When siblings Chelsea and Scott Sloan were teens growing up in Salt Lake City, they frequently talked about starting a business together. That probably came as no surprise to their parents, the founders of Kid to Kid, a franchisor of resale stores for used children’s clothing, toys, baby gear and maternity wear. Chelsea Sloan, 27, says she and her brother, 31, “saw what our parents had done and we wanted to do something on our own.” So in 2009, the siblings secured an SBA loan and opened Uptown Cheapskate, an upscale resale clothing store catering to the 18-35 market. Three years later, the company already has 23 franchisees, and her success earned Sloan the top prize at the Global Student Entrepreneur Award, $150,000 in cash and in-kind business services from Entrepreneurs’ Organization, which sponsors the competition.
A Fragmented Industry
Sloan says she had been “obsessively researching resale stores for years” and had found that only 17 percent of the population would shop in a resale store in a given year. “That statistic struck me as not right,” she says. “There’s just so much product sitting in your closet. People ought to be engaging in resale.” Also, more than 80 percent of shops were small, mom-and-pop operations, posting sales of less than $250,000 annually. She saw that fragmentation as an opportunity as well.
The siblings reckoned that the size of the teen and adult resale market was approximately $2.5 billion. Another franchisor, Plato’s Closet, “had 400 stores and only about 10 percent of the market,” Sloan says. That meant there was plenty of opportunity for a newcomer. She and Scott decided to think big, and they set their sights on creating an entire franchise that would not only attract existing resale shoppers but, through sophisticated branding and merchandising, would lure the other 83 percent of the population as well. Their other point of differentiation: Unlike consignment shops, they would buy used clothing outright at approximately 25 percent of the store price. Shoppers would get an additional 25 percent for their clothing if they agreed to take a store credit in lieu of cash.
Courtesy of the Entrepreneurs' Organization's Global Student Entrepreneur Awards
Left: Peter Thomas; Center:Global Student Entrepreneur of the Year Chelsea Sloan; Right: Entreprenuers' Organization Global Chairman Samer Kurdi
The two opened their first store in Salt Lake City in early 2009, after six months of planning. Since they knew from the beginning that they wanted to franchise their business, they made sure everything from the signage to the lighting was replicable. But they made some mistakes as well.
“We tried to do things on the cheap,” Sloan says. But penny-pinching cost them more in the end. For instance, a low-cost lighting contractor used bad credit to pay for fixtures, then disappeared. “The lighting supplier then came after us,” Sloan says. And within six months of opening, there was almost $10,000 worth of theft in the store. While security tags are expensive, Sloan quickly learned that they eventually pay for themselves.
The Sloans’ franchising plans also compelled them to create a proprietary database of brands and prices that would make it easy for their future franchisees to price items of clothing. Sloan started by looking up brands on Amazon, building the database herself. The database now has 4,200 brands, and, she says, “allows anyone to correctly price almost product that comes into the store.”
Before the siblings even opened their flagship store, they had signed their first franchise agreement with a North Carolina couple. Now, the company has 16 franchisees and 22 stores nationwide. System-wide, says Sloan, the stores rack up more than $1 million a month, with the average store posting $700,000 a year in revenue. The total investment for a franchisee is between $227,900 and $335,000. All franchisees go through two weeks of training in Salt Lake City, and company representatives are present for all grand openings.
Sloan estimates that Uptown Cheapskate will open an additional 20 stores in 2013. Eleven franchise agreements are already signed, she says. “Our only constraint is our ability to support them,” she notes. That means systematizing training and hiring more support staff.
For advice on growth, the siblings frequently turn to their original inspiration: their mom and dad. But the advice goes both ways, Sloan says. “My mom taught me everything I know about the retail industry, but we’ve been able to pass things along to her, since we’re more tech savvy. The companies are really helping each other become better at what we both do.”
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