How Does Consignment Selling Work?
What is Consignment? Is it better than selling your items second-hand on eBay, Craigslist or Kijiji? How does consignment work, and how do you get started with a consignment shop? We will answer all of these questions and more here.
In its most basic definition, consigning is when someone gives an object to be sold by another person for a percentage of the sale price. The person who owns the item gets to set their terms for how much they want from each sale (typically anywhere from 30% - 60%). In this way, consigning can be seen as a type of second-hand shopping system.
Types of Second-Hand Shopping Systems
Second-hand shopping systems can be organized into four categories: consignment work, pawn, thrift, and classified. Three key variables define the distinctions between each system:
- When ownership of the actual goods is given up by the owner
- When does the owner receive payment
- If someone aids the owner in selling items
What is a Consignment Shop?
A consignment shop is a second-hand shopping system that offers both new and used items for sale. Consignment stores work because shops typically sell any item as long as the owner agrees to how much they want from each sale (typically 30% - 60%).
Consignment stores can be small, family-owned businesses or larger chains with outlets in different towns. They define their terms for how consignment stores work, so it's essential to understand the store's policies before engaging with them to sell your items.
Consignment shops are an excellent location to buy high-end brands at discounted rates from a consumer's perspective. Although consignment stores deal in used goods, they are typically from established brands or even designer items that have been well maintained. So if you go into any of Toronto's consignment shops, you may find names like Armani, Rebecca Taylor, Hugo Boss, or even other top labels such as Versace and Yves Saint Laurent at a significant discount.
Consignment shops have excellent policies for selling your unwanted belongings, and you can be confident of getting a good return on your items.
How Does Consignment Work?
Consigning with an established store or business can benefit anyone looking to make money off their unwanted things, but how does consignment work exactly? How consignment stores work is when someone brings in an item and asks if the establishment would like to sell them on their behalf then, the process starts. If so, then this person is referred to as the seller.
A consignment agreement will be signed, defining the percentage of the final price to the seller (consignor) and how much will remain with the shop (consignee).
Can Small Businesses use Consignment?
Small businesses are just one type of business that can thrive using consignment. Many consignment shops will accept any item in good condition as long as the owner agrees to the terms of the consignment split fee.
Consignment work is an option if you don't have a storefront or location to sell items. Many businesses are prepared to take new items as consignment work to build their stocks. You would effectively be lending the consignee your products to be sold on your behalf.
A consignment contract differs from a wholesale agreement in that you are not selling your items to the shop. Instead, the consignment outlet is working as a third party on your behalf and attempting to get compensation for the sale of your items.
Benefits of Consignment for a Small Business
There are numerous benefits of consignment for a small business. The following are the main benefits of consignment work:
- One benefit to consigning is that there are no upfront costs involved. That means you do not have to pay anything to use it as a sales outlet.
- Consignment shops often know customers who are looking for specific items to purchase. This enables them to quickly match a potential buyer with an item when it is submitted for consignment.
- Having a consignment shop as a sales outlet for your items can free you up to focus on other areas of your business. Since you receive payment upon the completed transaction, you can count on that revenue as final sale money.
- Given how consignment stores work with various product categories, they often have a successful sales strategy in place and can easily match your products with potential buyers.
The Limitations of Using Consignment
While there are several benefits for using a consignment store, it does not mean that consignment works for everything; it also has its downsides:
- If you cannot leave your items in the hands of a consignment shop for an undetermined amount of time – there is no guarantee that an item will sell quickly. It could take weeks or even months to find a suitable buyer. This may not be an option for you.
- It's essential to have some form of contract in place before your items are put up for consignment to avoid any confusion about how long an item will be offered at the original price before it is reduced. Then when the item is sold, how much money will go where and when.
- How in-demand your items are could determine how difficult they might be to sell without any assistance from the shop. To get a quick sale, they may require an additional incentive to promote your item.