From the October 1996 issue of Entrepreneur

New is nice, but a bargain's better. That's what growing numbers of shoppers are concluding, making the sale of secondhand goods an exciting opportunity for entrepreneurs.

Last year, resale shops saw revenues grow more than 10 percent, according to Susan Whittaker, president of the National Association of Resale & Thrift Shops, whose membership is growing by 25 percent a year. Industry giant Goodwill Industries International has seen sales increase from $359 million in 1991 to more than $513 million in 1995.

But resale hasn't always been booming. The shabby stores of the past kept customers away. Poor merchandising, coupled with a mentality that equated "used" with "bad," meant resale had been a marginal industry until recently.

What's new? Social values, for one. "People's feelings about secondhand things have changed," says Amy Helgren, co-owner with partner Christy Davis of Second Child, a Chicago children's- wear resale boutique. "People are more practical. It goes along with the whole environmental consciousness--recycling and not wasting."

Another difference is the growing sophistication of secondhand retailers. Dusty piles of worn-out goods have given way to attractive displays in well-lighted and well-run stores.

"The upgrade in the shops has really made a difference," says Millie Shaffer, publisher of The Resale Connection, an industry newsletter. "They look professional and are managed professionally. A lot of people can't tell them from regular retail stores."

Finding Your Niche

The players in resale are also changing. For years, the industry has been dominated by a mixture of mom and pop thrift stores and large nonprofit organizations such as the Salvation Army and Goodwill. The main thing these stores sold was women's and children's clothing.

Today, women's and children's clothing are still staples. But the variety of products sold in resale stores is expanding in all directions.

"Furniture right now is really hot," says Whittaker. "Right on its heels are computers, compact discs and sporting goods."

A new level of sophistication and size is hitting the industry. Grow Biz International Inc., a Minneapolis secondhand store franchisor, opened its 1,000th store in April. The company offers five concepts: Play It Again Sports, Once Upon A Child, Computer Renaissance, Music Go Round and Disc Go Round stores.

Like many resale retailers, Grow Biz franchisees buy and sell used goods and sell items on consignment. Consignment--where retailers merchandise others' secondhand goods in return for a percentage of the sale price--is becoming the dominant form of secondhand retail.

Resale Recipe

Entrepreneurs like the look of secondhand retailing largely because initial capital outlay is low. Ed Davies, president of Liberty Systems Inc., a Roseville, Minnesota, publisher of computer software used in consignment and resale stores, says successful shops have been started for as little as $2,000, though both he and Shaffer believe a more reasonable estimate is $5,000 to $10,000.

As with any retail business, location is a prime consideration. However, consignment and resale add a new wrinkle in the form of some very tricky supply chain issues.

"You're at the mercy of the people who bring you things," warns Laura Fluhr, owner of Michael's--The Consignment Shop, a women's and bridalwear consignment shop on New York City's Madison Avenue. "If you're not getting the merchandise in, you're out of business before you start."

For that reason, start-ups should invest a substantial percentage of their capital in advertising to draw in people with goods to sell or consign. "Try to open with enough money to do a really good advertising blitz," advises Davies. "A lot of people open and struggle for years because they didn't do enough advertising."

It's also a good idea to specialize. "Stores that sell everything from furniture to clothing and knickknacks don't make as much money as ones that specialize," says Shaffer.

Offering everything but the kitchen sink works for huge companies like Goodwill, which offers a smorgasbord of secondhand goods in its nearly 1,400 stores. But smaller stores might not be able to keep adequate inventories of a wide variety of goods to keep luring shoppers.

Uncertain supply is another reason the all-in-one formula isn't best for most entrepreneurs. Specializing in one product type, on the other hand, allows resellers to build a reputation that lures consigners and secondhand sellers.

Not So Simple

Although it may appear simple, running a secondhand store is no cinch. The major mistake most entrepreneurs make, says Shaffer, is not starting with enough money. "Some of them think they can go in with nothing," she says. "But you have to have enough to survive for three to six months without money coming in from your venture."

A second major requirement is keeping costs low. Choosing low-rent locations and doing most of the work themselves helps many entrepreneurs, says Shaffer. Not all manage it well. "I know shops that come out with net profit of anywhere from 18 percent to 50 percent," says Shaffer. "But some are at 7 percent."

Computerization is another key, especially for consignment stores, which may deal with thousands of items from hundreds of consigners. The price, date received and other information about each item must be carefully tracked if consigners are to be paid properly and the owner is to keep fresh merchandise in house.

"The stores making money have computer systems," says Shaffer. "It not only gives a good image to the store but also cuts down on overhead because a lot of stores find they don't need an extra employee."

Picking A Format

What are you going to sell? Selecting a specialty--or not electing to specialize--is one of the key questions facing would-be resale store owners. The answer depends in large part on who and where you are.

"If you're in a rural area, you can do soup to nuts," says Davies. "If you're in an urban area, do ladies' designer or children's [wear]."

Children's and maternity clothing and accessories are attractive areas, says Helgren, because maternity items are used only briefly and "kids need a new wardrobe every season. Toys, too, get played with for such a short time."

Once you've decided what to sell, the next question is how to sell it. These days, most entrepreneurs find consignment is the best answer. The consignment setup offers important advantages for customers as well as retailers, says Fluhr.

"When [customers] leave something on consignment, they make money if it sells," says Fluhr. For instance, if a consigned dress sells for $300, the customer gets $150. The profit potential makes customers more likely to visit your store--and to spend some of their profits there as well.

The benefit to the entrepreneur is also financial because you don't have to carry the inventory. Instead, the customer basically finances the inventory by allowing the retailer to stock his or her property without charge.

With shifting supply sources and some impressive new competitors stirring up a long-settled industry, the resale business is far from being an easy success story. But as shoppers shift their sights from spanking-new, expensive goods to gently used bargains, resale will benefit. And the improvement of techniques and technology for running the stores can only help.

Wrap it up, and the secondhand store business is a lot like its own products--good bargains for those who don't have a lot of cash and don't mind a few wrinkles.

Contact Sources

Goodwill Industries International, 9200 Wisconsin Ave., Bethesda, MD 20814, (301) 530-6500;

Liberty Systems Inc., 1442 Brenner Ave., Roseville, MN 55113, (800) 858-1758;

Michael's--The Consignment Shop, 1041 Madison Ave., New York, NY 10021, (212) 737-7273;

Second Child, 954 W. Armitage, Chicago, IL 60614, (312) 883-0880.