What is consignment?

Consignment involves a wholesaler placing stock in the hands of a retailer, but retaining ownership until the product is sold to the end customer, and only then does the retailer purchase the consumed stock.

Selling on consignment usually involves the combination of a high degree of demand uncertainty from the retailer’s point of view, and a high degree of confidence in sales potential from the wholesaler’s point of view.

To sell on consignment, you need…

A clear arrangement.

This is built on a basis of trust and terms that cover the fundamental areas of concern. As a wholesaler or retailer who is considering venturing into consignment, you may want to think about:

  • What is the time limit before leftover stock should be returned?
  • What is the return policy?
  • What is the freight policy?
  • Whose insurance covers the product when it’s on the retailer’s shelves?
  • How, when, and what data is exchanged?
  • What percentage of the purchase price will the retailer be taking as sales commission?

Benefits for retailers

Firstly, a wider variety of goods at retail stores helps improve the overall appeal of your store.

Better yet, you need not tie up your capital in inventory because you only purchase the stock after it sells. Moreover, in the event the stocks are not moving, you can return the leftovers to the wholesaler at no cost. Consignment selling also enables decreased lag times with regards to restocking products. Since it is in everyone’s best interest to keep products in stock, inventory is usually replaced as it is sold – minimizing lag time between goods sold and the arrival of new goods.

The benefits of selling on consignment for the retailer are obvious… So what do wholesalers stand to gain from risking their capital investment in the product?

Benefits for wholesalers

Selling on consignment allows you to ‘test the waters’ on the success of a new product or new sales channel with minimal risk, while getting your product in front of the end users instead of leaving them collecting dust in your warehouse. Selling on consignment transfers the marketing and sales efforts to your retailers, while allowing you to exhibit your products in front of customers.

Also, selling on consignment can offer shared information that can help a wholesaler with regards to inventory management. An inventory management software such as TradeGecko can help you track consignment inventory in specific locations, keep an eye on movements and fluctuations of consignment inventory, and receive up-to-date reorder reports for each consignment channel.

Inventory management software also helps iron out discrepancies and inconsistencies in consignment inventory records, as wholesalers and retailers can collaborate on the same platform. That way you can monitor consignment sell-through rates and make decisions based on accurate data.

Read next: Introduction to safety stock level 

Start a free TradeGecko trial

Subscribe for insights into building world-class eCommerce companies