What Is Consignment? Consignment Definition, Meaning

For astute consumers who enjoy retail therapy but also want to save money, consignment stores might just be the perfect option. But what exactly is a consignment shop? In this article, we’ll define consignment, provide an overview of all its advantages and disadvantages, and take a look at how businesses are able to sell on consignment to turn a profit.

Benefits of Consignment

Consignment stores offer several advantages for shoppers; mainly a more personalized and enjoyable experience that offers the possibility of finding great deals for lightly used or even brand-new items.

One of the biggest advantages of consignment retail is the ability to find unique and one-of-a-kind items that may not be available elsewhere. Stores that stock on consignment often carry a diverse range of products, from vintage clothing to antique furniture, you never know what you might find. Plus, consignment stores typically offer lower prices than traditional retailers, making it more affordable to add unique pieces to your collection. Designer products are usually significantly more affordably priced than they would be at traditional retail outlets.

For consignors, consignment lets them sell their items without the risks and costs associated with inventory management. It’s a great way for individuals or businesses to generate income from items they no longer need or use.

Many consignment stores are independently owned and operated, so consignment shopping tends to support local businesses and the community. Customers bringing business to consignment stores help to support small businesses and keep money within their local economies. And, for the environmentally conscious, consignment shopping can be considered an environmentally responsible choice as it offers a new lease on life to pre-owned goods.

Consignment Disadvantages

While consignment shopping has many benefits, there are also drawbacks to consider. One downside is the lack of control over inventory; consignment stores’ inventories rely on whatever gets brought in to sell. So, it can be challenging to find specific items or styles. What’s more, the quality and condition of items can vary significantly; the lack of consistency can make it difficult to establish trust and may limit the potential for repeat business.

Consignment shopping can also be time-consuming, as inventory is constantly changing and each item is unique, requiring careful inspection before purchase.

As they earn commission on sold items, consignment stores may be less willing to negotiate on price. For consignors, there may be delays in receiving payment and the commission charged by consignees needs to be taken into account when calculating profit. For consignees, there’s a need to constantly update inventory, coupled with risks associated with unsold items that can impact their bottom line.

Practical Considerations for Shopping at and Operating Consignment Stores

As previously mentioned, the lack of consistency in the quality and condition of items can be a potential drawback of consignment shopping. On the flip side, consignment can also be a great way to declutter and make some extra money. We’ll go over both, briefly here:

Risks From Inconsistency

Different consignment shops will have different standards for the items they accept to sell on consignment; expect a broad range of quality across multiple businesses. Even a single consignment shop may cause shoppers to worry about quality inconsistencies between different batches of items, making it hard for consignment retailers to establish buyer trust, as shoppers may be hesitant to make purchases. It’s important for customers to inspect each item before making a purchase and to understand the store’s policies regarding returns and exchanges.

Consignee Opportunities

Consignment is particularly attractive for those with overlarge wardrobes or collections, or for those who are downsizing or moving to a new home. By consigning old and underused clothes and other items to a consignment retailer, you can get rid of unwanted items while being environmentally friendly, as you’ll be reducing your waste and promoting a circular economy.

And, if you haven’t yet realized,  consignment selling is a great, low-effort way to generate income. All you need to do is consign your stuff to a retailer, and they will take care of the pricing, marketing, and selling. You just have to drop off your stuff and wait for the commission check to arrive.

Consignee Profitability

The profitability of operating a consignment store can vary widely depending on a number of factors. Key considerations for consignment store operators to keep are:

• Location — A store located in an area with a lot of foot traffic will attract more customers.
• Operating expenses — These can include rent, utilities, insurance, staffing costs, etc.
• Commission structure — Lower consignment fees can translate to higher profits per sale, but it could make attracting consignors more difficult.
• Inventory turnover — Obviously, how many items you’re able to sell over a set period will impact profitability.

Reselling vs. Consignment

Reselling and consignment are both methods of selling pre-owned items, but there is a key distinction between the two. With reselling the shop or buyer becomes the new owner of the items and has full control over pricing and selling, whereas with consignment the original owner retains ownership and the shop sells on their behalf, taking a commission or consignment fee on sales.

Consignment example

Let’s say a consignor brings in 20 handmade scarves to a boutique to sell on consignment. The boutique and the consignor agree on a 60/40 split, where the boutique will receive 60% of the sale price and the consignor will receive 40%. The scarves are priced at $50 each.

1. The scarves are displayed in the boutique and a customer purchases one.
2. The boutique collects the payment of $50 from the customer.
3. The boutique calculates their commission:$50 (sale price) x 60% (commission percentage) = $30 (boutique commission)
4. The remaining amount is paid to the consignor:$50 (sale price) – $30 (boutique commission) = $20 (consignor payment)
5. At the end of the consignment period, 10 scarves have sold and 10 scarves remain unsold.
6. The consignor comes to collect their unsold scarves, and the boutique calculates their total commission earned:$50 (sale price) x 60% (commission percentage) x 10 (number of sold scarves) = $300 (total boutique commission)
7. The consignor receives payment for their 10 sold scarves:$20 (consignor payment per scarf) x 10 (number of sold scarves) = $200 (total consignor payment)

In this example, both the boutique and the consignor benefit from the consignment arrangement – the boutique has a unique product to offer its customers and earns commission on sales, and the consignor is able to sell their handmade scarves without having to invest in their own storefront or online platform.

Consignment Bottom line

In summary, consignment shopping can be a great option for those looking for unique and affordable items, as well as for those wishing to declutter and earn extra income. However, it’s important to consider both the pros & cons of consignment.

Consignment Pros & Cons

For Buyers

For Sellers

Overall, consignment can be a rewarding experience for both buyers and sellers, as long as everyone involved is aware of the potential benefits and drawbacks, and takes the necessary precautions.

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