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  • Selling or Buying a Company with a Rental, Consignment, or Pre-Owned Component to the Business Model

    Aug 30, 2022

    The technical definition of a recession is two consecutive calendar quarters of declining Gross Domestic Product (GDP) by a country (https://www.investopedia.com/terms/r/recession.asp). The United States is presently technically in a recession and this reduced period of economic activity is likely to continue into 2023 (https://www.barrons.com/articles/us-recession-economy-jackson-hole-imf-51661619283?refsec=feature).  The depth and length of the present recession is difficult to assess as it is the result of an unique basket of economic components including a pandemic, excessive demand in the marketplace creating supply side shortages due to aggressive government spending and restrictive policy decisions related to public health, executive orders shortly after taking office by the Biden Administration that have detrimentally impacted our energy industry (https://www.natlawreview.com/article/new-executive-orders-relating-to-energy-industry), war between Russia & Ukraine, inflation (https://inflationdata.com/Inflation/Inflation_Rate/CurrentInflation.asp?reloaded=true, and the exit from the labor force of many of the Baby Boomer population for retirement (https://hiring.monster.com/resources/recruiting-strategies/workforce-planning/baby-boomer-workforce-gap/).

    This situation brings to mind a quote of John F. Kennedy, “The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity.”

    How to get the economy growing again is a subject beyond the knowledge of this author, but it is my hope that the President & Congress will learn from history and the actions taken by their predecessors (https://time.com/4511870/john-f-kennedy-and-ronald-reagan-tax-policy/) in similar situations and implement policy to make the recession shallow and short.

    As a lifetime advocate for the entrepreneurial community and nearly thirty year facilitator of transactions involving privately held companies and family businesses who has lived and professionally worked through multiple recessions, I am uniquely positioned to identify business models that excel in recessionary periods.  One sector of those business models are companies that sell consignment or pre-owned merchandise.  Both types of retailers are currently flourishing.

    The successful, profitable operation of most retail businesses requires control of four basic expense categories (Products, Labor, Occupancy, and Marketing).  The beauty of the consignment business model is that upfront and carrying costs associated with merchandise are negligible.  Cost of Goods expense is incurred post completed transaction.  In addition, consigned product creates a destination shopping environment where the unique and unexpected can be found, pricing can be dynamic without ownership being forced to acknowledge poor purchase decisions, and value proposition perception is possible with customers.  Another tailwind for this business model presently is the aging, financially strong Baby Boom demographic group which is starting to downsize homes, wardrobes, and jewelry collections and is looking for delegation sale methods that maximize value, retain confidentiality, and allocate labor to a third party.  Using the furniture niche as an example the following are a few of the companies IBA has sold employing consignment business models: Ballard Consignment ( https://ballardconsignment.com/), FORYU Furnishings (https://www.foryu.com/), and Everett Consignment (https://everettconsignment.com/).

    Administratively, it is often prudent for entrepreneurs to purchase pre-owned merchandise from owners rather than sell it on consignment. This business model benefits both the business owner and the party selling the merchandise.  On the entrepreneur side this practice allows for optimization of market knowledge and profitability.  On the property owner side it allows for the timely conversion of an asset to cash.  Presently, the business model allows for retail product to be obtained unimpacted by supply chain or international shipping issues present in the economy.  The spectrum of companies IBA has professionally sold that retail used merchandise is expansive. It has included estate jewelry companies, like Old Cities, that sold products to the stars (Photo of former client Bruce Magnotti engaging with Beyonce at the MTV Music Awards https://www.gettyimages.com/detail/news-photo/beyonce-knowles-with-bruce-magnotti-from-oldcities-estates-news-photo/85162070), industrial companies including Camcal, that purchased & sold used petroleum equipment, and established profitable franchised business models including Big Bob’s Flooring (https://www.franchiseclique.com/franchise/bigbobsflooring_) and Play It Again Sports (https://www.playitagainsports.com/home/own-a-store).  If a franchised pre-owned product business model interests you as an entrepreneur IBA is presently representing existing franchises of Play It Again Sports & Plato’s Closet (https://www.platoscloset.com/home) in the Seattle & Portland metropolitan areas and our franchise sales division (https://ibainc.com/what-we-do/franchise-sales/) has the ability to facilitate the purchase of a new location of a variety of quality, time tested businesses that can be placed where you want to be an entrepreneur.

    Another venue that has demonstrated consistent success for entrepreneurs in recessionary periods are companies that rent products to businesses and consumers.  One individual who experienced significant success renting furniture in his lifetime was Charlie Loudermilk (https://www.furnituretoday.com/obituaries/aarons-founder-charlie-loudermilk-dies-at-95/), who got his start as an entrepreneur in the rental furniture space in 1955 when he bought 300 used wooden folding chairs from an Army surplus store and rented them to an auction house. Later in life he would found the company that is now called Aaron’s (https://www.aarons.com/) and have the claim to fame as a civil rights advocate of being the business owner that rented tents to Martin Luther King, Jr. and his supporters during their march from Selma to Montgomery, Alabama in 1965.

    Money can be tight for both companies and individuals in recessionary periods.  Frequently a problem solving solution to budget constraints is to rent rather than buy an item.  The businesses IBA has successfully sold that rent products and equipment have ranged in economy segment from ones renting construction equipment to government entities to facilitate road repairs (https://www.vansequipmentco.com/)  to others that rented premium portable bathrooms for entertainers to use at concert venues and wedding parties selecting destination locations (https://royalrestrooms.com/royal-restrooms-office-locations/royal-restrooms-washington/).

    Every situation in history has created opportunity for those with the ability to assess the environment and execute.  Companies employing consignment, pre-owned, and rental business models are worthy of consideration in strong and weak cycles in the economy.  If you are interested in selling or buying a business operating in this sector of the economy, IBA would welcome the opportunity to learn about your transaction objectives and provide an overview of our services.  All conversations with IBA are held in strict confidence.

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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