What Is Consignment?
Consignment is an arrangement in which goods are left in the possession of an authorized third party to sell.1 Goods sold in this way are said to be "consigned" to a third party for sale. Items sold on consignment are typically sold by consignment shops, which receive a percentage of the revenue from the sale (sometimes a very large percentage) in the form of commission.
Consignment deals are made on a variety of products, such as artwork, clothing and accessories, and books. Some types of retail sales may be viewed as a special form of consignment where producers rely on retail stores to sell their products to consumers, although secondhand stores and thrift stores are more typically associated with the practice of consignment.
Consignment arrangements, however, would not include retailers such as Walmart or most supermarkets, which purchase goods outright from wholesalers and then sell their items at a markup.
KEY TAKEAWAYS
- Consignment is an arrangement in which goods are left with a third party to sell.
- The party that sells the goods on consignment receives a portion of the profits, either as a flat rate fee or commission.
- Selling via a consignment arrangement can be a low-commission, low-time-investment way of selling items or services.
- Items commonly sold by consignment include clothing, athletic equipment, furniture, musical instruments, art, and jewelry.
- Most consignment shops and online dealers will offer terms, but some are willing to negotiate.
- Consignment is a good workaround if you don't possess a physical store or online marketplace in which to sell your goods.
Consignment Payment Structure
A person wishing to sell an item on consignment delivers it to a consignment shop or a third party to do the selling on their behalf. Before the third party takes possession of the good, an agreement must be reached as to the revenue split when the item is sold.
Most consignment shops have standard fee schedules that indicate the percentage of the sales price that is paid to the shop and the percentage paid to the seller. However, many consignment shops are willing to negotiate, particularly for larger-ticket items, such as artwork, that offer greater revenue potential. Depending on the consignment shop and the item being sold, the seller may concede 25% to 60% of the sales price in consignment fees.
Consignment arrangements typically are in effect for a set period of time. After this time, if a sale is not made, the goods are returned to their owner. Alternatively, the consignment period may be extended upon mutual agreement.
Products Sold Through Consignment
Some types of product are commonly sold through consignment. These include clothing, athletic equipment, furniture, musical instruments, art, and jewelry.
For example, an artist might have five large pieces of artwork to sell but has no place to showcase the work for prospective buyers. The artist decides to employ an art gallery to show and sell their works of art. The gallery does not charge the artist a fee for the wall space but will charge a sales commission for any works sold, which is incorporated into the price.
Another example of consignment would be Bethany visiting her grandmother's house and finding an old case full of clothes from the 1940s. She keeps a few pieces that she likes and decides to sell the rest. She takes the clothes to a thrift store to sell the clothes on consignment. Bethany and the thrift store come to an agreement that Bethany will receive 60% of the revenues from the items sold while the thrift store will receive the remaining 40%. This business model is used by many second-hand stores.
What Does Consignment Mean?
Consignment is an arrangement in which goods are left in the possession of an authorized third party to sell. A consignment shop, for example, will sell items produced or supplied by someone else, and pay them a portion of the profit.
What Does "Consignment Only" Mean?
This is a phrase used by many second-hand shops. Consignment only refers to an arrangement where goods are placed in the care of store until the item is bought by a buyer. The owner of the goods — the consignor – retains ownership of the items until they sell.
Is Consignment Worth It?
It depends. Providing or producing products for sale by consignment can mean a far bigger audience for your goods, and more sales. On the other hand, you'll have to pay a commission fee if you make a sale, and this can be a significant proportion of the value of the product.
The Bottom Line
Consignment is an arrangement in which goods are left in the possession of an authorized third party to sell. A consignment shop, for example, will sell items produced or supplied by someone else, and pay them a portion of the profit. The party that sells the goods on consignment receives a portion of the profits, either as a flat rate fee or commission.