The 7 reasons consignment shops fail and how to avoid them

May 19, 2017

After 8 years in the biz, we’ve got a pretty good idea why consignment shops fail

In March, 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 true 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

consignment shops fail when they don't follow the less-is-more theoryThe 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. Read Training Changes Everything to learn some tips for creating a stronger sales staff. 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.

 

Deb McGonagle

I have been a writer for various forms of marketing for over 40 years. I've written my share of radio and TV scripts, magazine and newspaper ads as well as direct mail brochures and newsletters. Currently, as the Marketing Director for Traxia, home of SimpleConsign software, I've moved into blog posts, eBooks and website text. It's been an ever changing and ever challenging journey but I've loved it all along the way.