Licensing and Registration

• Specifically what licensing you'll need depends on the city and state where the store is located. You will most likely require a business license and resale license, as well as registering your business with the state and obtaining an Employer's Identification Number from the federal government.
  
  

Products

• The products offered by a consignment store can be used or new. Consignment is used in arts and crafts stores, gently used children's clothing, used designer clothing and furniture and antique stores, to name a few. Independently owned bookstores carry books from local authors on consignment.
  
  

How It Works

• The owner of the merchandise, say a ball gown, takes the gown to the consignment store. The store owner and gown owner reach an agreement that the gown will sell for $200, about 50 percent of its original cost. When the gown is bought by a customer, the store owner keeps the agreed to commission -- anywhere from 20 to 50 percent -- and gives the gown owner the remainder.
  
  

Advantages

• Consignment allows a store to be stocked without having to immediately pay for the merchandise. Besides not having to tie up cash in purchasing inventory, consignment allows the store to stock a wider variety of merchandise. The advantage to the vendor is his product is on store shelves, which exposes it to more potential buyers. The advantage to the owner of the ball gown is that potential buyers can see the actual dress and try it on, rather than just looking at photos on an online auction site. There is no shipping involved or having to worry about methods of payment.
  
  

Disadvantages

• Each item placed on consignment must have a paper trail of who owns the item, the agreed to price and the commission the store will take, as well as how often the vendor will be paid. This is additional work for the store owner. The vendor has to track where the merchandise is, and the different agreements, again resulting in more paperwork. If the merchandise doesn't sell, the vendor then has to take it back from each location.
  
  

Warning

• If the store declares bankruptcy, the vendor's merchandise could be included in the bankruptcy. If the store has leased space and defaults on the lease, the building's owner could retain all property in the leased space. The vendor is then considered a creditor and has to go through the courts. If the merchandise is damaged, stolen or just unaccounted for, the vendor might have no recourse.