Rags To Riches

For consignment clothing entrepreneurs, everything old is profitable again.

Magazine Contributor

May 1, 1998 7 min read

This story appears in the May 1998 issue of . Subscribe »

Consignment clothing shops used to be ragtag stores where sellers unloaded discarded garments on people who simply couldn't afford to buy brand-new clothing. But today's consignment shops are something new--attractive stores stocked with kindly worn designerwear that looks just like department store merchandise, except for the discount prices.

"[Consignment] stores have become very popular as our society has become more familiar with recycling," says Christine Jobes, vice president of member services for the National Retail Federation in Washington, DC. "[Consumers have also] become very practical about shopping, and [consignment] is just another form of value-oriented shopping."

Consignment stores differ from secondhand stores in that the garments actually belong to consignors--individuals who ask the shop to sell the clothing they no longer want, whether it's because they've grown a size or two or need to make room in their closets. When the garment sells, the consignor and the shop owner split the profit (typically 50-50). The beauty of this arrangement for start-up business owners is, there's no need to pay for inventory until it's sold. As a result, you can open a shop with very little start-up capital.

Most consignment shops sell women's suits and designer sportswear, but menswear and children's clothing can be found as well. Some shops also sell such accessories as hats, belts, costume jewelry and shoes.

Marcie Geffner is a freelance writer in Los Angeles.

Closet Cash

Loyce Jones, 48, opened her consignment clothing store, Bon Ton, in Dallas in January 1994, with the help of her sister and brother-in-law, Sharon and Edward Anderson. They had just $400 in start-up funds and an inventory culled mainly from their own closets. "My sister is a clotheshorse, and I'm one of those people who shifts sizes," explains Jones. "Sharon had hundreds of things she had never worn or barely worn because she's been working in retail forever. For the kind of stores she worked in, she had to [dress well]."

Jones spent the $400 on paper, copier supplies, sales tickets and a used cash register. Bon Ton was profitable immediately, although the bottom line took a temporary hit in June 1996, when the store moved from its original location in the basement of an apartment building to its current location in a downtown corporate plaza. The rent, which consumes about 20 percent of revenues, didn't go up much, because the new landlords were eager to get a retail shop into the building. Bon Ton's 1997 revenues were about $50,000.

Success In Store

Mary Jane Nesbitt, 51, opened her consignment clothing shop, Nine Lives, in Los Gatos, an upscale community in California's Silicon Valley, in February 1993. Before opening the shop, Nesbitt had worked for many years in the legal department of a commercial real estate brokerage. Her decision to leap from employee to entrepreneur came during a soul-searching walk with her husband, David Butcher.

"I was unhappy and frustrated," Nesbitt recalls. "We had talked about the possibility of my opening a consignment shop for maybe six months. We got to this end of town, and my husband pointed across the park and said, `Look, that space is for rent. This is it. You're doing it.' "

The storefront to which Butcher pointed is ideal for a consignment shop, Nesbitt says, because there's plenty of regular foot traffic. The next-door neighbors are a bakery and a dry cleaner. Down the block is a U.S. Post Office, and across the street is a park where community functions are held.

Nesbitt started the business by taking $17,000 out of her retirement plan to cover initial lease costs, racks, hangers, shelves, bags, printing costs, lighting and other necessities. Her husband, a Webmaster for a large networking company, wrote the shop's custom financial and inventory management software.

Nine Lives grossed $180,000 last year. More important, Nesbitt is doing something she loves: "My satisfaction in life is so much greater."

Stocking Up

The number-one challenge facing start-up consignment shops is finding enough good-quality merchandise. "You've got to learn how to say `No, thank you' to consignors," Nesbitt advises. "There's an enormous temptation to take things that aren't quite what you want just so you can fill the shop. That's the worst thing you can do."

Nesbitt found potential consignors were hesitant to give her their clothing before the store had opened. "But once the store was open, clothing came in droves," she says. Until the shop was adequately stocked, Nesbitt used Styrofoam boards covered with sheets to block off the back and make the shop appear fuller. As her inventory grew, the false wall was gradually moved back and eventually eliminated.

Only a tiny portion of Nesbitt's inventory comes from sources other than the general public. A few garments are samples consigned by clothing sales representatives. Other items come from a local men's store.

Jones and her partners take a different approach. Bon Ton sold items from individuals at first but now buys about half its inventory from manufacturers' close-outs.

Ingenuity and caution are essential in finding the right merchandise. "Be creative," says Jobes at the National Retail Federation. "Look to your friends. Look to garage sales. Look for natural fibers, wools, cottons, linens and silks. Those seem to sell better. Don't buy styles that are outdated; those aren't going to sell."

Getting The Word Out

Once you've obtained good merchandise, the second challenge facing a start-up is marketing to potential customers. Jones and her partners rely on a multifaceted marketing campaign that includes handing out fliers in front of the shop, advertising in a local business newspaper and holding fashion shows at consumer expos targeted to women. A local modeling group volunteers to help with the fashion shows in exchange for the experience and exposure.

Your advertising methods should be tailored to your area and target market. Due to her Silicon Valley location ("arguably the most computer-literate place on earth," she says), Nesbitt has found her Web site, which her husband designed, to be her best and most cost-effective promotional tool. In fact, besides the Yellow Pages, it's now the only advertising she does. "We get an astounding number of people in the door because they found us on the Web," she says.

As important as advertising is an attractive, appealing shop. A successful store must be fresh and clean, and merchandise must be displayed to emphasize its style and quality.

"It shouldn't look like a junk store," cautions Jobes, who says a beautifully designed shop goes a long way toward dispelling any hesitation customers may have about buying used clothing. "You want the atmosphere to be conducive to buying, so it should look as good as it possibly can."

With the right combination of stylish clothing, marketing smarts and a flair for display, your consignment clothing store will soon be putting customers on the best-dressed list--and putting you on the road to business success.

Resources

Need more information on starting and running a consignment clothing store?

Entrepreneur Media Inc. publishes a business start-up guide called Consignment Clothing Store (#1229, $59) that tells you everything you need to know to launch your store. To order, call (800) 421-2300.