns of potential shoppers in your neighborhood. As Phibbs says, you never want to be "100 feet from success."

6. Ensuring your employees are supported

As much as employees hate to hear it and managers hate to say it, training is crucial to the success of any business. In the words of Phibbs, "Your job isn't to be the owner. Your job is to manage and train your people so they sell better than you, consistently delighting and surprising your customers." This holds true even for a consignment shop.

If you want to know how to start up a consignment shop and make it successful, you need to invest in your employees' training and development. This will decrease staff turnover and increase your bottom line.

For your employees to invest their energy in your business, you have to invest time in them. After all, if you encourage and train your staff, you will have less turnover and ultimately will do less training. It's a win-win for everyone. In addition, proper training makes your business "competitor-proof," according to Phibbs.

7. Unwillingness to change

When was the last time you made a significant change in how you do business? Have you moved to a better location? What about firing the salespeople who aren't working and finding the ones who do? What about upgrading your POS system to manage your store from anywhere? 

Phibbs says, "Many small businesses close because at some point the owner didn't get enough leverage on themselves to change." He explains, "Leveraging is associating your lack of action to the pain of the repossession of your car, the loss of your marriage, or the stigma of closing your family business." In other words, a business owner who won't recognize change as the way to obtain a successful business often winds up losing the business.