The Fourth Industrial Revolution is transforming how startup businesses operate as we know it. The old ways of a merchant entrepreneur asking a bank for a loan to launch a boutique is not the only option in towns. Thanks to the blockchain distributed ledger and crypto-based transactions, new paradigms of doing business are now formulating to shape the future of urban business. 

One retailing concept worth considering is where the actually retail inventory is actually funded by collateral pledgors as a collective and risk/revenue is shared. When the item sale, funds and settlement happen very quickly. We believe this business model we call micro-collateral trust retailing is a win-win for establishing both local fiscal economic activity and recycling assets throughout the community. 

Micro-Collateral Trust Funding 

The business model enables a person on the street that fancies cameras to pay to cover the acquisition and sale of DSLR and mirrorless cameras within the community.  The person willing to fund the cameras (pledger) will put up a money for the business to purchase a camera that is being offered for sale to the business. The specific camera purchase is assigned as collateral directly to the individual pledger that invested the money. When the camera is sold, the profit from the sale is distributed back to the individual pledger and the business operation as a revenue sharing model. 

Keep in mind of the expenses involved with retailing, especially in urban communities. There is a building lease, store fixtures, security, technology services, insurance and employment costs that need to be considered. But the nice thing is a good resale with good products in the right area can deliver a healthy revenue stream and many urban communities offer this benefit. 

Business Model

A micro-collateral trust retailing model mimics the success patterns of pawn shops which focus on placing collaterals on items that have a high chance of resale.  Pawn shops have learned over the years what items they can resale and recover their funds from a collateral where the pawn loan expired. From our research, we noticed pawn shops specialize in the following resale items:

Jewelry. The value of jewelry is not necessarily for resale which may be slow but for precious metals, can be sold to a refinery and the melted gold can be sold on the precious metals market or held as an additional investment tool which is a subject matter beyond the scope of this article. 

Tools. A big seller for home improvement buffs looking for quality tools without needing to purchase full price new at the big box hardware store. Tools can move fast and also good for contractors and also a rental model as well as a revenue generator. We observe drills sold for $40 sold for $10-$15 as most pawn shops in very great condition. Tools most likely do not have depreciation like other items, a saw built 10 years ago and good condition can still command the same used price from 10 years ago. 

Electronics. The best electronics are items that can be moved quickly or have essential usage. Computers, cameras, video game consoles, stereo appliances and televisions can give electronic big box stores a run for the money if these items are presented properly for sale. 

Music Instruments. These are keyboards, guitars, DJ equipment and PA speakers and can be resold to new budding musicians. Most new artists do not purchase their instruments from new stores, they prefer used shops to “inherit” a guitar or drum machine from the last person as a legacy ritual. 

Used Fashion. These can be used collectable skateboarding t-shirts or sports jerseys and in addition, luxury handbags, classic kicks and more. Keep in mind these items can also be sold online or as a custodian model. 

Revenue Model

A resale shop can conduct transactions to sell or utilize items in the following ways:

Direct Sale. Provide a price point that allow the resale item to move fast. In some case to gain loyalty, let the sales floor staff have the point to negotiate the sale between 10-20% discount on items with the goal to move a product off inventory. 

Layaway. This is a preferred method for deferred purchase instead of offering credit financing. With the layaway model, if payment is not made by a certain date, the purchaser loses their funds and the product goes back on display. If this happens the lost layaway funds are distributed as revenue to both the investors and the retail store and the item is placed back on display. 

Rental. Rentals can be good for a “try and buy” for a loyal customer who put down a deposit or recurring revenue for items like tools. This can be a lucrative sharing economy revenue generator that can deliver more than 100% return of investment on certain resale items versus a direct sale.  

We strongly recommend friendly and attractive commissioned sales people who can work the floor and receive a commission percentage based on the items sold. 

Distribution of Payments

When an item has sold, distribution of payment should after final sale and settlement. Most resale shops have a strict no-return policy which gives clearance for immediate payment. If there is need for a resale, the parties can be paid and the store will have to take the write-down for a bad product. 

Augmented currency can easily facilitate the tracking and transfer of funds throughout the retail operation. For example, when a resale item is acquired for $100 for example and sold for $180, assuming an $80 profit, the workflow allows the original $100 to be returned back to the investor, the $80 profit is distributed among all of the parties involved in the sale of items and the augmented currency funds each person entitled to receive income from the sale. 

One account not to forget about is the tax revenue where both proper accounting of activities are recorded to and reported to the taxing authority in an automated and compliance matter. 

Benefits of a Micro-Collateral Trust Retailing Model

The best benefit of micro-collateral trust retailing is the lower barrier of entry through risk sharing. Inventory which is the most expensive startup cost for a retailing is underwritten by the individuals who become stakeholders in the product line that are acquired and sold. We believe there are individuals who will be interested in investing in MacBook Pro computers for example and fund them for sale. If the business having problems, this investor will have no problem claiming the MacBook Pro for themselves which was held as collateral or receive revenue from the sale of items in the store. 

Keep in mind it may be possible to do tax write downs on items sold as a lower cost of goods or lost inventory reducing the risk of unprofitable or unsold goods. Used items since they usually originate in the state. There are plenty of tax-advantages that can be leveraged using this model for both the business and the pledgor of the resale items. 

What we like best about this model is the utilitarian value towards the local economy more important than the profit margin.  Even if the micro-collateral trust model produce small profit margins after all parties is paid out, there is a strong benefit serving the overall local community. These shops allow transactional activity to occur in the local community and can serve as a incubator of other businesses and job creators within a community. Unlike pawn shops that few businesses would prefer to move next to, a resale shop attract other business to open up shop nearby.