What Is Consignment?

Consignment is an arrangement in which goods are left in the possession of an

authorized third party to sell. 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.

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.

What Is Consignment in Contract Law?

In contract law, consignment agreements contain language indicating that the retailer
agrees to display the provided consigned items for a specific time period also known as
the consignment period . The terms set out in the consignment agreement decide how
the commodities will be marketed during the consignment period.
For each sale, the consignee will get commission and pay the agreed upon price to the
consignor who provided the items for sale. The contract also determines how the
unsold items will be returned or if the consignment period will be extended for those
items.
Some retail stores do not purchase goods from distributors and resell the goods; they
accept them on consignment. Accepting goods on consignment is an alternative
method to supplying merchandise in a retail store. The retailer must display the items
in a storage location and market the goods to potential buyers. The retailer will not
receive any commissions until the items sell.

Consignor and Consignee

The two parties to a consignment contract are the consignor and consignee. The
consignor is the person who owns the property that the consignee, who is a retailer,
agrees to sell. The consignor retains title to the goods until they sell. The retailer takes
possession of the goods, and once the goods are sold, the retailer receives a
percentage of the sales.
Consignment Agreement

A consignment agreement is a legally binding document between a consignee and a

consignor for the sale, storage, transfer, resale and use of a commodity. The consignee
accepts goods from sellers to sell to potential buyers. The consignee will not receive
commissions till the goods are sold. If the goods do not sell, they can be returned to
the consignor.

The consignment contract includes language indicating that the retailer agrees to
display specific consigned items for sale for a specific time period, called the
consignment period. The terms of the agreement determines how the products will be
marketed during the consignment period. When the products sell, the retailer must
tender the funds to the supplier minus the retailer’s percentage for each sale. If there
are any items that are unsold, the contract will determine when the consignee returns
the items to the consignor, unless they agree to extend the consignment period.

Key Components of a Consignment Agreement:

 Parties Involved: The agreement should identify the parties involved and

contain the date of the agreement. The party providing the commodities is
known as at the consigner and the party selling the property on behalf of the
consignor is called the consignee.
 Recitals: Recitals describe the reason why the parties are entering the
agreement. This can be used to describe the general retail purpose of the
goods provided.
 Consigned Goods: This section describes the goods or property being sold on
behalf of the consignor by the consignee. This should be a detailed description,
 possibly including serial numbers, model, style, date of purchase, initial retail
price, current retail price, etc.
 Delivery of Goods: This section states that property is being provided on a
consignment basis only and explains the risk that the consignor bears in
delivering the product, such as loss or damage.
 Consignment Period: This determines the initial length of the consignment and
if the term will automatically extend if the good isn’t sold.
 Efforts to Sell: This section describes the consignee’s obligations to market and
sell the good and sets clear expectations that the consignor can have of the
consignee.
 Title to Products: This section emphasizes that in a consignment, the
ownership of property still remains with the consignor. This is different from
other relationships that occur between manufactures, retailers and stores,
where the ownership shifts to the store when the good is bought to be
displayed and sold in stores.
 Payment and Commission: This section determines the percentage of sale to
be kept by the consignee as commission.
 Risk of Loss/Damage: This section reiterates the responsibility of the consignee
when the property is in their possession. It also lays out the penalties in case
the property is lost or damaged while under the consignee’s possession.
 Return of Products: This section allows the consignor to request a return of the
property on provision of reasonable notice. The parties can decide how long
the time period would be.
 Additional Terms: This optional section provides any additional terms that
would apply to the consignment purchase and resale process.
 Termination: The termination clause explains that either party can end the
agreement at any time for any reason.
 No Assignment: This section states that no party can transfer their
responsibilities set under the contract without consent from the other parties
involved.
 Notices: This section provides addresses to which all official or legal
correspondence would be delivered.
 Default : This optional section can be used to provide security to the consignor.
This indicates that if the consignor requests the consignee to file papers
swearing that the products belong to the consignor the consignee must do so.
 No Product Warranties: This section states that there are no warranties on the
products except any required by law.
 Consignor’s Representations, Warranties, and Indemnification: This is an
optional section that indicates that the consignor owns the property and no
other entity has interest in the property.
  Governing Law and Equitable Relief: This governing law clause states the state
and county laws that would be used to interpret the agreement.
 Entire Agreement: The entire agreement clause simply states that the parties
are signing “this agreement”. However, this doesn’t prevent a party from
arguing that other enforceable promises exist.
 No Implied Waiver: This explains that if either party breaks any obligation
under the agreement it doesn’t mean that it also waives future rights to
enforce any obligations.
 Severability: The severability clause protects the terms of the agreement as a
whole even if one part of other is invalidated.
 Counterparts/Electronic Signatures: This section outlines that even if parties
sign the agreement or parts of it in different locations or through electronic
signatures, they will still be considered part of the same agreement.
 Headings: This section simply clarifies that headings in the beginning of each
section are meant for organization not to be considered operational parts of
the agreement.

How Consignment Agreements Work

Consignment agreements allow a consignee to sell goods on behalf of a consignor

without having to purchase the goods. The consignee earns commission on the
consigned goods sold.
A consignment arrangement allows outlets to sell goods without having to invest in
purchasing them. Often luxury goods are in demand in the resale market and owners
of vintage luxury goods can choose to consign their luxury items.
Consignment stores provide marketing and sale of these goods without bearing much
risk as they do not need to purchase the good for advertising and selling it.
Consignment agreements clearly lay out responsibilities and obligations of the
consignor and consignee involved in the sale of the property.
Consignment agreements can be of two types:
1. Exclusive : In an exclusive consignment agreement, only the consignee has the
right to sell the consignor’s item.
2. Non-exclusive : In a non-exclusive consignment agreement, multiple consignees
can attempt to sell the same item.

Consignment List and Fees

The consignment item list is a detailed listing of all the merchandise sent to the
retailer. The consignor provides a description of each item and a minimum retail sales
price. Depending on the terms of the contract, the consignee may reserve the right to
offer certain goods at discounted prices. When a retailer has multiple consignment
contracts with different suppliers, the retail assigns each supplier an account number,
which is typically found on the consignment list. Each item may also have a code or
item number to account for each sale. Some retailers require the consignors to pay a
listing for each item displayed in the store. The listing fee is usually a non-refundable
fee, regardless of whether the goods sell.

Termination

The contract determines how either party may terminate the consignment agreement.
There may be a clause stating that the retailer reserves the right to terminate the
agreement upon breach by the other party. When the consignment contract ends, the
retailer must return all consigned inventory to the consignor.

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.

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.

Disadvantages of Consignment

The primary disadvantage of the consignment model for producers or owners is that
consignment shops typically charge a high level of commission on consignment sales.
For artworks, for example, it's not uncommon for galleries to charge a 50%
commission. Since this commission comes out of the share returned to the owner or
producer of the goods sold, it can reduce their profits significantly.

Another disadvantage of the consignment model is that sellers can lose control over
how their products are marketed and sold. The consignment shop will generally take
control of every aspect of marketing and presentation for a given product. This can
mean that products are presented in a way that the owner or producer does not
approve of. Sometimes, issues like this are covered in consignment agreements, but
often selling on consignment means ceding a great deal of control to the consignment
seller.

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.
Selling via a consignment arrangement can be a low-commission, low-time-investment
way of selling items or services, but can be costly. Items commonly sold by
consignment include clothing, athletic equipment, furniture, musical instruments, art,
and jewelry.