Consignment: Definition, How It Works, Types, and Examples

Consignment is a business model that allows producers or owners to sell their goods through third parties without transferring ownership until a sale is made. This arrangement is popular in industries such as art, clothing, and second-hand goods, where sellers may lack the resources or time to market and sell products independently. Understanding the ins and outs of consignment can help both buyers and sellers make informed decisions about whether this arrangement is worth pursuing.

Consignment refers to a business arrangement in which a consignor (the owner of the goods) places their items with a consignee (the third party or retailer) to sell on their behalf. The consignor retains ownership of the goods until they are sold, after which the consignee takes a predetermined percentage of the sales revenue, usually as a commission. Common examples of consignment arrangements include art galleries, second-hand clothing stores, and consignment shops for furniture, jewelry, and other valuable items.

In a consignment arrangement, the consignor, who owns the goods, places their items with a consignee, typically a retailer or marketplace, to sell on their behalf. The consignor retains ownership of the products until they are sold, allowing them to avoid the risks associated with upfront sales. The consignee is responsible for displaying, marketing, and selling the items to potential buyers, often taking care of customer service, payment processing, and other operational tasks.

Before the consignment begins, both parties agree on the terms of the sale, including the commission or fee the consignee will receive once the item is sold. This percentage typically ranges from 25% to 60%, depending on the type of goods and the agreement. If the product doesn’t sell within a specified time frame, the consignor can either retrieve their goods or extend the consignment period.

Consignment is a popular option for individuals or businesses that don’t have their own retail space or marketing channels, as it provides access to established stores or online platforms. In exchange for handling the logistics of the sale, consignees earn a portion of the revenue, making this arrangement beneficial for both parties.

One of the main advantages of consignment is that consignors don’t need to invest in their own retail space or marketing strategies. The consignee handles the sale process, from promoting the item to negotiating the price. This is especially beneficial for individuals or small businesses that don’t have the capital to establish their own storefront or online marketplace. Consignment is a great option for people who want to earn money from their unused goods without the hassle of selling them directly.

Consignment shops, especially those with an online presence, offer access to a wide audience of buyers. This is a significant advantage for consignors who may not have the reach or marketing expertise to sell their products to a large customer base. The consignment shop benefits as well by offering a diverse array of goods, attracting more customers who seek unique items.

While consignment offers many benefits, it can also come with high commission rates. Many consignment shops charge anywhere from 25% to 60% of the sales price. For example, art galleries often charge up to 50% of the sale price for artwork. This can significantly reduce the consignor’s profit margins, especially if the goods are high-value items.

Another drawback is the lack of control consignors have over how their goods are displayed and marketed. Once the items are handed over to the consignee, the consignor typically has little say in pricing or promotion. This can lead to situations where products are undervalued or not presented in a way that the consignor finds acceptable. To avoid this, consignors can try to negotiate the terms of the consignment agreement upfront, but this may not always be possible.

1. Art galleries: Many artists use consignment arrangements to display their work in galleries. The artist retains ownership of the artwork until it is sold, and the gallery earns a commission, often around 40% to 50% of the sales price. This allows artists to reach potential buyers without needing their own gallery space.

2. Second-hand clothing stores: Consignment shops, such as Plato’s Closet, specialize in second-hand fashion. Individuals can bring in their gently used clothing, which the store will sell on their behalf. Once the items are sold, the consignor receives a percentage of the sale, while the store retains a commission.

3. Luxury consignment online: Websites like The RealReal and Poshmark provide consignment services for high-end fashion, luxury goods, and accessories. Sellers send their items to the company, which authenticates, markets, and sells the items to buyers worldwide. The seller then receives a percentage of the final sale price.

4. Furniture consignment stores: Stores like Chairish and local consignment furniture shops allow individuals to sell furniture and home decor items they no longer need. These stores handle the sale, keeping a percentage of the revenue while giving consignors the chance to sell large items without the need for personal marketing efforts.

5. Sporting goods consignment: Stores like Play It Again Sports offer consignment for used sporting goods, allowing people to sell gear like bikes, baseball bats, and hockey equipment. The store sells the items and shares a portion of the revenue with the original owner. This benefits people looking to upgrade their equipment while still earning money from old gear.

Consignment is an appealing option for both consignors and consignees, providing a flexible way to sell goods without the need for a physical retail space. Although it comes with certain disadvantages, such as high commission fees and a loss of control over marketing, consignment remains a popular choice for selling valuable or unique items. By understanding the pros and cons of consignment, individuals can make informed decisions about whether it is the right approach for them. With the growing popularity of online consignment platforms, this business model continues to evolve, offering even more opportunities for sellers and buyers alike.

Consignment offers small businesses an opportunity to sell products without the upfront cost of renting a retail space or building an online store. This reduces financial risk while allowing them to reach a larger customer base through established consignment shops. The third party handles marketing, customer service, and transactions, making it a more hands-off approach for business owners.

Yes, consignment fees can often be negotiated, especially for high-value items such as artwork or antique furniture. While most consignment shops have standard fee structures, it’s always a good idea to ask for a more favorable rate, particularly if your items are expected to sell at a higher price point.

In a consignment arrangement, the consignor retains ownership of the goods until they are sold by the consignee, and the consignee takes a commission. In contrast, with wholesale, the retailer buys the goods outright from the producer or supplier and assumes full ownership of the items, including the responsibility for selling them at a profit.

The length of a consignment arrangement varies depending on the agreement between the consignor and the consignee. It can range from a few weeks to several months. If an item does not sell within the agreed-upon period, the consignor may retrieve their items or renegotiate the terms to extend the consignment period.

Yes, there are risks in consignment selling. One of the key risks is that your items may not sell within the designated time, leaving you with unsold goods. Additionally, consignors often have limited control over how their items are displayed and marketed, which can affect sales. High commission rates can also reduce profits, making it essential to carefully evaluate the consignment shop’s reputation and fees before entering an agreement.

Yes, consignment can be done online. Many platforms, such as eBay, Poshmark, and specialized consignment websites, allow individuals and businesses to sell goods on consignment without needing a physical storefront. Online consignment is especially popular for items like clothing, electronics, and specialty goods, as it opens up access to a global market.