What is Consignment?
Consignment is a business model in which a business, also referred to as a consignee, agrees to pay a seller, or consignor, for merchandise after the item sells. Consignment businesses are typically retail stores that specialize in a particular type of consumer product.
The business accepts items for sale and agrees to pay the seller a percentage of the proceeds if and when the goods do sell.
Common products sold through consignment, or second-hand, stores include:
- Athletic equipment and gear
- Baby furniture and accessories
- Antiques and collectibles
- Musical instruments
About the Business Model
Each retailer determines their own pricing arrangement, but the typical split between the business and the individual seller ranges from 50/50 to 40/60 or 60/40. Who gets the bulk of the proceeds often depends on how established and successful the store is.
The English word consignment is from the French word “consigner,” which means “to deposit,” as in to drop off items for sale.
Advantages of Consignment
The advantages of the consignment model to the business owner are:
- No need to pay up front for inventory to sell, as most retail stores need to
- Any products that don’t sell can be returned to consignors or disposed of
- Can build a solid clientele who return regularly to scope out the changing merchandise
- Payments can be made days or weeks after the item sells, improving cash flow
The advantages to the consignor, or seller, are:
- No need to spend time creating listings on eBay or Etsy or Craiglist to sell items, or setting up a retail storefront
- No need to ship or deliver sold items
Disadvantages of Consignment
The disadvantages of the model to the business owner are:
- Dependence on sellers to provide a steady stream of inventory
- Disposal fees if there is a lot of merchandise left over, which can be reduced by donating leftovers to charity
- A need for a software package that makes keeping track of merchandise easier
The disadvantages to sellers are:
- Receiving less than could be earned by selling direct to buyers online
- Having to wait for payment
Demand for consignment goods is on the upswing, says that Association of Retail Professionals. Growth in number of new consignment stores is currently around 7% annually.