A consignment is essentially a business arrangement wherein a business entrusts a third party with the responsibility to sell its goods online or via a brick-and-mortar store. The business providing the goods is a consignor and the store is a consignee. Generally, the consignor has the goods but lacks the expertise, infrastructure and/or inclination to sell them. A consignee has the infrastructure and sales knowledge but not necessarily the goods. That said, a consignee may associate with multiple consignors and could also be into selling its own goods. The revenue from the sales realized is shared and the consignee’s share, which is negotiable, is referred to as consignment fee.
A consignment arrangement has a definite duration (usually a few months) and may entail a range of items, including clothing, fashion accessories, books, toys, musical instruments and artwork. The items could be brand new, pre-owned and/or seasonal. The consignee doesn’t pay for the consignment outright and therefore the goods’ ownership stays with the consignor until they are sold. Also, the consignee is under no legal obligation to sell all goods consigned in. Once the consignment period is over and if there are items remaining unsold, they are sent back to the consignor.
Pricing and Revenue Share
Compared to high-end retail outlets such as boutiques, stores selling consigned products price goods competitively to improve chances of a quick sale. This also means tremendous value for the buyer. The goods may also go down in price if they remain unsold for long or the consignment period is nearing its end. Such price dips, however, are directly controlled by the consignor that may even choose to keep the prices stable throughout.
As far as revenue share is concerned, there is no standard or rigid sharing arrangement. Either the consignor or consignee could get a bigger share, or both may receive an equal share. The business that ends up with the largest share of the sales proceeds is usually the more established of the two. For instance, if the consignor is new to the industry and the consignee is a successful retail store, the latter would then most likely receive a bigger share.
A consignment arrangement exists because it is a win-win situation, to a great extent. A consignee need not make any upfront payment to the consignee or need not buy the goods outright and then feel the pressure to sell the goods and recover the money. Moreover, a consignee need not pay the consignor immediately post sales.
A consignor relieves itself of the work and stress relating to marketing and selling a product, which also includes shipping. And since the store is under zero pressure to sell the goods, it becomes much easier for consignors to convince stores to accommodate their products. In fact, even goods with seasonal or little market demand may get shelf space. A consignment is also an excellent way to test the market for a new product without spending much.
A consignee that purely is into selling consigned goods would be totally dependent on external parties to ensure steady inventory flow. And the lesser the number of consignors, the more precarious the situation gets. Moreover, payments may get delayed and if the consignor is vital to business, pressurizing the consignor for swift payments would only hurt further.
For the consignor, there is no guarantee the goods will sell. If the consignor has multiple consignee options and it decides to choose a particular consignee, a feeling of resentment and lost opportunity may creep in if the consignee fails to deliver. Moreover, the items returned could have lost some value with time and may not fetch their original market price after the consignment period elapses. The scenario gets worse in case of perishable items. And since the product ownership stays with the consignor, any shoplifting incidents or damage to the goods would be consignor responsibility, even if the goods are housed by the consignee.
Choosing a Consignee
A consignor must consider certain things if it’s serious about selling. The store where the products end up getting displayed matters a lot. The shop should have an inviting, customer-friendly look and feel. Most importantly, there should not be a product mismatch – especially in terms of category and price. For instance, a store that purely sells formal menswear will not be ideal for selling casual men’s clothing.
Also, the store should be fairly popular or should have good amount of people frequenting the place. The goods should be well-protected and the store must be willing to display items for most potential customers to see. Most importantly, the consignee should be trustworthy and reliable so that there are zero hassles when dealing with finances, retrieval of unsold goods, and other aspects of the business.