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.