Golden oldies - secondhand stores

Entrepreneur, Oct, 1996 by Mark Henricks

New is nice, but a bargains better. That's what growing numbers of shoppers are concluding, making the sale of secondhand goods an exciting opportunity for entrepreneurs.

Last year, resale shops saw revenues grow more than 10 percent, according to Susan Whittaker, president of the National Association of Resale & Thrift Shops, whose membership is growing by 25 percent a year. Industry giant Goodwill Industries International has seen sales increase from $359 million in 1991 to more than $513 million in 1995.

But resale hasn't always been booming. The shabby stores of the past kept customers away. Poor merchandising coupled with a mentality that equated "used" with "bad," meant resale had been a marginal industry until recently.

What's new? Social values, for one. "People's feelings about secondhand things have changed," says Amy Helgren, co-owner with partner Christy Davis of Second Child, a Chicago children's-wear resale boutique. "People are more practical. It goes along with the whole environmental consciousness - recycling and not wasting."

Another difference is the growing sophistication of secondhand retailers. Dusty piles of worn-out goods have given way to attractive displays in well-lighted and well-run stores.

"The upgrade in the shops has really made a difference," says Millie Shaffer, publisher of The Resale Connection, an industry newsletter. "They look professional and are managed professionally. A lot of people can't tell them from regular retail stores."

* FINDING YOUR NICHE

The players in resale are also hanging. For years, the industry as been dominated by a mixture of mom and pop thrift stores and large nonprofit organizations such as the Salvation Army and Goodwill. The main thing these stores sold was women's and children's clothing.

Today, women's and children's clothing are still staples. But the variety of products sold in resale stores is expanding in all directions.

"Furniture right now is really hot," says Whittaker. "Right on its heels are computers, compact discs and sporting goods."

A new level of sophistication and size is hitting the industry. Grow Biz International Inc., a Minneapolis secondhand store franchisor, opened its 1,000th store in April. The company offers five concepts: Play It Again Sports, Once Upon A Child, Computer Renaissance, Music Go Round and Disc Go Round stores.

Like many resale retailers, Grow Biz franchisees buy and sell used goods and sell items on consignment. Consignment - where retailers merchandise others, secondhand goods in return for a percentage of the sale price - is becoming the dominant form of secondhand retail.

* RESALE RECIPE

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 bridal-wear 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.

* NOT SO SIMPLE

Although it may appear simple, running a secondhand store is no cinch. The major mistake most entrepreneurs make, says Shaffer, is not starting with enough money. "Some of them think they can go in with nothing," she says. "But you have to have enough to survive for three to six months without money coming in from your venture."

A second major requirement is keeping costs low. Choosing low-rent locations and doing most of the work themselves helps many entrepreneurs, says Shaffer. Not all manage it well. "I know shops that come out with net profit of anywhere from 18 percent to 50 percent," says Shaffer. "But some are at 7 percent."