Buying a thrift and consignment store in Canada

A buyer of a thrift or consignment store is buying into a relationship with two groups: the people who bring goods in and the people who buy them. Neither group may have signed anything that guarantees it will stay. This guide is about judging the opportunity: what to look for in person, which sourcing model you are actually inheriting, what to ask the seller, and what you must be able to qualify for yourself.

What to look for in person

Spend time on the floor before looking at any financials. Notice whether the racks look different from one visit to the next, whether new items appear regularly, and whether the aisles are dominated by goods that have clearly been there for months. Check whether prices look set to sell, and whether there is a steady stream at the intake counter. If staff greet consignors by name, that cuts both ways, because relationships held by the staff and the owner personally are exactly what you would need to inherit. A wall of aged goods, thin intake, or a floor that feels crowded without feeling busy calls for a closer look.

Which sourcing model are you inheriting?

The same storefront can run on very different engines. Under a consignment model the store owns little of what it sells and carries a payout obligation instead. Under a buy-outright model it pays for stock up front and carries the risk of what does not sell. In a donation model, goods arrive free; ask early whether donations are made to the business or to a registered charity, because the answer changes what is being sold and how it can be bought. Stores can mix the three, and each mix may need different working capital, so ask for revenue and margin by source before comparing one store with another.

Questions to put to the seller

Each of these is worth asking about directly.

• How much of the current stock is overdue under the consignment agreement, and what has been promised to consignors about it
• Disputes over lost, damaged or stolen consigned items, and how the owner settled them
• How much intake comes from a few large consignors or personal connections such as friends, family and former customers of the owner
• Whether the owner personally sources the best goods, through estate clear-outs or regular pickers, in a way a new owner could not repeat
• Any past correspondence from the municipality or the police about transaction records or second-hand dealer reporting

What you must qualify for yourself

Do not assume the seller’s permission to trade carries over. Second-hand dealer licensing is municipal, and the examples differ. London, Ontario lists a second-hand goods business as its own licence category, and Toronto’s guide places a consignment clothing store under its second-hand licensing. Regina’s licensing page says a licence is not transferable from one person to another or from one premises to another, gives second-hand dealers a separate fee schedule and specialized requirements, and does not extend to them the exemption it gives non-profit corporations and businesses operating from premises that pay commercial or industrial property taxes. Regina’s page lists separate second-hand dealer licences for electronic and manual reporting, Toronto’s guide names a municipal operating licence for second-hand salvage yards and shops, and London’s list has a separate category for second-hand goods salvage yards. Ask the municipality what an application involves and how long it takes, and make that timing part of the offer. The lease is another thing to qualify for, because a landlord asked to consent to an assignment may look at the incoming tenant.

Franchise banner or independent

A resale store may trade under a franchise banner. A banner can bring systems, signage, a supplier network and training, and it also brings a franchise agreement, which may give the franchisor a say in who takes over. Whether an arrangement is legally a franchise turns on the definition in each province’s statute. Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000, for example, defines a franchise by reference to payments the franchisee must make to the franchisor or its associate, together with one of two alternative sets of further elements: a right to sell goods or services substantially associated with the franchisor’s trade-mark and significant control or assistance over the method of operation, or representational or distribution rights with location assistance, and s.2(3) excludes some relationships from the Act. The Act defines a franchise agreement as any agreement that relates to a franchise between a franchisor or its associate and a franchisee. If a banner is involved, read the franchise agreement before the numbers, and ask a franchise lawyer which disclosure and transfer rules apply in that province.

Where to test what you have seen

Everything above becomes testable once you are under a letter of intent. The due diligence guide for thrift and consignment stores covers the reconciliation and the searches, and what a thrift and consignment store is worth covers how buyers price what you find.