Feb 3, 2014

Consignors: Proceed at Your Own Risk

The couple had such high hopes when they opened their consignment shop. They got their inventory for free, they reasoned and since the real estate turnover in their upscale neighborhood was brisk, they should have a steady supply of both consignors and customers.

The neighborhood, too, welcomed the new business enthusiastically. Within a few months the couple had more than 800 consignors of antiques, collectibles, furniture and home decor. Sales were steady, but near the end of their second year, the shop went bankrupt and the consignors lost all of their property.

The shop owners had signed a triple-net lease, which required them to pay a pro-rata share of the taxes, maintenance and insurance for the shopping center they were in. When the center decided to re-pave the parking lot, the expense was passed on to the lessees, and the consignment shop couldn’t keep up with the lease payments. Behind in the rent, the landlord locked out the shop owners, and they declared bankruptcy. The shop’s consignments became the property of the landlord, in partial payment for back rent.

It’s a common tale, repeated all over the country. Consignment seems like such a straightforward business: Rent a storefront, advertise, take some consignments, sell them and give a percentage to the consignors.

What could be easier?

Generally, it’s what the consignment shop owner doesn’t know that gets them into trouble. They don’t know about sophisticated retail leases, inventory turnover and tracking, accounting, merchandising or the legal implications of consignment contracts. Read More...

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