What is 'Consignment'

Consignment is an arrangement in which goods are left in the possession of an authorized third party to sell. Typically, the consignor receives a percentage of the revenue from the sale (sometimes a very large percentage) in the form of a 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.

BREAKING DOWN '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.

How Consignment Arrangements Work

A person wishing to sell an item on consignment delivers it to a consignment shop or a third party to do the selling on his 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 percent to 60 percent 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.

One good example of consignment is when an artist employs a gallery to show and sell her works of art. The gallery may or may not charge the artist a fee for the wall space, but will charge a sales commission for any works sold, which is usually incorporated into the price.

Benefits 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. 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.

RELATED TERMS
  1. Inventory

    Inventory is the term for merchandise or raw materials on hand.
  2. Gross Merchandise Value

    Gross merchandise value is the total value of merchandise sold ...
  3. Inland Bill Of Lading

    An inland bill of lading is a contract signed between a shipper ...
  4. Cost Company Arrangement

    An agreement between companies that are working together, whereby ...
  5. Booking the Basis

    Booking the basis is an arrangement made between a buyer & seller ...
  6. Compulsive Shopping

    Compulsive shopping is an impulse disorder leading to the constant ...
Related Articles
  1. Small Business

    Turn Your Old Clothes Into Cash

    If your closet is full of clothes you don't wear, use these tips to make some money (and some room) quickly and easily.
  2. Managing Wealth

    Top Ways To Profit From Storage Auctions

    Here are some extremely valuable tips to help you become an expert at finding deals at storage auctions.
  3. Insights

    Best Times To Go Shopping

    Whether you love it or hate it, we'll tell you when the best times are to go clothes shopping.
  4. Managing Wealth

    How to Get the Most Money for Your Fur Coat

    There are several ways to realize a decent return on investment on your unwanted pelt.
  5. Personal Finance

    Top 5 Biggest Mobile E-retailers

    Online shopping has never been easier, thanks to the proliferation of mobile shopping apps.
  6. Tech

    The 5 Best Alternatives to eBay (AMZN, EBAY)

    Understand the benefits and drawbacks of eBay, as well as the industry in which it operates. Learn about five alternatives to eBay and its services.
  7. Insights

    A Guide To Returning Christmas Gifts

    The Christmas season can be stressful, but returning unwanted gifts can be even more stressful. Here are some tips to help you avoid the stress.
  8. Personal Finance

    5 Ways to Control Emotional Spending

    Follow these five simple steps to keep your spending under control.
  9. Insights

    How Are eBay And Amazon Different?

    Learn how eBay differs from Amazon in the e-commerce environment for both buyers and sellers, and understand why each operates under a specific model.
Trading Center