- 📅 February 5, 2023 📝 Last updated on March 18th, 2023 🕒 7 minutes Read time
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.
What Is Consignment?
Let’s first define consignment. A consignment business adheres to a business model wherein a consignee (who could be a retailer or reseller) sells, on consignment, items on behalf of the original owner or supplier, known as the consignor. The consignor retains ownership of the items until they are sold, while the consignee earns a commission, or “consignment fee,” based on the sale price. This approach allows the consignee to offer an array of exclusive and top-quality items without the need to purchase them upfront.
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.
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.
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.
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.
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.
- The scarves are displayed in the boutique and a customer purchases one.
- The boutique collects the payment of $50 from the customer.
- The boutique calculates their commission:$50 (sale price) x 60% (commission percentage) = $30 (boutique commission)
- The remaining amount is paid to the consignor:$50 (sale price) – $30 (boutique commission) = $20 (consignor payment)
- At the end of the consignment period, 10 scarves have sold and 10 scarves remain unsold.
- 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)
- 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
- Potential for great deals
- More sustainable shopping option
- Opportunity to discover unique items
- Lack of consistency in inventory
- Limited selection
- Need to carefully inspect each item
- Way to declutter
- Opportunity to earn extra income
- Need to carefully consider which items to consign
- Need to choose the right store with favorable policies and procedures
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.
Keep an eye out on the EBoost blog for more money-making tips and career advice!
Consignment is a business model where a seller agrees to display and sell a product on behalf of the owner (consignor), with the seller receiving a percentage of the sale price as commission. Here’s how a consignment typically works:
- The consignor and the seller (consignee) agree on the terms of the consignment, including the commission percentage, the price of the product, and the length of the consignment period.
- The consignor delivers the product to the seller, who displays it in their store or on their website.
- If the product is sold, the seller collects the payment from the buyer and deducts their commission from the sale price.
- The remaining amount is then paid to the consignor.
- If the product does not sell during the consignment period, it may be returned to the consignor or the consignment period may be extended.
Consignment is a popular business model for small businesses and individuals who want to sell their products without having to invest in a physical storefront or e-commerce platform. It allows consignors to reach a wider audience and can be a profitable way for sellers to diversify their inventory and increase revenue.
Consignment refers to an arrangement where a person, known as the consignor, provides goods to another person or business, known as the consignee, to sell on their behalf. The consignor retains ownership of the goods until they are sold, and the consignee earns a commission on the sale.
If the goods are not sold within a specified period of time, they may be returned to the consignor or the consignment period may be extended. Consignment is a common practice in industries such as fashion, art, and antiques, where the consignor may not have their own storefront or online platform but still wants to sell their goods through a reputable seller.
The main difference between a sale and a consignment is who owns the inventory until it is sold.
In a sale, the seller owns the inventory and receives payment immediately when the customer purchases the product. The seller is responsible for setting the price, managing the inventory, and handling any unsold products.
In a consignment, the consignor owns the inventory and allows a third party, the consignee, to sell the product on their behalf. The consignor sets the price and retains ownership of the inventory until it is sold. The consignee receives a commission on each sale and is responsible for displaying and selling the inventory. If the inventory is not sold within a certain period of time, it may be returned to the consignor or the consignment period may be extended.