Consignment Inventory: Your Guide to Accepting and Pricing Items
Desirable, well-priced inventory is the lifeblood of a consignment store.
Few day-to-day tasks impact your store's success more than accepting and pricing your items.
The items you take in set the store's tone, draw in new customers, and keep previous customers coming back for more. And competitive prices help you meet revenue goals, satisfy your consignors, and set customer expectations about item quality.
So it's not surprising that accepting and pricing items can cause a lot of hair-pulling and head-scratching. There's a lot on the line---time spent processing items, floor space and storage, revenue, foot traffic, and your store's reputation are all affected by these two processes.
Luckily, it's easy to create simple and effective acceptance and pricing policies. In this article, you're going to learn exactly how to do that.
What to Take, and What to Send Home
The best way to simplify your acceptance policy is to establish standards for the items consignors bring you. This will let you look at an item, compare it to your standards, and quickly say "yes" or "no." When you automate your process like this, it becomes easier to take in only the items that you know will sell.
A pre-set policy also helps you weigh each item's opportunity cost. Sometimes, when you say "no" to an item, a consignor will ask you, "Well, it can't hurt you to try it out, right?" Your response should be that every item does cost you. When you take in an item, you have to invest a certain amount of:
Time processing the item
Space displaying or storing it
If the item doesn't sell, that time and space have been wasted---not to mention the money you could have made from other, more popular items. If more and more items sit unsold on your shelves and clothes racks, customers will start to notice. Their opinion of your store will decline, and they'll stop visiting it, resulting in even more lost revenue.
For the consignment store, space is a valuable resource.
This entire cascade of effects starts with saying "yes" to items that you should be turning down. So as you examine things that your consignors bring in, you should carefully weigh their opportunity cost:
Is the item likely to return a profit to you and the consignor?
Does the potential profit make the item worth the time and space needed to process and display it?
If the answer to either of these questions is "no," then you have your answer. The item should go home with the consignor.
Of course, there's much more to developing an acceptance policy. To create your own, check out the following guidelines.
1. Stick to what you know
In the consignment world, items usually fall into one of four categories:
Art and collectibles
As a rule of thumb, you should only take in items that you know you can sell. For example, if you know what clothing styles are popular in your area but aren't sure about collectibles, then focus on the clothing. If you're versed in certain styles of clothing or certain styles of furniture but not with others, stick to the items from styles you know well.
You should also consider how niche an item's style is. Some consignment shops specialize in niche styles, which can work well if the area has a lot of people who are interested in those styles.
The more niche your inventory is, however, the more susceptible your store is to the shifting winds of trend. You'll need to put in more work to stay up-to-date on whether your niches are growing or declining so you can adapt your acceptance policy accordingly.
2. Make sure items are in good condition
Consignors, especially brand-new consignors, will often bring you stuff that's wrinkled, stained, broken, unwashed, ripped, faded, and otherwise run-down. You should just say "no" to these items. After all, you don't want poor-quality inventory to turn customers away from your store.
An exception would be a piece of clothing that's simply thrown into a bag and gets wrinkled, or a collectible that's grimey and dusty. If someone brings you something like that, you can request that they take it home, spiff it up, and bring it back in later.
3. Account for the age of each item
In consignment, items can fall into one of two categories: new or vintage. New items should be no older than 3 years. Anything older than that (that isn't old enough to be vintage) is seen as outdated and would be unlikely to sell. To find out an item's age, you can ask the consignor, but you may also need to search for it online.
Vintage items should be at least 25 years old. Just like with new items, you may need to do a bit of research to confirm their age.
New, or vintage? Keeping a mix of both will expand your clientele.
4. Make sure you have enough space
Floor space and storage space have more value than many new shop owners realize. First, you have to consider whether you have any space at all. If a chair is too big to fit on your floor or in your storage, then you don't have room for it.
Second (and more importantly), you have to consider if the space you do have is worth giving to a certain item. We've already touched on this, but your space has an opportunity cost. If you put a chair that won't sell in the last bit of space on your floor, then you can't put a chair there that would sell. If you're unsure about an item, it's worth holding out for something that you think is more likely to put your space to profitable use.
5. Accept items that complement each other
Never underestimate the power of upselling. It's common for consignment stores to stock different types of complementary items that are likely to be purchased together. For example, somebody buying a gift is probably going to need a gift card and an envelope. If someone's in the market for dress shirts, you can catch their eye with undershirts and cufflinks displayed nearby.
In terms of increasing sales, this approach is low-hanging fruit because it allows you to easily convince customers to buy more than the one or two items they initially came in for. And it's a great way to improve your store's visual coherence and your customers' experience. So as you develop your acceptance policy, think through some product combinations that you can display throughout the store.
Getting the Price Right
Pricing is one of the most daunting tasks for fledgling shop owners. No one wants to price an item too high and risk it not selling. The process is made even harder by consignors who make suggestions based on the prices of similar items they found online, or based on sentimental value.
Pricing items too high can scare off customers.
Your response to these suggestions should be that anyone can list any item for any amount of money. You could list a cable-knit sweater for $50,000, but no one's going to pay that much for it. There's a maximum amount that customers are willing to pay for a given item, and your price shouldn't exceed it.
Your prices also shouldn't be set too low. It may seem counterintuitive, but if a quality item is listed too low, it can impact your customers' perception of it. Instead of thinking "What a steal!", they'll think something's wrong with it or that no one else wants it, and they'll move on without giving it a second look.
While a certain amount of expertise and judgment are required to set solid prices, it can be really helpful to establish a pricing system for your shop, especially if you have employees who are less knowledgeable than yourself. One easy way to do that is to establish a base price for each item that's brought in, then adjust it for wear-and-tear, item availability, and other factors.
The "One-Third Rule" of consignment pricing
To establish an item's base price, look up its original retail price, then calculate one-third of that. There are a couple ways to find original prices. One way is to use Google Product Search. Type in the brand's name in quotation marks (e.g., "Gap"), then add the type of item outside of the quotation marks (e.g., 'shirt' or 'dress').
Another way is to go directly to the website that sells the product. In this example, you'd go to gap.com and search for products similar to the item brought to you. Whichever method you choose, you should be able to quickly establish a realistic idea of what the item originally cost, then calculate one-third of that price.
Every item is unique
Next, take note of what makes the item more or less desirable. Is it a style that flies off the racks? Bump the price up 10%. Is it an item you see all the time? Bump the price down 10%.
Let's work through an example. A consignor brings you an embellished Gap shirt that originally sold for around $30. One third of that is $10---your base price. Suppose this particular shirt looks a little worn, so let's subtract 10% ($1) from the base price. The style is something\ you've been getting a lot of, too, so let's subtract another 10% ($1). This gives you an adjusted price of $8.
Finally, ask yourself, "Would I pay that much for this item in a clean, well-lit, well-organized store? Does the price seem fair?" If the answer is "yes," then you've arrived at the item's final price.
Practice Makes Perfect
Initially, accepting and pricing items will feel like a ton of work (it is!), and you'll think it takes forever. Don't despair. Focus on developing a thorough acceptance policy, and stick to the formula above when calculating prices. Eventually, you'll be able to glance at a standard item and know whether it's likely to sell and how much you should list it for.