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What is the best practice when offering a product on consignment or is it only recommended for very high end products?

I have a couple of small stores interested in my product and it's taking them a long time for them to commit, since I'm not an established brand. Is consignment the best way to have them give me a try, and what are the standard terms? Thank you.

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Hi Sandra,

It really is up to you. Consignment can be a good way to get your products tested in a store as it removes the risk from the retailer. There’s really no set limit on who does consignment, I’ve workrd with very established companies and brands that will do it to launch a new item or test something.

Of course it’s not the most ideal situation for you as you have more of the risk and if it doesn’t sell have to deal with the return of the goods. As a side note, this is also called ‘pay by scan’ at some larger retailers. Several categories at times only operate this way (propane exchanges, candy/snacks, greeting cards are some examples).

Typically there’s some sort of written agreement on length of time for the product to sell, how long after the product sells that you get paid by the retailer and how any final ‘exit’ of the program would work (return of the goods or funds to lower the price and have it sell out faster called ‘markdown funds).

Bottom line is if you believe in your product and the retailers ability to sell it, consignment is one option to get to market faster.

Best to you,

Drew

Thank you Drew, this is really helpful.

Consignment may be an effective way to "beta test" your brand in a retail setting, however I would limit selection of sites to well-established independent retailers who are both close to you geographically and are willing to commit a sufficient space to show the complete line effectively. Being near to these retailers will give you the ability to see first hand how things are going and tweak displays. Once you have data on best selling items... create a program with pre-packaging and point of sale collateral and start hiring reps who have a line package that's already compatible with your product category.

Unless the particular store is a consignment store -- meaning they offer only consigned products -- I would think long and hard before committing to an arrangement like this.

Although, I agree with the premise that this may be a good way to test your products via a local store. It also is NOT a good way to test your products.

I wrote an article on this very issue. Here are some of the highlights:

You will get asked occasionally to consign merchandise, especially if the retailer senses "NEWBIE"! Consignment is good for the store owner, as you are paying for THEIR inventory. You could easily tie up thousands of dollars in slow-moving inventory if you use consignment as a primary market penetration strategy to multiple stores.

And look at this from the store owner's perspective. They did not pay for your inventory, and even though your stuff looks nice, if it sells, they WILL need to pay. So if they sell your consignment booty, they really only get half, in terms of cash flow. On the other hand, the rest of the store inventory is PAID for, so their cash flow benefits 100% when a sale is made. Guess what lines get the premium locations, while yours gets ... a narrow back aisle in a dark corner.

Here are some of the downsides of consigning your products:
** Since stores owners don't have as much invested in a consignment product, they USUALLY don't give it as much visibility or importance as a product they have invested in (purchased wholesale).
** Consignment items can be 'man-handled' in a retail setting thus making them unsaleable.
** Should the items be lost, damaged or stolen, who is responsible?
** Unless you have a way to check and monitor on your consignment products (local store), I would not recommend leaving products there.
** Consignment can be a bookkeeping nightmare for you and the stores. Who is going to manage that?
** If you leave items in a store on consignment, what incentive does a store have to EVER purchase your products?

In spite of my warnings, if you DO consign, get more than your regular wholesale pricing, since you are fronting the inventory, and absorbing the risk of product obsolescence, scuffed labels, and other problems. I recommend consigning at 60-70% of the retail price (based on keystoning), rather than 50%, and the retailer gets to keep the other 30-40%.

You should also require a signed agreement, with clauses including the percentage and frequency of payments to you, responsibility for breakage and "shrinkage" (shoplifting or employee theft), and how often you will update inventory. Since only the retailer exerts protection and control over your products while in the store, he or she should be responsible for losses of any kind, just like with other products in the store. Many stores will chafe at this, but hold your ground. Of course, expect normal wear and tear (e.g. scuffed labels) and you will probably need to replace those periodically, on your dime.

But, whatever you decide to do, good luck to you!

Thank you so much Sandy, this really gives me food for thought and you layed out the pros and cons brilliantly. I'm still small right now and was only considering doing something local, since most of my clients go to the lingerie shop that I'm interested in, but now I know what terms I should be asking for.

Very informative Sandra. We began with 2 consignment stores in Janurary of this year and due to then being in high traffic malls, we have kept them (per a contract) at 65% margin even after growing to 28 locations in total. Thank you again for that read.

Brian & Megan Dalrymple

Anchored NW Candle Co.

The chief problem with consignment is that it shows you don't have confidence in your product. If you don't believe in it, neither is the retailer going to believe in it. Also, he has no incentive to work at selling it because he has made no investment in it and has nothing to lose. If you insist he pay for the product, you are flattering his confidence in his own judgment of saleable merchandise.

Thank you George, all of your responses has given me a lot to think about and I agree the store needs to have some skin in the game to sell my product.

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