How to start an appliance store

Decide what kind of appliance store to open

There are three common inventory models. Many stores end up mixing them, but it helps to start with one.

• New appliances. Units in the box, sold with the manufacturer's warranty. You compete directly with big box retailers on price, selection and delivery. Access often runs through distributors, buying groups or manufacturer dealer agreements, each with its own requirements.
• Scratch and dent. New or nearly new units with cosmetic damage that does not affect function, sold at a discount. Less competition on price, more work on testing, grading and disclosure.
• Customer returns. Units a shopper bought and sent back. Some are untouched, some were installed and removed, some failed. Condition varies the most, so testing and repair matter most.

Choose with three questions. What do shoppers in your area actually buy, and at what price? What can you source again next month? And what work can you do well: selling and delivering, or testing and repairing? A store built around returns needs someone who can diagnose and fix appliances, or a technician you can call. A store selling new needs volume and service to compete.

Study your local market before you sign anything. Visit every appliance store in your area. Note what they sell, their prices, their delivery fees and how busy they are. Look at local marketplace listings to see what used and discounted units actually sell for.

Licenses, resale certificate and sales tax

The legal setup is the same as any resale business, and many suppliers ask for it before they quote you:

• An entity, often an LLCLLC An LLC (limited liability company) is a business entity registered with a state that exists separately from its owners., registered with your state.
• An EINEIN An EIN (Employer Identification Number) is your business's federal tax ID number, issued by the IRS., the free federal tax ID from the IRS.
• Sales tax registration with your state and a resale certificateResale certificate A resale certificate is documentation used under applicable state rules when buying qualifying inventory for resale, so the supplier does not collect sales tax on that purchase. or equivalent, so you don't pay sales tax on inventory you will resell. These are different documents from different governments. See EIN vs resale certificateEIN vs resale certificate An EIN is a federal tax ID for your business. A resale certificate is a state-level document used when buying qualifying inventory for resale..
• A business bank accountBusiness bank account A business bank account is an account in the company's legal name, and it is where the business's provable financial history comes from. in the company's name.
• Local business licenses, zoning approval for retail and warehouse use, and a certificate of occupancy if your city requires one.

Appliance stores have a few extra questions. Some states and cities have rules for installation work, delivery fees and haul-away of old units, and appliances that contain refrigerant fall under EPA's safe disposal rules, which require the refrigerant to be recovered before the unit is scrapped. If you sell new appliances, check the FTC Energy Labeling Rule (16 CFR Part 305), which covers the EnergyGuide labels on many new appliances. Use the state resources linked on this page and the official sources listed below. An accountant who knows retail is worth the fee here.

Where appliance inventory comes from

New inventory comes from manufacturers and distributors. Discounted inventory comes out of the reverse side of the same system: retailer returns, overstock, discontinued models, display units and units damaged in warehouses or freight. That reverse supply reaches buyers at different sizes:

• Single units and small lots from local auctions, other dealers and online liquidation marketplaces.
• Pallets and partial loads from wholesalers and liquidation sellers.
• Full truckloads from larger liquidators and retailer or manufacturer programs.

No single source is the only option, and every source has tradeoffs. Ask each one the same questions. What condition codes do you use and what do they mean in practice? Is there a manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value., a list of what is on the load, and how accurate has it been? Who pays freight? What happens if a unit arrives damaged in a way that wasn't described? Can I buy again next month?

Most stores grow through the sizes in order. Units teach you what sells. Pallets teach you to process mixed condition. Truckloads lower your cost per unit but tie up much more cash and hand you a mix you didn't choose. The appliance pallets and appliance truckloads guides cover each step.

Space, receiving, delivery and install

Your building decides how much you can buy and how fast you can process it. For appliances, how you get units in and out matters more than raw square footage.

• Unloading. A dock door is ideal. Without one, you need a liftgate delivery or a forklift, and you need to know who pays for each.
• Equipment. Pallet jack, appliance dollies, straps, blankets, and a forklift once you buy at pallet scale.
• A testing area with power, water and a drain. Gas testing only with a safe, code-compliant setup.
• Upright storage with room to reach any unit without moving five others.
• A showroom where shoppers can open doors, look inside and see damage clearly.

Receive every load the same way. Count units against the invoice or manifest before the driver leaves. Note visible damage on the delivery receipt before you sign it, and photograph it. Freight claims usually depend on what was written down at delivery, and claim windows can be short. Then test each unit, record its condition and serial number, and look up the model on the CPSC recall list. Federal law prohibits selling a recalled product.

Delivery is part of what you sell. You need a box truck or large van, two people, straps and a clear policy on stairs, doorways, haul-away and what happens when a unit won't fit. Installation is a separate service. Water, gas, electrical and venting work may require licensed installers depending on where you are. Many stores deliver and place the unit, and refer installation to a licensed partner. Decide which you offer and price it.

Before you sign a commercial leaseCommercial lease A commercial lease is a multi-year contract for business space, usually with a personal guarantee and costs beyond the base rent., know what it really costs. Base rent is rarely the whole payment, and the lease is usually the largest fixed cost a store takes on.

The economics of big and bulky goods

Appliances break the habits people bring from smaller resale goods. A few things to plan for:

• Freight can be a big share of cost. Each unit takes a lot of trailer space for its value, so freight per unit can change the deal. Always work from landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold., what the unit costs once it is in your building and ready to sell.
• Handling is labor. Every touch, from unloading to testing to loading for delivery, takes people and time. Damage happens on touches.
• Floor space is money. A unit that sits for months occupies space a faster unit could use. Inventory does not improve with age.
• Delivery cost is per stop, not per dollar of sale. A low-priced unit can cost as much to deliver as an expensive one.
• Failures are expensive. A unit that fails after delivery costs a return trip, a repair or replacement, and a customer's trust.

This is why category matters. Laundry, refrigeration, cooking and dishwashers sell at different speeds, need different tests and carry different delivery work. Track results by category, not just for the store as a whole.

Pricing appliances

Price from two anchors. The first is landed cost, never invoice cost. The second is the market: what the same model costs new right now, and what comparable units actually sold for near you.

Set targets by model type and condition, and know them in gross marginGross margin Gross margin is revenue minus COGS, usually shown as a percentage of revenue. It is what is left to cover everything else., the share of each sale left after the cost of the goods. Markup and marginMarkup vs margin Markup is measured against your cost. Margin is measured against your selling price. The same dollar of profit produces a bigger markup number than margin number. are different percentages. Quoting one and budgeting with the other overstates profit.

Include delivery in the math. If you include free delivery, its cost comes out of your margin. If you charge for it, check what nearby stores charge. Decide your markdown schedule when you buy. A written rule, such as a price cut at 30 and 60 days, keeps you from holding aging units out of pride. The pricing field guide covers this in detail.

Warranty, claims and returns

Warranty is where appliance stores win or lose trust. Know which warranty each unit carries. New units normally carry the manufacturer's. Scratch and dent and returned units may or may not, depending on the manufacturer's terms and how the unit was sold off, so confirm before you promise it. If you offer a store warranty, put the terms in writing. If you sell "as is", say so clearly and in writing. Federal law doesn't let you disclaim implied warranties on a product you give a written warranty on, and some states limit "as is" sales further. The FTC's guide to federal warranty law is listed below.

Write a return policy before your first sale, put it on every receipt and apply it consistently. Separate a complaint about disclosed cosmetic damage, which your disclosure handles, from a functional failure, which needs a fast repair or replacement.

Claims run in two directions. Your claims against suppliers and carriers depend on documentation at receiving. Your customers' claims against you depend on documentation at sale and delivery: the condition on the receipt, photos before the unit leaves, and a signed delivery confirmation.

Staff, books and cash

Deliveries take two people and someone has to mind the floor, so plan for more than one person from the start. The roles are sales, receiving and testing, and delivery. Someone needs basic appliance diagnosis skills, or you need a technician you can call.

Keep books from the first day. Record every unit with its landed cost, and record every sale against that unit. That gives you COGSCOGS COGS (cost of goods sold) is what the items you actually sold cost you, not what you spent on inventory during the period., the cost of what you actually sold, and a monthly P&LP&L A profit and loss statement shows whether your business made money over a period of time, revenue at the top, costs beneath it, profit at the bottom. that tells you whether the store made money.

Watch cash as closely as profit. Cash flowCash flow Cash flow is where the cash actually went, money in and money out, in the order it happened. is where the money actually went, and an appliance store can be profitable on paper while its cash sits on the floor. Working capitalWorking capital Working capital is the money available to run day-to-day operations: current assets minus current liabilities. has to cover the next buy, freight, rent and payroll while today's units are unsold. Inventory turnInventory turn Inventory turn is how many times you sell through your average inventory in a period, COGS divided by average inventory value. tells you how fast inventory converts back to cash, and inventory agingInventory aging Aging groups your unsold inventory by how long it has been in the building, typically 0–30, 31–60, 61–90 and 90+ days. shows which units are stuck.

Credit comes later. Vendor termsVendor terms Vendor terms are an agreement that lets you receive inventory now and pay the supplier later, up to an approved limit. let you receive inventory now and pay later, and a business line of creditBusiness line of credit A line of credit is a revolving amount a bank lets you draw from, repay and draw again, paying interest only on what is drawn. can smooth seasonal swings. Both are earned with a record of paying on time and books a lender can read. Neither should fund a buy you couldn't sell.

Growing the store

Grow in this order: sell faster, then buy bigger, then add space or locations. Moving from units to pallets to truckloads makes sense when your current purchases sell on a steady schedule, your aging report is clean, your books close every month and you can pay for the next buy without stretching.

Adding a second inventory model, such as returns on top of scratch and dent, is a bigger change than it looks. It adds a new skill (repair), a new disclosure standard and a new warranty question. Add it when the first model runs without you watching every unit.