What Is Consignment? Definition and How It Works

Consignment is a business model that’s gained traction in recent years. Consignees sell goods on behalf of their owners, offering a unique approach to retail that benefits individuals and businesses looking for buyers.

Whether you want to sell through consignment or add a consignment selling channel to your business, this post covers the definition of consignment, how it works, plus its advantages and disadvantages.

What is consignment?

In a consignment model, a business (a consignee) sells merchandise on behalf of its owner (a consignor). Consignment stores often specialize in selling particular products and attracting motivated buyers.

In a consignment relationship, the consignor provides goods to the consignee, who handles storage, inventory management, and other tasks associated with selling. In return, the consignee receives a percentage of sales proceeds or a flat-rate fee.

Examples of consignment businesses

Consignment is a popular form of business for auction houses, import companies, and any service involving the transfer or sale of goods by third parties.

Thrift shops and second-hand stores are typical examples of consumer-facing consignment businesses. Increasingly, retailers are using consignment to supplement their traditional business with resale outlets.

For example, clothing retailer Zara has a consignment website for preowned and vintage items.

Common products sold via consignment

Consignment sales are popular for niche, second-hand, or resale products. Typical consignment product categories include:

• Clothing and shoes
• Athletic equipment and gear
• Toys and baby accessories
• Antiques and collectibles
• Furniture
• Musical instruments
• Art
• Jewelry

How consignment shops work

What percentage do most consignment shops take?

The percentage of sales taken by consignment shops varies, but typically ranges from a 40% to 60% cut. Each consignee creates its own consignment arrangement.

The distribution of sales revenue often depends on a consignment business’s brand reputation and sales volume.

What types of products do consignment stores accept?

Consignment shops accept various products, with item demand and quality influencing how desirable an item is to consignees.

Product supply and seasonality also play a role, as many consignment stores have limited storage capacity and prefer items that can sell quickly. A store specializing in a niche with fluctuating consumer demand may only accept certain items at specific times.

Consignees consider these product factors when accepting items to sell:

• Product niche. Most consignees will accept only specific product categories, lines, or brands.
• In-demand products. Consignees consider product supply and look for in-demand items that can be sold quickly.
• Product quality. Depending on the consignee’s specialty, they may accept products in need of repair.
• Seasonal products. Consignees are often experts on shifts in consumer demand.

Who owns the products during consignment?

In most consignment relationships, you retain ownership of your goods until they are sold by the consignee. This differs from other business relationships where goods are purchased by the retailer, which then sells them to customers.

Advantages of consignment

Consignment offers several benefits for both consignors and consignees:

Pros for consignors

• No storefront is required. When you sell via consignment, there’s no need to create listings on marketplaces or maintain an online storefront.
• No marketing or advertising. Consignment businesses develop their own audiences, so a marketing strategy isn’t required.
• Logistics efficiency. Consignees will usually handle shipping and delivery and may arrange the collection of your items.

Pros for consignees

• Easier cash flow. Consignees don’t need to pay for inventory; any products that don’t sell can be returned to consignors. When items sell, payments can be made on terms set by the consignee.
• Develop a motivated customer base. Consignees with a reputation for sourcing in-demand items can attract a motivated, returning clientele.

Disadvantages of consignment

With those benefits in mind, here are some potential downsides to the consignment model:

Cons for consignors

• High fees. Consignment selling may result in less income than selling directly to buyers. Consignment shops typically charge high commissions.
• Delayed payment. Consignors must agree to payment terms that can include lengthy waits for payment.
• Distanced from customers. When consigning, collecting customer information or sales data may not be possible.

Cons for consignees

• Lack of control over supply. Consignment businesses are dependent on consignors for a steady stream of inventory.
• Inventory management. Consignees need space to store, organize, and protect potentially valuable merchandise they don’t own.

Examples of consignment businesses

To better understand the consignment model, let’s explore real-world examples of businesses that successfully employ this strategy.

Art galleries

Art galleries are classic examples of consignment businesses. Artists, or consignors, entrust their artwork to galleries, consignees. The galleries display the artwork, handle marketing and sales, and take a commission from each sale. The artist retains ownership of their work until it is sold.

Rebag

Rebag is a luxury clothing and accessories platform that’s innovating the consignment model. Its flexible buying and selling features include advanced payouts, item trades, and a buyback scheme where shoppers can return products previously purchased on the website for a credit towards their next find.

The RealReal

The RealReal is an online consignment shop for authenticated luxury goods. It accepts a wide range of high-end items from consignors, including designer clothing, jewelry, watches, and home décor. The RealReal handles all consignment arrangements, and the pricing, listing, and selling of the items, and consignors receive a portion of the selling price once an item is sold.

eBay consignment

While eBay is a peer-to-peer marketplace, it also offers a consignment service for select products, such as luxury handbags. Sellers can send their items to the platform, which authenticates, lists, sells, and ships them. Once an item sells, the consignor receives a portion of the profits (as opposed to selling directly and paying a marketplace fee).

Consignment convenience

Consignment is experiencing an upswing in demand. In a shifting economy, individuals and businesses are looking to buy and sell goods on consignment as a way to generate extra income.

While it’s not the right fit for every business, the consignment model is a convenient option for sellers without a storefront—or retailers that want to expand their product offerings without spending on stock.