Resale and Consignment Franchises Offer Profitable Opportunity

The retail industry is making a slow and painful recovery from the recession. But as shoppers remain hesitant to spend, one bright spot in retail is growing brighter by the minute: consignment and resale franchise stores.

Resale shops buy products outright from individuals and resell them; consignment shops accept products on a consignment basis and pay the owners a percentage of any sale. The industry overall typically grows by approximately 5% annually, says Adele Meyer, executive director of NARTS: The Association of Resale Professionals. This year, however, she estimates growth of 5 to 7%.

Same-store sales up for resale franchises

“In this economy, people are looking for value,” says Chad Olson, chief executive officer of Clothes Mentor, a retail resale franchisor that sells “gently used” brand-name clothing, shoes, and accessories for women for about one-third of their original price. The franchisor says its same-store sales growth is way up over last year.

The recession has attracted a new breed of consumer to resale, says Steve Murphy, president of franchising for Winmark Corp., parent company of four resale concepts: Play It Again Sports (new and used sporting goods), Once Upon a Child (new and used children’s clothing, toys, furniture and accessories), Music Go Round (new and used musical equipment) and Plato’s Closet (new and used brand-name clothing for teens and young adults).

“We’re seeing more and more new customers—from all walks of life and income levels—come into our store every day,” says Murphy. “Parents still need to put their kids into the latest brand-name clothing, they’re still going to put them into team sports like hockey, baseball, lacrosse, and football, they’re still going to sign them up for band at school or their first guitar lesson, only now they all want to do it affordably, which is where our stores come in.”

Once Upon a Child will add 12 to 15 new stores this year, and Plato’s Closet will add more than 30. All of Winmark’s resale concepts have experienced same-store sales growth this year.

Winmark isn’t alone. In NARTS’ survey of its members’ sales for the fourth quarter of 2009, 71.4% of respondents said sales increased compared to the same period in 2008, with an average increase of approximately 35%. And 74.2% of respondents saw an increase in new customers.

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Multiple factors spur resale franchise growth

The recession has also spurred more people to make money by selling unwanted items. In the NARTS survey, 62.4% of respondents said the volume of new inventory coming into their stores in the fourth quarter of 2009 had increased compared to the same period last year, and 40.9% said they were receiving higher-quality items.

Getting high-quality inventory is key to success in this industry, because it allows business owners to charge more and attracts more upscale consumers with more disposable income. At Clothes Mentor, Olson says paying cash on the spot for women’s clothes and accessories is helping the company grow: “At this point there is no other resale business paying cash.”

The final factor driving resale’s growth: concern for the environment. “Recycling is here to stay,” says Murphy, who notes that President Obama’s focus on the environment is helping to keep this issue in the forefront of consumers’ minds. Increasingly, shoppers are looking to help the planet by buying previously owned products that have less environmental impact.

Hot product categories right now include furniture, teens, plus-size, and bridal, prom and homecoming dresses, according to NARTS.

One troubled segment of the industry is children’s sales. NARTS reports that this is due to the difficulty of complying with the Consumer Product Safety Improvement Act signed in 2008, which puts restrictions on items that may contain lead. Toys are one category that has been receiving a lot of attention. However, in the past year the government has made compliance a little easier for resale stores.

Benefits to buying a resale franchise opportunity

What does it take to succeed in this industry? Murphy says Winmark looks for people who can wear multiple hats. “You need to be able to multitask, delegate, lead and manage staff, and deal with the public.”

One challenge for many startups right now, Olson says, is getting the necessary financing. “However, we are equipping our franchisees with a sound business plan, based on existing, proven numbers, that helps to overcome the banks’ fears.” Clothes Mentor franchisees have also been very successful at getting SBA-backed loans.

If a resale business sounds right for you, buying a franchise can make the job easier. “Your first few weeks [in business], you’re going to have thousands of SKUs walking through the door,” says Murphy. Being able to pinpoint a brand, model, year, quality, and resale potential is tough. “The biggest advantage we have is a system that limits the mistakes [you] can make. Our point-of-sale system walks you through what you should buy, how to buy it, what to pay for it and how much to retail it for.”

Marketing systems are another advantage of franchising. Murphy says Winmark’s point-of-sale system captures data for every customer who buys from or sells to the store, enabling franchisees to communicate with them regularly. The company also focuses on loyalty programs and customer service training. As a result, “we tend to have very loyal customers—even in better times, they don’t leave us.”

Finally, Olson says, “As part of a franchise system, you have multiple franchisees that [you] can rely upon for support and advice.”

Murphy says that while the effects of the recession put a spotlight on resale, this business has long-term potential in any economy. “We’ve been doing this since 1988,” says Murphy, “and our brands have had steady growth.”

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