Consignment

By 
MITCHELL GRANT
 
 
Reviewed by 
ERIC ESTEVEZ

 
 
Updated Oct 28, 2020
What Is Consignment?
Consignment is an arrangement in which goods are left in the possession
of an authorized third party to sell. Typically, the consignor receives 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.
 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.
Understanding Consignment
In the 21st century, so-called consignment shops have become trendy,
especially those offering specialty products, infant wear, pet care, and high-
end fashion items. The millennial generation, in particular, is known for its
frugal shopping habits, which include eschewing high-end stores and
designer boutiques in favor of bargains found at thrift and consignment
shops.

Economists list rising student debt, stagnant wages, and the psychological

effects of the Great Recession of 2007-2009 as factors pushing younger
shoppers toward consignment shops and other discount stores.

Advantages of Consignment
Selling on consignment is a great option for an individual or business that
does not have a brick-and-mortar presence, although consignment
arrangements can also exist in cyberspace. To a certain degree, online
companies such as eBay are consignment shops; for a percentage of the
sale, they offer people a marketplace to exhibit and sell their wares. This
removes the necessity for an individual to have to create their own website,
attract customers, and set up payment processes. Likewise, items
marketed and sold through television channels—such as the as-seen-on-
TV phenomenon—are forms of consignment.

Sellers who do not have the time or the desire to advertise their product for
sale, to take time off work to accommodate prospective buyers' schedules,
to conduct pricing research, and to endure the tasks associated with selling
an item firsthand often find that consignment fees are a small price to pay
to put the work in someone else's hands, particularly if they are successful
in negotiating a low fee.

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.

Examples of Consignment
An artist has 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%.

What are Consigned Goods?

Consigned goods are products not owned by the party in physical

possession of them. The party holding the goods (the consignee ) has
typically been authorized by the owner of the goods (the consignor) to
sell the goods. Once sold, the consignee retains a commission and
forwards all remaining sale proceeds to the consignor. This arrangement
is commonly used by manufacturers that do not have direct access to
distribution channels, and which prefer to retain ownership of their goods
in order to avoid bad debt losses. Retailers may also prefer this
approach when they do not have sufficient working capital to buy goods
from manufacturers.
A consignment arrangement can be considered an agency relationship,
where the consignor is the principal and the consignee is the agent.