What’s Consignment Stock and How Does It Work?

As any retailer would let you know, buying stock comes with a specific amount of danger. Stocking retail merchandise usually follows the method the place the retailer purchases items from the provider then sells these merchandise for a revenue. 

Nonetheless, if clients don’t buy sufficient merchandise, the retailer is caught with unsold merchandise that they both need to markdown or unload.

That is the place consignment stock comes into play. Consigned stock reduces the retailer’s danger as a result of the consignor (i.e., the provider or vendor) retains possession of the merchandise till they’re bought. Because of this the consignee (the retailer) doesn’t must buy stock upfront.

On this submit, we’ll go over the ins and outs of consignment stock. You’ll study what it’s and the way it works. We’ll additionally share consignment stock administration ideas that will help you keep on high of the consigned inventory. 

Let’s get began. 

What’s consignment stock?

Consignment stock is a provide chain technique or enterprise settlement during which the consignor (i.e., wholesaler, provider, producer) provides the products to a consignee (i.e., the retailer) to promote. 

The consignor nonetheless owns the merchandise and the consignee will solely pay for them as soon as they’ve been bought. 

As an illustration, a retailer could strike up a consignment settlement with a clothier and comply with promote the designer’s garments in-store. The retailer will solely pay for the products which are bought, and the remaining will probably be returned to the designer. 

Achieved proper, a consignment stock association can present a win-win scenario for each events. 

What are the benefits and downsides of consignment stock?

Consignment stock has execs and cons for distributors and retailers alike. Let’s break them down under. 

Benefits for retailers

Minimal monetary danger. The primary draw of consignment stock for retailers is that the mannequin comes with low monetary danger. Since retailers don’t need to pay for the merchandise till they’re bought, they gained’t have to fret about tying up or dropping their capital on stock prices. What’s extra, you don’t need to cope with the effort of unloading surplus stock.

Potential for extra gross sales. Consigned items can add breadth and depth to your retail stock. You possibly can add variety to your assortments, and when carried out appropriately, a consignment stock association can really improve your gross sales and earnings. 

Disadvantages for retailers

Increased carrying prices or holding prices. Whereas consignment stock doesn’t have any upfront prices, stocking them in-store comes with sure bills. You should dedicate flooring area to the products, which suggests giving up area that can be utilized to promote different gadgets. 

As well as, the consignee is often in control of delivery prices, particularly in case you’re promoting consigned stock through ecommerce. (For those who, because the retailer, don’t need to deal with the delivery prices, make sure you negotiate and specify this within the contract.)

To not point out, holding items in your retailer or warehouse comes with dangers, and you will want to pay for any broken gadgets.

Elevated complexity with stock administration. Consignment stock might additionally make inventory administration harder. Consigned items ought to be tracked individually from non-consignment gadgets. And since they technically don’t include any upfront provide prices, monitoring your margins and earnings could be trickier. 

Benefits for consignors

Product visibility. Consignment stock provides suppliers the possibility to place their merchandise in entrance of recent audiences. By promoting them by means of retail shops, consignors can faucet into the retail market, permitting them to generate income with out having to ascertain their very own gross sales channels. 

Capability to check unproven merchandise. A consignment association additionally helps suppliers check new merchandise. They’ll, for instance, produce a restricted variety of items, promote them in retail shops, and consider product efficiency based mostly on the gross sales they’ve generated. 

Disadvantages for consignors

Increased upfront prices. Consignors should carry the price of producing the products, with out a assured payoff. 

Potential for income loss. Money stream is unpredictable. Distributors who personal the products face the chance of income loss when the gadgets don’t promote. 

How consignment stock works

So, how precisely are you able to make consignment stock work in your retailer? Whereas each association will fluctuate, robust consignment agreements usually happen while you implement these greatest practices. 

Begin with a robust vendor relationship

A strong relationship together with your distributors will probably be a foundational part of profitable consignment. For those who’re contemplating coming into right into a consignment settlement, just be sure you’re doing it with distributors you belief and whose values align with your individual. 

There are various methods to search out distributors. These could possibly be suppliers you’ve labored with for years. Different instances, you could meet them at commerce reveals or by means of an lively seek for provides. Regardless of the case, be certain that you vet them totally earlier than drawing up the paperwork. 

Draw up a win-win consignment settlement

The subsequent step is to create and finalize a proper consignment settlement. At this stage, each events ought to attempt to ascertain a mutually useful association. Whereas the specifics of your settlement will rely in your scenario, you usually need to cowl the next gadgets within the contract:

Proper to promote. The “proper to promote” part merely formalizes the settlement. It ought to say that the consignor formally authorizes the consignee to show and promote gadgets of their retail retailer.

Pricing. Your settlement should have a bit on pricing that signifies the quantity for which the retailer will promote the gadgets. Typically, this part might point out the “minimal value” that the consignee is allowed to promote the merchandise.

Consignment price. This part outlines the proportion of gross sales that might go to the consignee and consignor. In lots of instances, this a part of the contract additionally signifies the time-frame for when the consigner will obtain the funds. For instance, if the consigner desires the gross sales proceeds to be delivered inside 10 days of the sale, that ought to be indicated in writing.

Location of products. This part ought to point out the precise location (handle) the place the consigned gadgets will probably be saved and saved.

Time interval. You need to point out a timeframe for when gadgets have to be bought. Within the occasion that the merchandise aren’t bought by the given date, the gadgets have to be returned to the consignor.

How one can handle consignment stock

At this stage, you have already got your settlement in place and are able to promote the consigned items in your retail retailer. 

Under are a number of greatest practices to assist guarantee easy stock management while you’re promoting consignment merchandise.

Use the appropriate technique to trace consignment gross sales and stock 

Consignment stock accounting and administration could be difficult, notably in case you’re promoting a mixture of consigned and non-consigned items. If what you are promoting mannequin makes use of a hybrid of each, it might be useful to trace them individually. 

For those who’re utilizing Vend by Lightspeed, for instance, we suggest that you just arrange a separate outlet for consignment stock, so you’ll be able to simply monitor it. For those who’re solely promoting consigned gadgets, utilizing a single stock administration system may match. 

Use stock administration software program and different digital instruments

One of the simplest ways to remain on high of consignment inventory is to digitize your accounting and stock programs. As a substitute of utilizing spreadsheets or (heaven forbid) pen and paper to trace and handle your stock, undertake a cloud-based inventory management software that streamlines information entry, monitoring, and reporting. 

The excellent news is that there are many instruments at your disposal. On the accounting facet, software program like Quickbooks and Xero each help consignment stock accounting. 

As for managing your gross sales and stock, Vend by Lightspeed gives strong instruments that allow you to promote and handle your merchandise. Vend additionally makes reporting a lot simpler. You possibly can construct your individual studies and simply see which gadgets are promoting and the way worthwhile they’re. 

The underside line

Consignment stock could be extremely useful to retailers and suppliers alike. When you’ve a mutually useful settlement and are utilizing the appropriate instruments to handle stock, your consignment efforts may have the next probability of success.