![\"Retail](\"https:\/\/dmsretail.com\/RetailNews\/wp-content\/uploads\/2022\/05\/RETAIL-ONLINE-TRAINING-728-X-90.png\")
<\/a><\/p>\n<\/p>\n
![\"\"](\"https:\/\/www.vendhq.com\/blog\/wp-content\/uploads\/2021\/11\/iStock-1307512097-644x430.jpg\")
<\/figure>\n<\/div>\nAs any retailer would tell you, purchasing inventory comes with a certain amount of risk. Stocking retail products typically follows the process where the retailer purchases goods from the supplier then sells those products for a profit.\u00a0<\/p>\n
However, if customers don\u2019t purchase enough merchandise, the retailer is stuck with unsold products that they either need to markdown or unload.<\/p>\n
This is where consignment inventory comes into play. Consigned inventory reduces the retailer\u2019s risk because the consignor (i.e., the supplier or vendor) retains ownership of the merchandise until they\u2019re sold. This means that the consignee (the retailer) doesn\u2019t need to purchase inventory upfront.<\/p>\n
In this post, we\u2019ll go over the ins and outs of consignment inventory. You\u2019ll learn what it is and how it works. We\u2019ll also share consignment inventory management tips to help you stay on top of the consigned stock.\u00a0<\/p>\n
Let\u2019s get started.\u00a0<\/p>\n
What is consignment inventory?<\/strong><\/h2>\nConsignment inventory is a supply chain strategy or business agreement in which the consignor (i.e., wholesaler, supplier, manufacturer) gives the goods to a consignee (i.e., the retailer) to sell.\u00a0<\/p>\n
The consignor still owns the products and the consignee will only pay for them once they\u2019ve been sold.\u00a0<\/p>\n
For instance, a retailer may strike up a consignment agreement with a fashion designer and agree to sell the designer\u2019s clothes in-store. The retailer will only pay for the goods that are sold, and the rest will be returned to the designer.\u00a0<\/p>\n
Done right, a consignment inventory arrangement can provide a win-win situation for both parties.\u00a0<\/p>\n
What are the advantages and disadvantages of consignment inventory?<\/strong><\/h2>\n![\"\"](\"https:\/\/www.vendhq.com\/blog\/wp-content\/uploads\/2015\/09\/Inventory_1440x912-644x428.jpg\")
<\/figure>\nConsignment inventory has pros and cons for vendors and retailers alike. Let\u2019s break them down below.\u00a0<\/p>\n
Advantages for retailers<\/strong><\/h3>\nMinimal financial risk.<\/strong> The main draw of consignment inventory for retailers is that the model comes with low financial risk. Since retailers don\u2019t have to pay for the products until they are sold, they won\u2019t have to worry about tying up or losing their capital on inventory costs. What\u2019s more, you don\u2019t have to deal with the hassle of unloading surplus stock.<\/p>\nPotential for more sales.<\/strong> Consigned goods can add breadth and depth to your retail inventory. You can add variety to your assortments, and when implemented correctly, a consignment inventory arrangement can actually increase your sales and profits.\u00a0<\/p>\nDisadvantages for retailers<\/strong><\/h3>\nHigher carrying costs or holding costs. <\/strong>While consignment inventory doesn\u2019t have any upfront costs, stocking them in-store comes with certain expenses. You need to devote floor space to the goods, which means giving up space that can be used to sell other items.\u00a0<\/p>\nIn addition, the consignee is usually in charge of shipping costs, especially if you\u2019re selling consigned inventory via ecommerce. (If you, as the retailer, don\u2019t want to handle the shipping costs, be sure to negotiate and specify this in the contract.)<\/p>\n
Not to mention, holding goods in your store or warehouse comes with risks, and you will need to pay for any damaged items.<\/p>\n
Increased complexity with inventory management. <\/strong>Consignment inventory could also make stock management more difficult. Consigned goods should be tracked separately from non-consignment items. And since they technically don\u2019t come with any upfront supply costs, tracking your margins and profits can be trickier.\u00a0<\/p>\nAdvantages for consignors<\/strong><\/h3>\nProduct visibility. <\/strong>Consignment inventory gives suppliers the chance to put their products in front of new audiences. By selling them through retail stores, consignors can tap into the retail market, allowing them to generate revenue without having to establish their own sales channels.\u00a0<\/p>\nAbility to test unproven products. <\/strong>A consignment arrangement also helps suppliers test new products. They can, for example, produce a limited number of goods, sell them in retail stores, and evaluate product performance based on the sales they\u2019ve generated.\u00a0<\/p>\nDisadvantages for consignors<\/strong><\/h3>\nHigher upfront costs.<\/strong> Consignors must carry the cost of producing the goods, without a guaranteed payoff.\u00a0<\/p>\nPotential for revenue loss. <\/strong>Cash flow is unpredictable. Vendors who own the goods face the risk of revenue loss when the items don\u2019t sell.\u00a0<\/p>\nHow consignment inventory works<\/strong><\/h2>\nSo, how exactly can you make consignment inventory work in your store? While every arrangement will vary, strong consignment agreements typically take place when you implement these best practices.\u00a0<\/p>\n
Start with a strong vendor relationship<\/strong><\/h3>\nA solid relationship with your vendors will be a foundational component of successful consignment. If you\u2019re considering entering into a consignment agreement, make sure that you\u2019re doing it with vendors you trust and whose values align with your own.\u00a0<\/p>\n
There are many ways to find vendors. These could be suppliers you\u2019ve worked with for years. Other times, you may meet them at trade shows or through an active search for supplies. Whatever the case, ensure that you vet them thoroughly before drawing up the paperwork.\u00a0<\/p>\n
Draw up a win-win consignment agreement<\/strong><\/h3>\nThe next step is to create and finalize a formal consignment agreement. At this stage, both parties should strive to establish a mutually beneficial arrangement. While the specifics of your agreement will depend on your situation, you generally want to cover the following items in the contract:<\/p>\n
Right to sell. <\/strong>The \u201cright to sell\u201d section simply formalizes the agreement. It should say that the consignor officially authorizes the consignee to display and sell items in their retail store.<\/p>\nPricing.<\/strong> Your agreement must have a section on pricing that indicates the amount for which the retailer will sell the items. Sometimes, this section could indicate the \u201cminimum price\u201d that the consignee is allowed to sell the products.<\/p>\nConsignment fee.<\/strong> This section outlines the percentage of sales that would go to the consignee and consignor. In many cases, this part of the contract also indicates the time frame for when the consigner will receive the funds. For example, if the consigner wants the sales proceeds to be delivered within 10 days of the sale, that should be indicated in writing.<\/p>\nLocation of goods.<\/strong> This section should mention the exact location (address) where the consigned items will be kept and stored.<\/p>\nTime period. <\/strong>You should indicate a timeframe for when items need to be sold. In the event that the products aren\u2019t sold by the given date, the items must be returned to the consignor.<\/p>\nHow to manage consignment inventory<\/strong><\/h2>\n![\"\"](\"https:\/\/www.vendhq.com\/blog\/wp-content\/uploads\/2020\/04\/iStock-1133945516-644x430.jpg\")
<\/figure>\nAt this stage, you already have your agreement in place and are ready to sell the consigned goods in your retail store.\u00a0<\/p>\n
Below are a few best practices to help ensure smooth inventory control when you\u2019re selling consignment products.<\/p>\n
Use the right method to track consignment sales and inventory\u00a0<\/strong><\/h3>\nConsignment inventory accounting and management can be tricky, particularly if you\u2019re selling a combination of consigned and non-consigned goods. If your business model uses a hybrid of both, it may be helpful to track them separately.\u00a0<\/p>\n
If you\u2019re using Vend by Lightspeed, for example, we recommend that you set up a separate outlet for consignment inventory, so you can easily track it. If you\u2019re only selling consigned items, using a single inventory management system may work.\u00a0<\/p>\n
Use inventory management software and other digital tools<\/strong><\/h3>\nThe best way to stay on top of consignment stock is to digitize your accounting and inventory systems. Instead of using spreadsheets or (heaven forbid) pen and paper to track and manage your inventory, adopt a cloud-based inventory management software that streamlines data entry, tracking, and reporting.\u00a0<\/p>\n
The good news is that there are plenty of tools at your disposal. On the accounting side, software like Quickbooks and Xero both support consignment inventory accounting.\u00a0<\/p>\n
As for managing your sales and inventory, Vend by Lightspeed offers robust tools that enable you to sell and manage your products. Vend also makes reporting much easier. You can build your own reports and easily see which items are selling and how profitable they are.\u00a0<\/p>\n![\"\"](\"https:\/\/www.vendhq.com\/blog\/wp-content\/uploads\/2021\/08\/Banner-2.1-644x337.png\")
<\/figure>\nThe bottom line<\/strong><\/h2>\nConsignment inventory can be highly beneficial to retailers and suppliers alike. When you have a mutually beneficial agreement and are using the right tools to manage inventory, your consignment efforts will have a higher chance of success. <\/p>\n
<\/p>\n
\n![\"\"](\"https:\/\/secure.gravatar.com\/avatar\/1528013483dfdb53fd343748c2d53f66?s=100&d=mm&r=g\")
<\/div>\n\nAbout Francesca Nicasio<\/h3>\n
Francesca Nicasio is Vend’s Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter<\/a>, or Google+.<\/p>\n<\/div>\n<\/div>\n<\/p>\n
<\/div>\n
<\/figure>\nConsignment inventory has pros and cons for vendors and retailers alike. Let\u2019s break them down below.\u00a0<\/p>\n
Advantages for retailers<\/strong><\/h3>\nMinimal financial risk.<\/strong> The main draw of consignment inventory for retailers is that the model comes with low financial risk. Since retailers don\u2019t have to pay for the products until they are sold, they won\u2019t have to worry about tying up or losing their capital on inventory costs. What\u2019s more, you don\u2019t have to deal with the hassle of unloading surplus stock.<\/p>\nPotential for more sales.<\/strong> Consigned goods can add breadth and depth to your retail inventory. You can add variety to your assortments, and when implemented correctly, a consignment inventory arrangement can actually increase your sales and profits.\u00a0<\/p>\nDisadvantages for retailers<\/strong><\/h3>\nHigher carrying costs or holding costs. <\/strong>While consignment inventory doesn\u2019t have any upfront costs, stocking them in-store comes with certain expenses. You need to devote floor space to the goods, which means giving up space that can be used to sell other items.\u00a0<\/p>\nIn addition, the consignee is usually in charge of shipping costs, especially if you\u2019re selling consigned inventory via ecommerce. (If you, as the retailer, don\u2019t want to handle the shipping costs, be sure to negotiate and specify this in the contract.)<\/p>\n
Not to mention, holding goods in your store or warehouse comes with risks, and you will need to pay for any damaged items.<\/p>\n
Increased complexity with inventory management. <\/strong>Consignment inventory could also make stock management more difficult. Consigned goods should be tracked separately from non-consignment items. And since they technically don\u2019t come with any upfront supply costs, tracking your margins and profits can be trickier.\u00a0<\/p>\nAdvantages for consignors<\/strong><\/h3>\nProduct visibility. <\/strong>Consignment inventory gives suppliers the chance to put their products in front of new audiences. By selling them through retail stores, consignors can tap into the retail market, allowing them to generate revenue without having to establish their own sales channels.\u00a0<\/p>\nAbility to test unproven products. <\/strong>A consignment arrangement also helps suppliers test new products. They can, for example, produce a limited number of goods, sell them in retail stores, and evaluate product performance based on the sales they\u2019ve generated.\u00a0<\/p>\nDisadvantages for consignors<\/strong><\/h3>\nHigher upfront costs.<\/strong> Consignors must carry the cost of producing the goods, without a guaranteed payoff.\u00a0<\/p>\nPotential for revenue loss. <\/strong>Cash flow is unpredictable. Vendors who own the goods face the risk of revenue loss when the items don\u2019t sell.\u00a0<\/p>\nHow consignment inventory works<\/strong><\/h2>\nSo, how exactly can you make consignment inventory work in your store? While every arrangement will vary, strong consignment agreements typically take place when you implement these best practices.\u00a0<\/p>\n
Start with a strong vendor relationship<\/strong><\/h3>\nA solid relationship with your vendors will be a foundational component of successful consignment. If you\u2019re considering entering into a consignment agreement, make sure that you\u2019re doing it with vendors you trust and whose values align with your own.\u00a0<\/p>\n
There are many ways to find vendors. These could be suppliers you\u2019ve worked with for years. Other times, you may meet them at trade shows or through an active search for supplies. Whatever the case, ensure that you vet them thoroughly before drawing up the paperwork.\u00a0<\/p>\n
Draw up a win-win consignment agreement<\/strong><\/h3>\nThe next step is to create and finalize a formal consignment agreement. At this stage, both parties should strive to establish a mutually beneficial arrangement. While the specifics of your agreement will depend on your situation, you generally want to cover the following items in the contract:<\/p>\n
Right to sell. <\/strong>The \u201cright to sell\u201d section simply formalizes the agreement. It should say that the consignor officially authorizes the consignee to display and sell items in their retail store.<\/p>\nPricing.<\/strong> Your agreement must have a section on pricing that indicates the amount for which the retailer will sell the items. Sometimes, this section could indicate the \u201cminimum price\u201d that the consignee is allowed to sell the products.<\/p>\nConsignment fee.<\/strong> This section outlines the percentage of sales that would go to the consignee and consignor. In many cases, this part of the contract also indicates the time frame for when the consigner will receive the funds. For example, if the consigner wants the sales proceeds to be delivered within 10 days of the sale, that should be indicated in writing.<\/p>\nLocation of goods.<\/strong> This section should mention the exact location (address) where the consigned items will be kept and stored.<\/p>\nTime period. <\/strong>You should indicate a timeframe for when items need to be sold. In the event that the products aren\u2019t sold by the given date, the items must be returned to the consignor.<\/p>\nHow to manage consignment inventory<\/strong><\/h2>\n<\/figure>\nAt this stage, you already have your agreement in place and are ready to sell the consigned goods in your retail store.\u00a0<\/p>\n
Below are a few best practices to help ensure smooth inventory control when you\u2019re selling consignment products.<\/p>\n
Use the right method to track consignment sales and inventory\u00a0<\/strong><\/h3>\nConsignment inventory accounting and management can be tricky, particularly if you\u2019re selling a combination of consigned and non-consigned goods. If your business model uses a hybrid of both, it may be helpful to track them separately.\u00a0<\/p>\n
If you\u2019re using Vend by Lightspeed, for example, we recommend that you set up a separate outlet for consignment inventory, so you can easily track it. If you\u2019re only selling consigned items, using a single inventory management system may work.\u00a0<\/p>\n
Use inventory management software and other digital tools<\/strong><\/h3>\nThe best way to stay on top of consignment stock is to digitize your accounting and inventory systems. Instead of using spreadsheets or (heaven forbid) pen and paper to track and manage your inventory, adopt a cloud-based inventory management software that streamlines data entry, tracking, and reporting.\u00a0<\/p>\n
The good news is that there are plenty of tools at your disposal. On the accounting side, software like Quickbooks and Xero both support consignment inventory accounting.\u00a0<\/p>\n
As for managing your sales and inventory, Vend by Lightspeed offers robust tools that enable you to sell and manage your products. Vend also makes reporting much easier. You can build your own reports and easily see which items are selling and how profitable they are.\u00a0<\/p>\n<\/figure>\nThe bottom line<\/strong><\/h2>\nConsignment inventory can be highly beneficial to retailers and suppliers alike. When you have a mutually beneficial agreement and are using the right tools to manage inventory, your consignment efforts will have a higher chance of success. <\/p>\n
<\/p>\n
\n<\/div>\n\nAbout Francesca Nicasio<\/h3>\n
Francesca Nicasio is Vend’s Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter<\/a>, or Google+.<\/p>\n<\/div>\n<\/div>\n<\/p>\n
<\/div>\n
Potential for more sales.<\/strong> Consigned goods can add breadth and depth to your retail inventory. You can add variety to your assortments, and when implemented correctly, a consignment inventory arrangement can actually increase your sales and profits.\u00a0<\/p>\n Higher carrying costs or holding costs. <\/strong>While consignment inventory doesn\u2019t have any upfront costs, stocking them in-store comes with certain expenses. You need to devote floor space to the goods, which means giving up space that can be used to sell other items.\u00a0<\/p>\n In addition, the consignee is usually in charge of shipping costs, especially if you\u2019re selling consigned inventory via ecommerce. (If you, as the retailer, don\u2019t want to handle the shipping costs, be sure to negotiate and specify this in the contract.)<\/p>\n Not to mention, holding goods in your store or warehouse comes with risks, and you will need to pay for any damaged items.<\/p>\n Increased complexity with inventory management. <\/strong>Consignment inventory could also make stock management more difficult. Consigned goods should be tracked separately from non-consignment items. And since they technically don\u2019t come with any upfront supply costs, tracking your margins and profits can be trickier.\u00a0<\/p>\n Product visibility. <\/strong>Consignment inventory gives suppliers the chance to put their products in front of new audiences. By selling them through retail stores, consignors can tap into the retail market, allowing them to generate revenue without having to establish their own sales channels.\u00a0<\/p>\n Ability to test unproven products. <\/strong>A consignment arrangement also helps suppliers test new products. They can, for example, produce a limited number of goods, sell them in retail stores, and evaluate product performance based on the sales they\u2019ve generated.\u00a0<\/p>\n Higher upfront costs.<\/strong> Consignors must carry the cost of producing the goods, without a guaranteed payoff.\u00a0<\/p>\n Potential for revenue loss. <\/strong>Cash flow is unpredictable. Vendors who own the goods face the risk of revenue loss when the items don\u2019t sell.\u00a0<\/p>\n So, how exactly can you make consignment inventory work in your store? While every arrangement will vary, strong consignment agreements typically take place when you implement these best practices.\u00a0<\/p>\n A solid relationship with your vendors will be a foundational component of successful consignment. If you\u2019re considering entering into a consignment agreement, make sure that you\u2019re doing it with vendors you trust and whose values align with your own.\u00a0<\/p>\n There are many ways to find vendors. These could be suppliers you\u2019ve worked with for years. Other times, you may meet them at trade shows or through an active search for supplies. Whatever the case, ensure that you vet them thoroughly before drawing up the paperwork.\u00a0<\/p>\n The next step is to create and finalize a formal consignment agreement. At this stage, both parties should strive to establish a mutually beneficial arrangement. While the specifics of your agreement will depend on your situation, you generally want to cover the following items in the contract:<\/p>\n Right to sell. <\/strong>The \u201cright to sell\u201d section simply formalizes the agreement. It should say that the consignor officially authorizes the consignee to display and sell items in their retail store.<\/p>\n Pricing.<\/strong> Your agreement must have a section on pricing that indicates the amount for which the retailer will sell the items. Sometimes, this section could indicate the \u201cminimum price\u201d that the consignee is allowed to sell the products.<\/p>\n Consignment fee.<\/strong> This section outlines the percentage of sales that would go to the consignee and consignor. In many cases, this part of the contract also indicates the time frame for when the consigner will receive the funds. For example, if the consigner wants the sales proceeds to be delivered within 10 days of the sale, that should be indicated in writing.<\/p>\n Location of goods.<\/strong> This section should mention the exact location (address) where the consigned items will be kept and stored.<\/p>\n Time period. <\/strong>You should indicate a timeframe for when items need to be sold. In the event that the products aren\u2019t sold by the given date, the items must be returned to the consignor.<\/p>\n At this stage, you already have your agreement in place and are ready to sell the consigned goods in your retail store.\u00a0<\/p>\n Below are a few best practices to help ensure smooth inventory control when you\u2019re selling consignment products.<\/p>\n Consignment inventory accounting and management can be tricky, particularly if you\u2019re selling a combination of consigned and non-consigned goods. If your business model uses a hybrid of both, it may be helpful to track them separately.\u00a0<\/p>\n If you\u2019re using Vend by Lightspeed, for example, we recommend that you set up a separate outlet for consignment inventory, so you can easily track it. If you\u2019re only selling consigned items, using a single inventory management system may work.\u00a0<\/p>\n The best way to stay on top of consignment stock is to digitize your accounting and inventory systems. Instead of using spreadsheets or (heaven forbid) pen and paper to track and manage your inventory, adopt a cloud-based inventory management software that streamlines data entry, tracking, and reporting.\u00a0<\/p>\n The good news is that there are plenty of tools at your disposal. On the accounting side, software like Quickbooks and Xero both support consignment inventory accounting.\u00a0<\/p>\n As for managing your sales and inventory, Vend by Lightspeed offers robust tools that enable you to sell and manage your products. Vend also makes reporting much easier. You can build your own reports and easily see which items are selling and how profitable they are.\u00a0<\/p>\n Consignment inventory can be highly beneficial to retailers and suppliers alike. When you have a mutually beneficial agreement and are using the right tools to manage inventory, your consignment efforts will have a higher chance of success. <\/p>\n <\/p>\n Francesca Nicasio is Vend’s Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She’s also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter<\/a>, or Google+.<\/p>\n<\/div>\n<\/div>\n <\/p>\n <\/div>\nDisadvantages for retailers<\/strong><\/h3>\n
Advantages for consignors<\/strong><\/h3>\n
Disadvantages for consignors<\/strong><\/h3>\n
How consignment inventory works<\/strong><\/h2>\n
Start with a strong vendor relationship<\/strong><\/h3>\n
Draw up a win-win consignment agreement<\/strong><\/h3>\n
How to manage consignment inventory<\/strong><\/h2>\n
<\/figure>\nUse the right method to track consignment sales and inventory\u00a0<\/strong><\/h3>\n
Use inventory management software and other digital tools<\/strong><\/h3>\n
<\/figure>\nThe bottom line<\/strong><\/h2>\n
About Francesca Nicasio<\/h3>\n