Retail Practices You Should Use at Your Consignment Store in 2024

Billions of Dollars

That's how much money retail companies spend on research and development to improve their business practices. While resale and consignment stores source their inventory differently, their business architecture is extremely similar. With continual research, these retail trends are continuously evolving, and it's essential for consignment businesses to incorporate new industry developments to maintain their competitive edge.

In this article, we're going to cover the following best practices:

• Consignor management

• Inventory management

• Customer service

• Performance metric tracking (we look specifically at a number of metrics to track)

  
  

1. Consignor Management

Just like retail stores have wholesale suppliers that supply their inventory, consignment stores have consignors who bring in items to sell. The key to keeping inventory on your shelves is maintaining good relationships with your consignors.

Establishing Trust and Transparency with Technology

In retail, supplier management operates under one key principle: clarity. Successful retail businesses now increasingly use blockchain technology to bring transparency and trust into supplier relationships (Gelsomino, Mangiaracina, & Perego, 2022). While full blockchain implementation may not be practical for smaller consignment stores, incorporating easily accessible digital agreements and automated consignor dashboards through consignment management software can create a similar effect—clear, accessible information on consignor shares, payments, and inventory performance.

To improve transparency, you should also include certain key details in your consignor contracts: the consignment split on each item, how long the consignment period is, how unsold items will be handled, and who pays for shipping (if you do online consignment). You can find a sample consignor agreement here.

Successful retail businesses communicate regularly with their suppliers about the items they provide. You should do the same with your consignors. Let them know which items sell well, show them any surges in the sales of their items, and tell them about the items that tend to sit on the shelves longer. Most importantly, make sure they know when they'll be paid according to the consignor agreement.

Improved Communication Using Consignor Portals

Communicating consistently and openly is crucial. Retail businesses now also use digital portals to communicate with suppliers. Adopting consignor portals with automated updates about inventory and payments has been shown to increase satisfaction and improve overall relationships (Smith & Adams, 2021). You could implement a simplified version through your website or software, which automatically updates consignors on their inventory, items sold, and payments pending.

You should set up an account for each consignor. Retail businesses keep detailed records relating to each of their suppliers so that they can easily access information on previous sales and trends. If you're processing fewer than 200 items per month, you can keep records in manual consignor accounts in spreadsheets. Create a spreadsheet for each consignor and assign them a number. When they bring in a new item, tag the item with their number, the date it was accepted, and the price. When it sells, record all the information on the tag on the consignor's spreadsheet.

If you're processing more than 200 items per month, you'll want to purchase consignment software, which usually includes a built-in system for creating and managing consignor accounts. Using software can also help you leverage predictive analytics—a trend from the retail industry—to anticipate which consignors' items are likely to sell faster, helping you make more informed decisions (Retail Systems Research, 2023).

2. Inventory Management

Supplier management and inventory management go hand-in-hand. Retail stores only operate well if they know what's on their shelves, what sells the best, and what doesn't sell. Consignment businesses are no different. 

To manage your inventory, you have to track certain pieces of information. The first is how long different items tend to sit on the shelf before being sold—if they sell at all. In each consignor's spreadsheet or account page, keep track of when they bring in an item, then regularly refer to their pages to check on items that haven't sold yet. If the consignment period expires, return the item promptly to the owner. This will free up shelf space in which you can put inventory that's more likely to sell.

Second, you should keep track of the types of items that don't sell well. Using that information, you can refine your acceptance criteria and avoid taking in low-quality, low-demand items. And as you get better at accepting items, you'll actually reduce the amount of inventory management you have to do. The fewer low-demand items you accept, the fewer you have to return, and the more time you can spend on other aspects of your day-to-day operations.

3. Customer Service

In today’s retail landscape, having an omnichannel customer experience is no longer optional (Forbes, 2022). Omnichannel means providing customers with a seamless experience whether they interact with your business in-store, online, or through social media. This trend is crucial for consignment stores to adopt—if a customer sees an item in-store, they should be able to check the availability online later, or interact via social media to reserve it. Omnichannel customer experience can lead to a 10-15% increase in sales conversion rates (Rogers & Wong, 2023).

Good customer service matters. A lot. Those last 3 to 5 minutes in the checkout line are where most good customer relationships are built, and it will most likely be the part your customers remember most vividly. Not only that, but providing good customer service to a regular customer will generate 5 times more revenue than attracting new customers will!

Think about the best customer service experiences you've ever had at retail stores. They tend to have a few things in common. Most likely, the employees were well-selected and well-trained. When you hire employees, it's crucial to look at their resumes and call up references to learn as much as you can about their integrity, work ethic, and personality. Try to hire people who are friendly, honest, and hard-working. Once you've hired them, invest some time in teaching them how to use software systems, stock shelves, keep items neat and organized, and maintain a clean store. 

One of the things you'll need to train them in is how to be speedy at checkout. Customers don't like having to wait very long in line or at the counter, so make sure your staff have the know-how and tools they need to keep checkout clipping along at a good pace. High-quality software like card processors and POS platforms will help out a lot. Modern consignment software often includes contactless payment methods—a trend that increased by 40% in retail post-pandemic (Worldpay, 2023). Check out this article to learn more about how to find the right POS system and consignment software.

For online stores, customer service can be a little tricky. Since your transactions take place on a computer or mobile device, it's easier for the process to be impersonal. But you can overcome this hurdle with two tactics. First, create an accessible customer service platform via live chat, email, or phone (or all three). Make it easy for customers to contact you. Second, make your site user-friendly. Customers need to be able to easily find an item's details, like price and size. Then, they should be able to quickly and easily checkout. Around 28% of customers abandon their shopping carts simply because the checkout process is too complicated, so don't add unnecessary steps, and include as many payment options as you can (Visa, MasterCard, PayPal, Apple Pay, etc.). Make the process simple and convenient.

4. Tracking Performance Metrics

Tracking key performance indicators (KPIs) is an indispensable part of running a consignment store. The most successful retail businesses today use real-time data to track performance metrics and make informed decisions. Integrating predictive analytics into your consignment software can help in tracking metrics like foot traffic, conversion rates, and sales per square foot in real-time. This technology has been shown to increase sales conversion rates by up to 25% in retail (McKinsey & Co., 2023).

We've already mentioned one or two performance metrics you should keep an eye on, but we're going to cover a few more here. The most successful retail businesses record and analyze as many useful data points as they can. Some of the most important once include:

• Sales per category and sales per square foot

• Costs of goods sold

• Inventory turnover

• Volume of customers

• Year-over-year growth

• Gross margin return on investment

  
  

5. Sales Per Category and Square Foot

This is one metric we've already covered, but it's so important that we're going to mention it again. Tracking sales per category allows you to measure your total sales for each type of item that you sell. Once you have that information, you can start to accept only items from categories that are historically strong sellers. 

You can get even more granular than "item category," though. You can (and should) also track sales by item brand and consignor. Not surprisingly, some brands will sell better than others, and some consignors will bring you higher-quality products than others. The more you can focus on high-demand brands, and the more items you accept from high-value consignors, the better your overall sales will be.

Sales per square foot refers to how productive your business' use of space is. It's calculated by dividing your total net sales by your total square footage of sales space. The higher the sales per square foot, the more productive your use of space is. And, not surprisingly, businesses that have higher sales per square foot tend to be more profitable.

You can create a heatmap of your store's sales space to track and improve sales per square foot. First, you'll need a map of your store's layout with different inventory sections labeled with "A, B, C," etc. Next, open a new spreadsheet and record the following information for each section:

1. Types of items displayed

2. Display type for each item type

3. Item density

4. Estimated square footage for each section

5. Total monthly sales for each section

To calculate each section's sales per square foot, simply divide its monthly net sales by its square footage. As you identify item types and displays that tend to have lower sales, you can make adjustments to displays, store layout, inventory acceptance, and pricing to improve overall sales per square foot.

6. Costs of Goods Sold

Your costs of goods sold (COGS) shows you how profitable each item is and how profitable your business is overall. It refers to the amount of money your business has to spend on an item before it sells. 

Ideally, your COGS shouldn't be more than 40% of the total sale price of each item. To calculate your monthly COGS, use the following equation: Start-of-month inventory value + new inventory value - end-of-month inventory value 

Once you start to analyze your COGS, you can begin to improve inventory management to reduce time spent organizing inventory and streamline your acceptance process.

7. Inventory Turnover

Inventory turnover refers to the rate at which inventory is 1) brought into the store and 2) sold to customers. Tracking inventory turnover lets you identify issues like excessive stock levels and slow-moving items, which can lead to higher carrying costs, displace higher-demand items, or reduce your revenue.

To calculate your inventory turnover ratio, divide your COGS by your average in-house inventory value. That gives you your turnover rate. Next, divide 365 by your turnover rate. This gives you your turnover ratio. If you have a ratio of 8, that means you sell through your entire inventory 8 times in a calendar year.

There is no magic number for what constitutes a good inventory turnover ratio, but generally, a higher ratio indicates that the store is efficiently managing its inventory and selling products in a timely manner.

8. Foot Traffic

While foot traffic isn't necessarily as important as the dollar amount of your monthly and annual sales, it is a strong indicator of how well your store is doing. After all, while the quality of your customer relationships is more important than their quantity, you'll do better if you have both high-quality and high-quantity customers. 

There's not a scientific, 100% accurate way to calculate your total foot traffic, but one way to do it is to spend one business week recording the daily number of people who come through the door. Then, you can extrapolate your monthly and annual traffic, and estimate how much traffic you can expect during busier seasons, like Christmas. If you have a website, you should also track website traffic. Site builders like SquareSpace will automatically track this information for you. If your site's platform doesn't include a tracking tool, you can use software like Google Analytics and Live Traffic Feed.

9. Year-Over-Year Growth

Comparing your annual net profit each year will show you whether your store is growing. Keep track of your monthly profits in a given calendar year, then record the total amount for the full 12-month period. Do the same thing for the next 12 months, and at the end of the 24 months, compare the two years to determine if your business has grown or not.

10. Gross Margin Return on Investment

GMROI is one of the strongest indicators of your business's profitability.

When it comes to measuring profitability, gross margin return on investment (GMROI) is one of the most important metrics to track. It takes into account both the revenue generated from sales and the costs associated with running the business so you can get a clear picture of overall profitability

To calculate GMROI, take the total revenue generated from sales and subtract your total business costs. This will give you the net profit for the business. From there, you can divide the net profit by the total costs to get the GMROI percentage. A good gross margin return on investment (GMROI) for a consignment business is anything above 20%. This means that for every $1 of sales, the business should be bringing in at least $0.20 in profit.

Tracking many key performance indicators can be automated with consignment software, so it's definitely worth looking into available platforms. To learn more about best practices around tracking and utilizing business data, you should also check out this article.

Summary

This article has given you some insights that will help you streamline your business' operations. And we'd encourage you to do more research! This article is far from comprehensive—we've given you an introduction to the world of business best practices, but there are plenty of other insider secrets you can learn. 

For now, though, start with something simple. Choose one of the best practices from this article and start applying it today: refine your consignor agreement template, choose a method for tracking key performance indicators. Check out ConsignCloud's Inventory Insights as great example of utilizing retail practices; it helped Alexandria of My Girlfriend's Wardrobe boost their sales.