Promises & Perils of Selling on Consignment

Designers that have high hopes for boosting their profits by selling on consignment often end up disappointed. The truth is, despite holding many promises, this approach also presents numerous pitfalls that each fashion brand would be well-advised to consider before making any type of a retailing commitment.

The Promises

If managed well, consignment can drive distribution expansion and fuel sales

Stores are reluctant to invest into lines that are new to the market and often shy away from buying such products on a wholesale basis. However, they are generally more open to picking up a new brand on consignment, as this approach helps boutiques minimize their risks. Designers, in turn, can benefit from increased brand exposure and recognition.

Moreover, selling on consignment gives fashion labels a chance to test retailing waters, gauge consumer interest, and fine tune their product offering to best meet the needs of their target audience. Plus, if managed properly, consignment can pave way for the establishment of a strong retail distribution network for your label. Because if your garments turn over quickly, most stores will be inclined to enter into a wholesaling agreement and order in bulk.

The Perils

On the other hand, given that Gary Wassner is a President of a renowned factoring corporation and a well-respected fashion business insider, his opinion on consignment can’t be unfounded:

“Never agree to ‘lend’ your merchandise to retailers. You have everything to lose and little to gain.”

Before you commit to a consignment deal, find out if the store is a reliable business partner and decide whether or not they are a good fit for your line 

Boutiques closing with no notice, not returning consigned goods, denying having any of your garments on their inventory, not compensating for items that were stolen or damaged, or simply refusing to pay for the styles that sold – these are some of the risks that you have to consider when agreeing to a consignment deal.

Also, more often than not, goods on consignment end up neglected – badly merchandised, not suggested to customers, or not displayed at all – because the store’s employees are instructed to push products that have been bought by the boutique (to return the retailer’s investment).

Selling on consignment also means having a chunk of your inventory tied up, not knowing if or when it will sell, and how much money it will bring. So if your cash flow is too weak to finance scalable production, by agreeing to consign you might be passing up viable opportunities to move your stock.

Then there’s a chance you’ll fall into a dead-end pattern. That is, if you’ve been successfully working with a stockist on a consignment basis for a long time, they may be too content with the arrangement to take on additional responsibility and finally start ordering wholesale.

The Tricks

If your potential retailing partner is pushing you to sell on consignment, follow these simple rules to minimize the possible negative consequences.

If you decide to go the consignment way, make sure the first thing you do is sort out all the little organizational details with the retailer

#1  –  Carefully evaluate the boutique. What do they sell? What is their target demographic? Do they have a lot of foot traffic? How do they merchandise goods in the store? Do they advertise?

#2  –  Check the store’s credit history and ask for vendor references to make sure they are a trustworthy partner.

#3  –  Sign a consignment agreement outlining when the store has to pay for the items sold and return leftover inventory, who is responsible for damaged or stolen items, if the boutique is allowed to discount your styles, and other relevant details.

#4  –  Consign a small quantity of pieces to easily keep track of them.

#5  –  Demand the store to acknowledge receipt of consigned goods by signing for them.

You might also want to try and negotiate a compromise with a retailer. For example, offer goods on consignment only for the duration of a limited-time promotion for your label. If things go well, the store will be required to buy in bulk. Better yet, insist on signing a wholesaling agreement right off the bat, but promise to exchange any goods that didn’t sell for other inventory of the same value.

Have you ever sold on consignment? Was your experience positive? Let us know in the comments.