Monthly Issue

From Home Furnishing Business

Consignment Stores

October 13, 2016  by Jane Chero in Business Strategy, Industry   

Consumers eager to buy new furniture are often just as eager to get rid of their old furniture – but there’s one small problem.
Unlike car dealers, furniture stores generally don’t take trade-ins, so moving out that old furniture can be a hassle, at best. And at worst, it can’t be moved at all, which may prevent the consumer from making the purchase.
Doug Wolf, president of Pennsylvania-based Wolf Furniture, saw this objection raised far too often and decided to find an answer.
No, he didn’t hire a bunch of car salesmen to begin wheeling and dealing on trade-ins. He developed a completely new business model built around consignment sales.
Called Alleghany Furniture Consignment, the results, he says, have been impressive. Start with a $400 average ticket at 60 points gross margin, and finish with zero inventory costs and minimal warehousing and delivery expenses.
“Our consignments do better than some of our closeouts or our clearance center,” Wolf said. “People feel like consignment products are in better condition and have been better cared for.”
AFC stores are now adjacent to three Wolf Furniture locations, and the consignment businesses are operated separately from the main furniture store. Wolf Furniture sales associates receive a referral bonus if one of their customers brings a consignment piece to AFC, but don’t get a commission from the consignment sales themselves.
“Our sales people tell us (the opportunity to sell old furniture on consignment) will help complete the sale,” Wolf said. “The customer is more ready to pull the trigger on a new furniture purchase.” According to the trade group NARTS, the Association of Resale Professionals, Wolf’s experience is not unusual, noting that the resale industry (which includes antique shops) has annual revenue of about $17 billion. Goodwill Industries alone, the group said, generated $5.37 billion in sales in 2014 from its more than 2,000 non-profit stores -- most of which have furniture.
“The resale market is blossoming, thanks to value conscious consumers,” the group said in a recent report on industry trends. “With an increasing awareness of the importance of reducing pointless waste, we are progressing from a disposable society to a recycling society -- a change that has enormous potential for the resale industry as a whole.”
NARTS estimates there are more than 25,000 resale and consignment stores in the United States.
“Resale shopping attracts consumers from all economic levels,” the association’s report read. “There is no typical resale shopper, just as there is no typical resale shop. No one is immune to the excitement of finding a treasure and saving money,” Wolf has developed a proprietary software package that keeps track of the consignment pieces in each store, and automatically marks down the price of each piece every 30 days. Consignment contracts typically run for 90 or 120 days, but he said most pieces sell during the first month.
If a piece doesn’t sell that quickly, the price goes down 15% after 30 days. After 60 days, AFC takes 40% off the initial price, and after 90 days, it’s 50% off.
AFC then splits the consignment sale price 50/50 with the consumer, and it’s up to the buyer of the piece to get it out of the store. (AFC does make referrals to local delivery services, however.)
If a piece hasn’t sold by the end of the consignment period, the consigner has seven days to pick it up. However, Wolf said such consigners usually tell AFC they don’t want it back, so AFC marks it down further and keeps 100% of the selling price.
The consignment stores are promoted through television and Internet ads as a type of “treasure hunt” where inventory turns over rapidly and “there’s always something new on the floor.”
The key to keeping those bargain-hunters coming back, Wolf said, is finding high-quality consignment pieces. He said AFC turns down about 60% of the pieces offered for consignment because they don’t meet their “gently used” standard.
That means AFC won’t accept anything with torn or ripped upholstery, lots of pet hair, broken or missing hardware, or deep scratches on the wood. And all doors and drawers must work properly.
Once accepted for consignment, the piece is listed on AFC’s website, www.afcshop.com and consumers who have their eye on a particular piece can get alerts on their mobile phone as soon as the price is marked down.
Thus far, Wolf has licensed the consignment software to one other retailer -- Delaware-based Johnny Janosik Furniture, who has operated one consignment store as Delmarva Furniture Consignment since early 2014 -- and is hoping to attract others.
“We’ve been very pleased with it,” said David Koehler, chairman of Johnny Janosik. “As long as a piece is in good condition, it sells pretty quickly.”
He agreed that the key to keep sales humming is to accept only top-quality pieces for consignment.
“It’s not so much about getting traffic through the door. There are always plenty of bargain shoppers or people on a treasure hunt,” Koehler said. “You’ve got to have good consigners willing to sell good pieces.”
In Johnny Janosik’s trading area, he said retirees and Baby Boomers downsizing their homes are often good sources of consignment pieces, as are more affluent consumers who own beach houses or other vacation properties.
Long-term, Wolf hopes to develop the furniture industry equivalent of Kelley Blue Book, the price Bible of the used car industry.
“Most people have no idea what value to place on a piece of furniture,” he said “If they went to 50 stores, they would get 50 different prices. A resource like that would make furniture a much more saleable asset.”
He realizes the myriad of styles and collections would present a huge challenge, but believes it’s important to give consumers at least “a ballpark price” on their used furniture.
“I want to give them an idea of what their existing furniture is worth so they can buy new furniture,” Wolf said