Whilst it may just seem like a case of handing over your stock to someone and watching as the sales roll in, in reality it involves a lot of networking, negotiating and inventory management. It’s wise to be prepared for some research and planning to get the best results out of this strategy.
What is Consignment Selling?
Let’s start by defining exactly what Consignment actually is. Consignment selling essentially involves providing your goods to a shop, where the shop then agrees to try to sell your product in exchange for an agreed on commission fee.
Consignment differs from a wholesale agreement, as in this arrangement the reseller would purchase the stock upfront from you.
With consigning, until the product is sold, the product remains yours and is still considered part of your inventory. If the reseller fails to sell the items the assumption is that they will be returned to you.
If the reseller is however successful in selling your items, an agreed percentage of the sale price is then paid as a “commission fee”. The finer details of how your consignment setup will differ from reseller to reseller based on their selling power, your product range and your negotiating skills.
Why is consignment a good strategy for handmade businesses?
A consignment offer can be a great way to forge an ongoing relationship with a retailer and can be a first step towards a wholesale agreement. It can be a chance for the reseller to test your products in their retail environment to see how well they sell.
It also provides you with a track record of retail sales, which can be really useful when negotiating deals with other companies in the future as your business grows.
It’s also good for building your brand - customers can see your products and experience your range products directly, without “taking a chance” on a product purchased online from nothing other than a photograph.
Consignment works particularly well for certain products, however in the right store any product can be made a success using this model.
New or novel products are particularly good candidates - in a retail environment, the product can be demonstrated in detail, with any questions answered instantly.
Expensive items, like jewelry or gadgets can also be a great consignment product. These products tend to require more sales persuasion which can be time intensive for the shop, however the commission for these products tend to make the extra touch worth it for the reseller.
Products that benefit from the customer being able to see, feel or smell them prior to purchase also work really well. Clothing, bags, soap and fragrance are items that customers typically wish to experience in some manner before committing to a purchase.
Caveats to consignment selling
Consignment is not a great option if you are just looking for a way to offload excess stock - especially if you are willing to cut prices to do so. This can have an impact on your brand and reputation so proceed with this strategy with care.
Note: An exception to this rule may be to create an “outlet” type arrangement with a suitable retail partner and modifying your presentation to suit.
Also avoid resellers who demand extremely high commission fees as this will erode your profit margins - ditto for sellers that charge a “setup fee” or any upfront payment before placing your products in front of customers. Always try to agree on an initial commission percentage that is fair to both parties: if your sales go well, then you can then reassess going forward.
Damaged or missing stock can also be an issue with consignment - ensure that you are dealing with a reseller that takes appropriate care of your products to minimise this risk, and if you are really concerned opt to build allowance for this into your written agreement. As you are selling retail, a certain level of stock shrinkage unfortunately does tend to be assumed as part and parcel of business so ensure that you have factored in some expected loss to your margins to avoid any unexpected surprises.
