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Answer from our Guest Expert Peter Hupalo of Hupalo Ltd.
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The $64,000 Question: What to Pay for the Used Clothing So You Make a Profit?
Pricing is the main ingredient for your financial success. What you pay for used clothing will determine if your business will succeed or not.
There are two ways to determine pricing. First, you can work from the original, new retail price of the item to estimate a viable acquisition price for buying the used item. Another, more preferable approach, allows you to estimate how much you can afford to pay for the jacket and still make a profit. Let's discuss these two approaches.
First Approach at Pricing
Okay, let's take an example of a name brand jacket that has a new, retail price of about $100. Because used items are perceived as having less value, and because you could get the jacket for $50 new from the manufacturer or distributor (at your trade discount), you'd expect to pay less than $50 for the used jacket. Assume non-newness knocks off another 25% of the $100 retail price. So, paying $25 for the jacket sounds reasonable. (If the item is noticeably worn or damaged, that would be another issue entirely.)
Be prepared! People who are selling you these used items might very well be outraged at the "low" price you're offering them. In their mind, they paid $100 for a new jacket and you're only offering $25. This is the reality of most personal possessions; consumer possessions depreciate in value significantly once they're purchased. So measure items by what they cost you to acquire, which is the wholesale price. That's the only way you have a chance to make money. You can't pay "retail" prices for new or used clothing and be in the retail business.
Even as a seller of used goods, know industry pricing of new, comparable goods. What might seem "low" to a consumer, who's trying to sell an item to you, might be far too high for you to run a profitable business. Your entire approach to pricing and how-much-to-pay-for-an-item cannot be based purely upon some rather arbitrary retail price of the new item.
Unfortunately, unlike with used cars, there's no "Blue Book" where you can look up the going price on a used brand name jacket in extra large, condition excellent. So you'll have to do some homework and research on this sort of information yourself.
As a reseller of used clothing, the big danger is you purchase the jacket for $25, and it sits on your shelf and doesn't sell. Whenever you acquire inventory, especially trendy apparel inventory, you're making a speculation that you can resell the inventory for a greater price than you paid for it (and at a great enough price to allow a reasonable profit, after allowing for other expenses). If the inventory proves unsalable, you experience a loss.
This is a risk many small business owners miss in starting a retail store. When you purchase inventory outright, as you contemplate doing, allow for the unfortunate possibility that you won't be able to resell it (or, at least not at a price which will allow you to profit).
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