A little bit ago, we wrote a blog post explaining everything about consignment vs wholesale, and what's the difference and answered some of our most asked vendor questions. I wanted to do a deep-dive on what each really entails and get a sense of who does what, responsibilities and who that falls to, etc. If you're a vendor and looking for more information about consignment, you're in the right place! Let's do a deep dive.
Consignment - What is it?
Consignment is an agreement between the vendor and the retailer based on a percentage of sales for the vendor to have their products displayed in a shop. Consignment always works in percentages. Sometimes depending on the shop, it can be paired with a shelf rental. For example, a consignment shop may ask for a $25 shelf rent plus take 15% of sales for example. Consignment can vary depending on the shop, however, the average is usually somewhere between 20-40%. Consignment is taken out of sales from the vendor's items. If the vendor has an item priced at $20, and the consignment is 25%, the shop will keep $5 and the vendor will receive the remaining $15.
Product - Who's Responsible? Who Does What?
When talking about consignment, this can get a bit complicated. It's not as cut and dry as wholesale (watch for another blog post soon about wholesale!). For consignment, usually, the vendor is responsible for bringing in a new product, ensuring that it is priced correctly, any tags that come with the product are on the product, providing an inventory list for the retailer and organizing a day and time for a drop-off. The vendor is also responsible for their own insurance to cover their products while in the shop on consignment. Some shops will also have a contract to sign where all of this can be outlined. The retailer is usually responsible for the shop and selling your products. As well as adding your items to their system and possible website. In a consignment relationship, usually, the vendor needs to do more. Retail still provides service and sells the product but product refreshes and when to bring in new items are usually up to the vendor.
However, this can also vary from shop to shop. The basics a consignor should be doing are bringing in new products, providing an inventory list for the retailer and promoting their products on social media and pointing their customers to retailers. Retailers can take on more tasks like pricing, tagging, taking photos, etc. Usually, a higher consignment % means more work a retailer is doing, however, this isn't always the case. In most cases, vendors won't entirely be responsible for restocking. If a retailer is running low on items, they will usually send out an email or message to let you know. However, some shops won't tell you and that usually means you may need to make monthly or bi-monthly visits to replenish the retailer.
Another thing that should be mentioned about consignment is that generally, a product is never guaranteed to be on the shelf. Sometimes there isn't room and some product needs to be taken down for another vendor to have space. Sometimes if the product isn't refreshed soon enough, the shop has out-of-season products and will take them down from displays. Being on consignment doesn't entirely guarantee that your products will be out on the shelves always. It also doesn't guarantee that all of your products will be out on the shelves at once. Some vendors can bring in a lot more inventory than the shop has space for so they store the extra to replace when a product has sold.
One last thing to mention about the product, the great thing about consignment is that the shop can direct people to you for custom orders. If your business is great for custom orders then consignment can be great to bring in more of those. With consignment, you can also have a cut-off date that by this point, that's all the shop will receive for the year. This can make things easier for both the retailer and the vendor as the retailer has an expected cut-off date and can let their customers know. With wholesale, you can set dates but you'll more than likely keep getting orders even past your cut-off.
Marketing & Advertising - Who Does What? How Do I Promote Retailers?
Unlike for product, marketing and advertising is very cut and dry when it comes to consignment and wholesale. Plain and simple, you should be promoting retailers and shops that you are in about once a month to your following. Why? Retailers depend on word-of-mouth and foot traffic to keep their shops open. If you haven't been promoting where your customers can find your product in a while, take this an opportunity to do so. For some consignment shops, it can be part of your % to promote the shop when you can. Most retailers will advertise and promote when you bring in new products so take that as a chance to share their post while also featuring the shop to your customers.
The best time to market and advertise shops is when you replenish stock and once or twice a month. Especially the three months leading up to Christmas as this will be the busiest time for the shop and when they will need the most inventory. This is also a great way to direct your customers to a place that has your inventory on hand instead of worrying about making more products. The most crucial times to advertise shops to your following is Sept-Dec.
Ultimate Pros & Cons List
~Lower % of sales taken than wholesale (20-40% vs 40-50%)
~Less responsibilities for the retailer
~Better agreement if you're only doing your small business as a part-time/hobby
~Cut-off times are better for consignment
~Could receive more custom orders
~More responsibilities on the vendor
~More marketing/advertising requirements than wholesale
~Could receive more custom orders (if you're not a fan or don't like to do custom orders this could be a con)
~Damaged/broken inventory is entirely on the vendor
~Restocks are on the vendor, the vendor may need to stop by the shop monthly to check up and restock
Overall, is consignment the best option? For most small businesses that are part-time or a hobby, consignment is the best option as it gives owners a stepping stone in the right direction. Sometimes retailers will only take on consignment so these shops are perfect for owners who are looking at starting on consignment to see how it all goes.
Watch out for another blog post in a few weeks that will have the full breakdown of wholesale.