As a small biz owner and product maker, consignment can initially, sound like a pretty sweet deal. It’s usually the first partnership opportunity many makers are approached with which, in and of itself is exciting! However, it's been my experience that for every great consignment partnership out there I hear about twice as many partnerships that went awry. In today's post, I'm breaking down consignment for you to give you a birdseye view of what this relationship can look like. There are some absolutely amazing opportunities with consignment but I've found that the risks can outweigh the benefits most of the time. I want you to be armed with as much information as possible so when this opportunity is presented to you, you can decide what the best direction is for your business.
Recently a member of my Facebook community shared a story about how a shop she was consigning her products with closed its doors without notice and disappeared. With the new year just starting (and the holiday season recently ending) she was owed money, but with the owner suddenly MIA with her cash AND remaining products she was put in a position that unfortunately, I hear about happening more often than not.
Why I am NOT a fan of consignment:
Consignment deals put almost ALL of the risk on you, and minimal to no risk on the retailer. With consignment, you only get paid after your product sells. They are not purchasing anything from you up front at wholesale, so you are spending your own money to create the product(s) in the hopes they will sell. In traditional wholesale/retail partnerships, a store’s buyer would purchase products from you up front which means making money almost immediately.
It’s a different kind of partnership
The level of investment from a retailer increases when dollars are exchanged. When a store buyer purchases a product from you a mutually beneficial relationship starts to form. (they need your products to sell to make their profit, you need your products to sell so you can continue the wholesale/retail relationship) They are motivated to sell your product because they’ve invested their money into it. In the case of consignment, that motivation isn't quite the same. If you’re going to invest your time and money I’d prefer to see you doing it with wholesale buyers where you share the risk/reward.
It ties up your inventory
You have to invest time and money to create a product for this store. You won’t make your investment back unless it sells, and that could take a looong time. If your products are seasonal and they don’t sell you could end up stuck sitting on the goods even longer after you swap them out with the retailer. For instance, anyone picking up traditional seasonal prints/styles in January can’t do much with them. You either add them to the sale section of your site and cross your fingers or you wait until next holiday and try to move them then.
Inventory may return to you in unsalable condition
While store owners should be keeping a careful eye on their inventory the nature of this business is that pieces on a sales floor get floor worn and damaged. It’s something that every retailer has to deal with, but when you haven't been paid for the goods, months go by then you’re handed back a product that you can’t turn around and sell elsewhere you’re outta luck and outta money.
The sales price split
Not all partnerships are created equal! It drives me BANANAS when I hear about consignment deals with a 50/50 split. (As in, you get 50% of the sales price and they get the other 50%) In a wholesale relationship the buyer traditionally purchases your product at half off the retail price (50%) so if when they sell your product they’d make 50% so with this split request, why not enter into a wholesale relationship?? I don’t believe consignment should have this split because again, they are not taking a risk. The most common split I’ve seen is 60/40 (meaning you keep 60% of the sale price, they get 40%) but it really varies shop to shop. If a shop is asking 50% or more I’d ask to approach it as a wholesale partnership and see what they say. Maybe there is more to their process than you realized or maybe, they don't want to take a risk on your goods. Your time, products and creative skills are worth being paid for. And if they buyer starts talking about all the “exposure” you’ll get? Well, I’ll save that rant for another. :)
Often times, consignment deals also come a rental feel for shelf space/place on their sales floor. Some retailers charge either rent OR a percentage while others charge BOTH. The range varies widely depending on the types of products you sell. For example, let’s say that initially the sales split is really nice (like an 80/20) but on top of that you also have to pay a rental fee of $50 per month. When this happens, you’re put in a very challenging position to make any money. Realistically, what volume would you need to sell in order to make this partnership worthwhile to your biz? And how often would you have to be creating + replenishing at their store? This brings me to my next reason I am not a fan of consignment...
The TIME commitment
Consignment can eat up hours of your days and weeks. Between keeping tabs and managing the inventory, visiting stores to restock or pick up old merchandise, following up with the retailers for updates and feedback and making sure you’re getting paid on time it takes a ton of time and energy to ensure things stay on track.
Whenever one of my clients asks me about consignment I always recommend they focus on potential wholesale relationships instead. Between creating products, delivering them to the store, swapping out styles that didn’t sell, keeping tabs on the styles that did sell and making sure you get paid (and so forth) consignment, in my opinion, is a major time suck. HOWEVER, there are definitely some really great stores out there who are reliable, trustworthy and great consignment partners (finding them though is very needle in a haystack-esque)
If you do decide to give consignment a shot, here are some tips to minimize your risk:
Visit the Store
Not every retail location is going to be the best fit for your products (the same rule applies for wholesale relationships as well!) If you’re considering entering a partnership visit the store to see what kind of products they carry and if yours would compliment their customer base and existing brands. Putting your products in a store simply because the opportunity arose won’t work in your favor. It really needs to be the perfect match to make this partnership work to your advantage and make you $$$
Ask for Referrals
Whenever possible, ask for referrals from some of their other consignment partners. If they’re in good standing and have great partnerships this shouldn’t be an issue. If they’re just starting to explore consignment that’s totally ok, as long as they are upfront and honest about it. Trust your gut, and walk away if you get a runaround answer or icky vibe.
Ask if there are opportunities to move from consignment to wholesale
Sometimes a retailer will want to test your products on consignment first (again, because its zero risk for them) so it’s worth finding out if all goes well would they be open to establishing a wholesale relationship. If they are strictly consignment for life you may want to give the opportunity a little more thought.
Pick a small assortment of your best selling styles to test the waters. As your relationship develops and your products become proven sellers you can increase the size of your assortment and number of skus.
It’s really important that you also keep careful documentation about what you’ve provided and what sold, when. With every delivery, you should have a full sku list of what the retailer receives. Make this part of the process more seamless by sharing your list with your retail buyer so you are both on the same page.
Have a signed agreement in place:
While many shops will already have terms it doesn’t hurt to bring your own to the table. Outlining details like
how they’ll report sales
when you will be paid
when you will swap out/restock goods
how you’ll deal with damages/items returned in unsalable condition
How/where your products will be displayed (and who will be in charge of displaying them)
All of this should all be clearly specified up front BEFORE you hand over any of your products. Have you been in a consignment relationship with a retalier before? If so I'd love to hear how it worked out for you. Share the good, the bad and the ugly so we can support our fellow makers and allow them to learn from our sucesses and failures.