Decisions. Decisions. Should you buy or lease your consignment store property?

Don’t let the leasing vs. buying question overwhelm you. Take a look at some of the pros and cons. Then, make a decision on which is best for your consignment store property. No matter what you choose, remember it’s always location, location, location!

Making the right choice

Pros to buying

• More control. Since the building is yours, you control changes or improvements. The stability of owning vs. leasing means you’re not at the whim of others.
• Equity.  Use the building as collateral for a line of credit or other financing.
• Sublet.  Add revenue by leasing unused space in the building.
• Tax Deductions. Deduct your interest and annual depreciation expense, as well as other non-mortgage related expenses.
• No Surprises. Never receive a rent increase or eviction notice.
• Resale Value. If you’ve chosen your location wisely, selling your building should net you a profit. In regions where land values are appreciating, investing in real estate can be good for the future of your business.

Pros to leasing

• More Liquidity. No high upfront costs are needed. When you invest less in the location, you have more money to devote toward business operations. In addition, with a lower debt to income ratio, you may be able to obtain a small business loan if needed.
• Tax Deductions. Your monthly rental fee is tax deductible.
• Greater Flexibility. Freedom to change locations due to growth or down sizing is much easier.
• Less Responsibility. More time and money to build your business.
• No Market Value Worries. Regardless of the changes in the commercial real estate market, you are safe.
• Shorter Terms. Most contracts only last a few years. If you’re unhappy with your location, you’re free to move on.

Cons to Buying

• Ties up Capital. In addition to your down payment, your initial cash outlay includes a building appraisal and inspection fees, closing costs and possible repair expenses. Often, those costs are difficult to budget ahead of time.
• You are the Landlord. You are responsible for ongoing repairs, maintenance, property taxes and all operating expenses.
• Capital Loss. If you haven’t chosen your location wisely, your property may actually decrease in value.
• Longer Terms. Mortgage contracts generally range from 15 to 30 years.
• Legal Risks. Being the owner, you are responsible for the safety and security of your customers as well as anyone who sublets space from you.

Cons to Leasing

• Expensive. A rental lease comes with a security deposit, payment of the first month’s rent in advance, pre-lease inspection and a utilities security deposit. Depending on your location, there may also be an advance payment for the shopping center’s or strip mall’s operating expenses and property taxes. Rental rates rarely decrease.
• Possible Surprises. Leasing gives you no control over the building or the landlord. Selling the property, raising rates or forcing you to move are always possibilities.
• Zero Equity. There’s no additional income potential.

Making the final decision on your consignment store property

There’s a lot to consider when deciding between buying or leasing. Regardless of which one you choose, you’ll still have store expenses such as insurance, salaries, utilities, display fixtures, hardware, software, labels, signage, etc. Consider these factors when choosing:

• How long you’ve been in business. If you are just launching your consignment or resale shop, it’s best to leave some room for growth. Leasing can usually provide that room better than purchasing. Sign up for our Getting Started Success Kit if you’re just starting out. It’s filled with great ideas for opening a consignment business. A well-established consignment shop that has no expansion plans is in a good position to buy their property.
• Growth Opportunities. When leasing, look for a building that allows for expansion opportunities if your business takes off. If it is within your financial means and expertise, consider buying a building that offers more space than you need. You can rent out the extra space, helping you diversify your income streams.
• Your vision for your business. Know the direction you want to take your business upfront. If you’re opening your shop while your kids are still at home, but plan to close after they’ve moved out, by all means rent. If this is a career move for a long-term business, consider buying.
• Stability vs. Flexibility. Which is more important to you? A mortgage with a set monthly fee can be comforting. However, the freedom to change, plus the additional cash flow offers stress-free flexibility too.
• The real estate market in your area. Some areas are seeing a real boon in real estate pricing. Knowing whether it’s a bubble waiting to burst or a steady upward trend is difficult. As in housing, you never want to own the most expensive building on the block. Determine the market for your store. Research neighborhoods. Choose your consignment store property based on reaching your target demographic.
• A cash-flow analysis. Bizfilings offers a great tool to analyze cash flow. Although difficult to determine in a consignment business, it’s still a necessary analysis.

Some final advice

Finally, the wisdom that only Dave Ramsey, the financial guru can provide, “…put your business on solid ground, slowly and steadily. Lease your space and use your money to reinvest in your business. Make it grow. Once your business is really rocking, you can consider getting into the real estate business.”

This post has been updated from the original in August 2014

Resale in Japan is an adventure

An article in All About Japan,  titled Tokyo Dirt-Cheap Shopping Tour, states that resale shopping in Japan may offer up some better deals than in other countries. They reason that because closets are so small in most Japanese homes (which are pretty small as well) and residents are so fashion conscious, they’re generally turning their clothes over faster.  Therefore, you can buy nearly new clothes for a fraction of the cost all the time. After a little research, I found 2 great examples of resale in Japan.

Don Don Down on Wednesday

Don Don Down on Wednesday (affectionately known as D-D-DoW) is a popular  resale shop with several dozen locations in Japan. This shop has one of the most unique discounting formulas I’ve seen. The price of items are marked by…fruits and vegetables. Yup, that’s right, fruits and veggies. Each item is assigned a fruit or vegetable tag that corresponds with a given price. The price drops every Wednesday thus explaining their very unique name. TokyoCheapo suggested, “it’s a fascinating The-Price-Is-Right-esque twist on the auction idea.” So, do you wait for your strawberry to become a mushroom, or do you buy now? The receipts are even printed with the appropriate fruits and vegetables. It looks like you’ve been to the grocery store rather than a clothing store.

Hilarious merchandising trick

D-D-DoW uses a very clever merchandising ploy too. They turn all of their mannequins away from the shopper. One reviewer said he kept apologizing as he bumped into what he thought were people in the aisles. This is a fun way to shake up the look of your shop.

New York Joe Exchange

New York Joe Exchange is another popular Japanese vintage shop. As you can see, their logo includes the universal recycling emblem. Plus, they’ve capitalized on the craze for all things American with their name and red, white and blue color scheme. This shop is unique because of their willingness to trade or, as we would term it, offer store credit. They buy items outright at 30% of their value or you can receive store credit for 60% of the value. New York Joe Exchange puts one very different twist on the regular trade concept. According to TokyoCheapo, the trade credit is good for that day only. You cannot carry your balance over. That’s one way to make sure your yen stays in one place.

For a thorough list of secondhand shops in Tokyo, take a look here. Or, use this list from Fashionista that comes complete with unique items they found at each store. With names like Peep Cheep, Mad Tea Party and Mouse, who wouldn’t want to shop there? One caveat a particular reviewer mentioned, “Mode-off is for 2nd hand clothes and is a treasure chest of finds…Have in your mind though, Japanese people tend to be rather slim and not too tall!!”

For a closer look at consignment shops around the world, find out more here.

Updated on 4/12/2021

Do your homework to avoid these common mistakes consignment shops make

Although no obstacle is insurmountable, there are common mistakes consignment shops make that may cause your business to fail. Here are 5 of them.

#1) The most common mistake consignment shops make…choosing the wrong location

It is all about location, location, location. Knowing the demographics, like age and income of possible shoppers in your area, is key to choosing the right location. Statistics show that nearly 75% of your business will come from the residents in your store’s immediate neighborhood. Don’t choose your location based on price alone. Consider the parking and traffic patterns. Take a close look at other businesses nearby. Is there a well-known restaurant, store or gym around the corner? Look for businesses that will draw foot traffic. Read 5 steps to a successful consignment business to learn more about choosing the right location. If you find yourself in the wrong location, now is the time to make the change. Don’t wait. Go where your shoppers are.

#2) The wrong merchandise for the right market

You’ve chosen your location, but now you have to fill it with merchandise. Incorrectly managing your merchandise is one of the common mistakes consignment shops make. Too little merchandise and you look like you’re going out of business. Adding too many items to your sales floor will also hurt you. Shoppers don’t want to fight racks and hangers to view your merchandise. Poorly constructed or flawed items that make it onto the sales floor will damage your reputation. At least twice a month, review your inventory for expired products. Move items that aren’t selling to a sale area in the back. Start having a critical eye for what you will and won’t sell in your shop. Read How to manage your consignment inventory. Review your sales data and see who and what are your top sellers.

#3) Pricing merchandise incorrectly

You know the struggle, if you price the merchandise too high, you risk losing sales. If it is too low, the business will struggle to make a profit. Generally, clothing is tagged 30 percent off the original retail value regardless if the item was worn or not. Follow basic pricing rules like ending with the number 9 (as in $9.99). Don’t make your discount schedule too difficult to understand. Shoppers tend to follow the path of least resistance when it comes to figuring out price, so make your prices as understandable as possible. Offer merchandise in a wide variety of price ranges. Then, there is something for everyone. If your merchandise is priced right, customers will have a sense of urgency to buy because they know it won’t last long. Read 4 tips for setting correct price points.

#4) Unwritten policies

It’s critical that you develop concise, yet detailed written policies for consignors and employees. Not sticking to those policies is another one of the common mistakes that consignment shops make. Determine how long an item will be on the sales floor before a price reduction. Tell your consignors when they will get paid (typically at the end of the month) and how (cash, check, store credit). Let them know what will happen if their items don’t sell. Offer an intake sheet that outlines the contract and requires a signature. Have your consignors fill it out and list every item accepted into the inventory. Every employee and consignor must clearly understand how the intake system works. Read How to tweak your consignment acceptance policy. You’ll also want to develop brochures and a FAQs section on your website listing your policies. For your employees, make sure you have a clear employee manual. State your policies on vacation and sick days, social media use and such things as shoplifting, etc.

#5)  Not counting the costs

Decide immediately if your shop is a fun, enjoyable hobby or you intend to truly build a business. That decision will make a difference in how you plan. Just because you like to shop, know a good bargain when you see one and have a basement filled with stuff, doesn’t mean you’re equipped to open and run a consignment shop. It’s been suggested that a new business owner have at least 6 months of living expenses set aside ahead of time. Problems can arise, but having a safety net not only keeps you sane, it also relieves a lot of pressure. A solid business plan is essential no matter where you are in the process. Maybe it’s time to pull it out again and take another look. Read How to improve a mediocre resale business plan.

It all seems like common sense, doesn’t it? However, in the midst of making exciting decisions for a new business venture, we often lose sight of the practical aspects. It’s never too late to re-evaluate your choices though. Do a little homework and put yourself back on the right track.

For more on running a successful Consignment Store check these blogs out:

The 7 Reasons Consignment Shops Fail And How To Avoid Them

After 10 years in the biz, we’ve got a pretty good idea why consignment shops fail

Updated on 4/12/2021

The Retail Doctor Bob Phibbs wrote about why small businesses fail. It got me thinking. We’ve seen our share of consignment shops fail over the years. In fact, from the beginning of our relationship with a shop, we can often tell whether that owner is going to make it or not. There are clearly several reasons why certain consignment shops fail.

1.) Lacking full business knowledge

I’ve mentioned this in other blog posts. Read 10 surefire ways to be a successful consignment shop owner. When you own a consignment store, you need to understand business basics. As Phibbs says, you need to focus on the “fundamentals. Profit and loss, break even analyses and cash flow are the basics of running a small business.” It ought to be a given, right? However, I’ve spoken to new owners who are so excited about fulfilling a lifelong dream, but have no clue about running a business. They understand how to price their merchandise, but don’t take into consideration their overhead. Their basement is filled with treasures, but they don’t know how to manage, merchandise and market. The fastest way to fail is to not count the total cost. If you don’t understand it, find someone who does.

2.) Thinking you can go it alone

Phibbs says, “You can do the jobs of two or three people, but you can’t BE two or three people.” Burn out, exhaustion and lack of a life in general is another reason consignment shops fail. When you are the sole person responsible for inventory management, consignment intake, consignor and customer relations, the cleanliness of your shop, etc. something has to give. Every business owner needs the support of a manager, sales staff and others who can pick up the slack. Yes, being a sole proprietor is exhilarating, but that wears off quickly when your electricity goes out and you’ve misplaced a consignor’s rare Renoir painting. Build a team, not a store. If you take on a partner however, make sure you can survive the good and the bad together.

3.) Choosing the wrong merchandise

The key to success is moving merchandise quickly off the sales floor and out the door. In the beginning, in order to stock the shelves, you most likely accepted everything consignors brought in. Successful consignment shops follow the “less-is-more” theory. Carefully curate items according to sales data. Capitalize on the consignment benefit that everything’s a one-off and buyers should buy it when they see it. Change up your sales floor frequently so the same merchandise looks completely different. Move sale items to the back to draw shoppers all the way through your store. Regularly review sales data to figure out your top consignors and your top sellers.

4.) Viewing marketing as an extra

One of my jobs at Traxia is to stay in touch with shops through social media. I’ve been amazed at the number of consignment shops that can’t be found online. Even a few of our customers, who do slow but steady business, have no social footprint. Just imagine how much stronger sales would be if they were marketing? Today’s shoppers start by looking online. They don’t have the time to wander malls or Main Streets looking in and out of shops. Having a minimum of an active Facebook page is a must for success. Read 8 Facebook failures you don’t want to make to learn what not to do with your Facebook marketing. Again, if you don’t understand the basics of advertising, find someone who does.

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 farther. It could mean there will be no sales at all. Phibbs writes, “Yes, you can save 30% with a location that’s 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. Take into consideration not only rent and overhead, but 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.) Letting your employees hang out to dry

Training. It’s a word employees hate to hear and managers hate to say. But, as Phibbs states, “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.” Turnover is a huge problem for small businesses. In order 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 really big change in the way you do business? Have you moved to a better location? What about firing the sales people who aren’t working and finding the ones who do? What about upgrading your POS system to give yourself the freedom to manage your store from anywhere. (That was a shameless plug for SimpleConsign, by the way.) Phibbs says, “Many small businesses close because at some point the owner didn’t get enough leverage on themselves to change.” He goes on to explain that “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.

For more on running a successful Consignment Store check these blogs out:

5 common mistakes consignment shops make

Kevin Beasley, the founder of New Leaf Consignment Furniture Galleries, shares confessions of a struggling shop owner

We all struggle…

I had just hired a new staff member at my consignment shop and it was within my first 6 months of business. She was a college student inexperienced in dealing with the range of people you get in a retail environment. I had to run a few errands, which would require her to be alone. She had been on the job for just a few weeks and I knew she wasn’t ready to tackle a barrage of intimidating customers.  The good news is that I didn’t have any intimidating customers, actually, I didn’t have any customers. Good news for her… bad news for a young struggling shop owner.

I ran my errands…

Making enough revenue to compensate your staff, pay your bills, and support your family is tough in any small business endeavor. Do not be deceived. It takes determination and tremendous courage! And there will be times when you wonder if you’ll ever do enough business to pay the bills and have a little leftover at the end of the month.

Creativity is Key…

It was in those times of sweat beads popping out of my forehead every time the rent was due that I learned a key lesson in the entrepreneurial endeavor.

I wouldn’t tell this to most folks, but, hey, we’re friends right? I will swallow my pride and be honest just this once. In some of the most difficult trials in my first couple years as a consignment shop owner, I was not above dumpster diving. There… I said it… it’s true.

I live in a college town and just before lease transitions there is a whole bunch of used furniture waiting on the side of the road like hitchhikers hoping against hope that some kind soul will come and save them from spending another homeless night alone. Well, I found them a home, right smack dab in the middle of my consignment shop. It may have been humiliating when the police pulled me over for questioning, but it helped me pay the rent! Let’s not call it dumpster diving, let’s call it imaginative inventory procurement. Whew… that’s better!

I’m not saying you need to pick up other people’s discarded household goods, but below are some ideas on how you can get more creative in the lean times.

Three Ideas for Creative Business Growth

Supplement Consignment with Retail

Ok. I know, some of you purists are cringing right now. But, survival sometimes means you do what you’ve got to do. What retail product will make your store a one-stop shop for your customers. For us, it is decorative chalk paint® to give new life to those gently used pieces purchased in our store. We also carry a full line of new Serta Mattresses. Here are some other ideas.

• Jewelry
• Handbags
• Furniture Wax or Touch Up Supplies
• Cabinet Hardware
• Candles or Scents

You can think of many more. What works for your customers?

Rent Out Your Extra Space

Do you have a small section of your store or outside your shop that can be rented out to others for a regular source of supplemental income?

We have a large outdoor patio and this year we are  having market days one Saturday per month where we rent out booth space to crafters and farmers for the day.

Check your local regulations before attempting this idea.

After Hours Events at Your Consignment Shop

Having a VIP invitation only event or a holiday open house is a great way to get those folks back in who have not perused your shop in a while.  Everyone likes to be invited to a party. Here’s your chance to make them feel special and get a boost in business at the same time.

Here are some of the things we often offer at after-hours events:

• Live Music
• Refreshments
• An On Hand Gold Buyers (they like to spend that extra money in your store and sometimes the gold buyer will even give you a commission on his buys)
• Double Rewards Points (if you are not doing rewards points, seriously consider it)
• Educational Seminars (painting furniture, basic upholstery, furniture repair, couponing skills,etc…)

These are just a few ideas to get your marbles bouncing.

Conclusion

Entrepreneurialism seems like such a glorious pursuit. The truth is that it is sometimes anything but glorious. Sometimes it is simply a survivalist effort. True entrepreneurs tighten their belt and get creative to find ways to create their next growth opportunity.

If you would like to find creative ways to increase your business, I would suggest you schedule a one-day retreat with just you and your whiteboard or notepad and dedicate it to brainstorming creative solutions to your cash flow problem.

Here’s another helpful resource, 10 sure fire ways to be a successful consignment shop owner.

Retail’s failure is everywhere. What can we learn?

The news is filled with one retail shop after another in some form of failure. Headlines like,”Bebe posts $30m loss, looks to liquidate assets” or “Why Sports Authority is likely to close all 463 Stores” are all over the news. Aeropostale just announced they’re filing for bankruptcy protection. Coach Inc. is going through reorganization as well as Macy’s, JC Penney’s and Sears. After losing money for 3 consecutive years, Wet Seal decided to close 338 stores. As a result of all of this failure, thousands of workers have or will lose their jobs and the whole industry suffers. What can the resale industry take away from retail’s failure? There are 4 lessons learned.

1.) Your inventory has to be up-to-date

Fortune reports that one of the reasons for Wet Seal’s loss of profits was its inability to stay up with the current teen trends. The article cited H&M, Forever 21 and Zara as doing a better job “matching current fast-fashion trends.” In a slump overall, teens are more interested in the latest gadget rather than the latest pair of jeans. Mall traffic has decreased and the rise in popularity of teen athleisure brands also takes its toll. Obviously, the teen market is more volatile than others. Nonetheless, it proves that staying current with the fashion trends of your target market is key.

Take Coach for example. Coach joined the logo craze a couple of decades ago. It’s now found their market is no longer interested in logo-saturated merchandise. Even Victoria’s Secret is feeling the heat from the athleisure trend. Business is falling because consumers are looking for comfort and fit rather than slinky. Plus, Jockey and Lululemon are making their brands a little more feminine with soft, pretty touches.

Know your market and the trends. Know what your shoppers are looking for and go after it.

2.) Establishing your “brand” is critical

ABC news revealed that Wet Seal had “struggled with an identity crisis for years.” According to Craig Johnson, president of Customer Growth Partners, a retail consultancy firm, “It couldn’t decide what it wanted to be when it grew up.”

Since 2013, Coach Inc. was seeing a consistent downturn in sales. They recognized their failure came by offering bags in factory outlet stores or at deep discounts. They had become the “luxury” bag for the masses, but the masses weren’t buying. As a result, Coach underwent an entire reorganization. They have gotten away from the logo-covered look; reduced the number of flash-sale offerings and returned to the brand they were known for since 1941. In fact, they’ve introduced a whole new line of clothing, quality leather hand bags and shoes under the name Coach 1941 to emphasize the positive changes.

Macy’s is reorganizing in the opposite direction. They are introducing Macy’s Backstage, an off-price, deeply discounted retail department. Sears has a major branding crisis on their hands.  Earlier this year, Fortune magazine reported that Sear’s apparel now ranks below Goodwill in popularity among shoppers.

Do you have a solid mission statement for your business? Does your business plan include not only a vision for today, but a goal for the future? Are you clearly conveying your identity through signage, merchandising, your logo and marketing?

3.) Location is truly key

Although no one could clearly predict the slowing mall traffic, Wet Seal maintains this was a defining factor in their downfall. Unable to renegotiate “meaningful” lease rates from their landlords led to the final decision to close their doors. Bebe also sites declining mall traffic as part of their failure.

Macy’s chose to close 40 of its smaller locations in early 2016 deciding to add to the larger existing locations instead and Sears has also begun closing its weakest locations.

You’ve heard it before…your location is key to your success. Knowing who your market is and where they are comfortable shopping is crucial.

4.) Knowing when to call it quits

As a small business owner, you know the blood, sweat and tears you’ve poured into your store, not to mention the time and money. For Wet Seal, it was more about pouring money in. They had piled up more than $150 million in losses and received a default notice on $28 million in loans from a creditor. Sports Authority disclosed that they had missed a $20 million debt payment. It goes on and on.

Continually sinking money and additional time into your business is a key indicator it may be time to call it quits. In an earlier post CFO Mark Gandy addressed these issues in his article, How to know it’s time to close up shop. He also offers some great tips on ways you might be able to “turn the ship around.” Failure doesn’t have to be a part of your future, but careful planning does.

Ask the 3 W’s when building a consignment business

After you’ve developed a solid business plan (Starting a consignment business – Step 1), the next step is to look at the “Who, What and Where” factors. Who are your potential customers and consignors? Where can you realistically afford to open your shop? Is there a market for the type of merchandise you want to sell in that area? Check your competition. If there will be several consignment shops or a large well-known shop in your area, you need to find ways to make your store unique. Step 2 in building a consignment business is knowing what merchandise to sell in which location to your potential customers.

Building a consignment business that’s successful means finding your niche

The Who –

For the most part, consider your potential customers and consignors as those people living and working within a 10 to 15 mile radius of your shop. So many factors determine how far shoppers are willing to travel to make a purchase. Distance can be determined by everything from age of the shopper to the price of gas.

The rise in mobile shopping and e-commerce means consumers are far less likely to make a longer trip. People don’t want to travel long distances unless you offer merchandise they can’t get elsewhere. If you choose to go in that direction, know up front that your advertising costs to make your shop a destination location will take time and money. Also, look closely at the demographics of the surrounding neighborhood. This is another reason to check out your competition carefully.

The What –

You can’t be all things to all people. As a result, you need to decide what merchandise best suits your target. Even if you sell a wide variety of products, you should consider specializing in one or two areas. For example, a teen clothing shop could have the “largest selection of prom dresses in town.” If your neighborhood lacks a shop for the plus-size woman or furniture consignment, then specializing in those areas are a perfect niche even though you offer other products. If you clearly define your target audience and understand your competition, you’ll know what merchandise to offer. Refer to Starting a consignment business – Step 1 for more information on defining your shop’s purpose.

The Where –

You may have a great deal of knowledge about larger antique Eastlake furniture, but the only shop location you can afford is in a neighborhood with small apartments. Deciding the location of your shop is key. It truly is all about…location, location, location. You need to match your expertise with the location of the consumers you want to attract.  If the lease is more expensive, more than likely, you will be located in a high traffic area and have less need for major advertising expenses. If the cost of the lease is much less, you will most likely have to increase your advertising budget to compensate for the lack of traffic that passes your store.

Building a consignment business means staying on track

If you’ve been in the resale or consignment business for awhile now, you already know the importance of discovering the “Who, What and Where” factors. Even though you have an established location, it’s always important to continually review your surroundings. Communities change over time and shopper’s needs evolve as their life situations change. You have to listen to what customers want vs. what consignors offer. There are some wonderful resources in the resale community that can help. I suggest joining The National Association of Resale Professionals (NARTS). It is a wonderful organization to glean information and find mentors. There is a fee to become a member, but you’ll build relationships and gain support. In addition, many communities have local resale associations. If there isn’t one in your area, consider contacting other shops and creating one to mutually benefit each other through shared marketing and promotions.

Your rental lease can be a nightmare to negotiate. Be prepared.

Before you begin negotiating a rental lease for your consignment or resale shop, it’s important to have all the information you need.  Arm yourself now with the knowledge necessary to negotiate the best rental lease possible.

Rental rates and payments

Many proprietors waive the first month’s rent to provide time to prepare for your Grand Opening. In a slow market, you may also be able to land a 30 or 60-day free rental agreement if you sign a long-term lease. Rates are generally determined one of two ways. They can be based on cost per square foot or a percentage of gross sales, whichever is greater. It is vitally important to negotiate a cap on annual rent increases. The increases usually begin two years after your opening date. In January, RetailWire revealed that developers “have been driving rents to record heights…For example, on New York City’s upper Fifth Avenue, the average rent per square foot is $3,500.”

The cost for early termination of the rental lease

A short-term lease with an option to renew is your best protection from getting locked into a space that may no longer meet your needs. Be aware that this option may come at a higher price though. Since you are obligated to honor the contract even if your business fails, guarantee your ability to sublease the space. Also, add into the contract that your liability will only be for 1 year. You may be able to build in a buyout clause as well.

Add a relocation clause

Safeguard your options by including a relocation clause. This allows you to move or expand if a nicer spot comes available. Also, make sure the landlord cannot bump you out of the space for a higher-paying tenant. Or, move you on a whim. Relocation for temporary issues, such as flooding or construction, should not extend past 180 days. Any substitute space you are offered should be comparable in size, rent and visibility to the one you had.

Explicitly define who is responsible for what

Before finalizing the deal, be clear who is responsible for what. Check to see who is in charge of general maintenance, signage, repairs, utility bills, taxes, common area maintenance and trash collection. Shopping center leases typically include an “as is” clause. You must have the space inspected for mold, HVAC issues, faulty wiring, damaged plumbing and building code violations.

Other important considerations

1. The “use” clause, which describes your business, must be flexible so that your inventory can change.
2. Negotiate a non-compete clause that guarantees a similar business will not move into your building or shopping complex.
3. If parking is limited, ask if your store can claim two or three spots for customers.
4. Many businesses housed in small complexes do not open their doors until 10 a.m., so verify that there are no restrictions on operating hours.
5. The fees paid to a real estate attorney to review a contract are usually well worth the investment.