As we discussed in the webinar, there are numerous outlets for sales: Direct to Consumer, Direct to Retailer, Wholesale, via Trade Shows, or through a Sales Rep, but most often when a maker first enters the retail arena they do so through consignment. Consignment as a primary sales channel is NOT sustainable. Let's take a closer look.
In order for makers to have a profitable and sustainable business, they must have cash flow. Cash comes from the SALE of goods to a customer, store or middle man. These goods are sold at a margin that the maker has determined covers costs and has profit built in (see Pricing Webinar). It's a simple process and it happens in every sales channel except consignment.
While there are some very good consignment based shops, it is important to understand what consignment means for you, the maker. Consider that you have to produce stock and give it to the shop for a period of time without being paid. The stock may or may not be displayed, highlighted or sold in the way it needs to be in order to sell. While it is sitting on the floor, the stock is aging - getting shop worn, so what you get back may have diminished in quality, or be out of season. The stock is out of your inventory, so you can't sell it through other outlets. Percentages on sold goods vary from 60% to the store, 50% to store, or in the best case 40% to the store. Make sure the percentage you receive is going to cover the costs outlined above and be prepared for the lower margin. NOTE: You can NOT increase your prices for consignment and sell for less elsewhere! Your retail price must be the same across the board. If it isn't you will look unprofessional at best and unethical at worst.
Scout a consignment shop online and in person. Make a note of brands that are already consigning, especially those like yours. Reach out to those brands and ask them for feedback on their experience with the store.
Consignment As A Strategy
Using consignment for very specific goals is an excellent way to do many things, as long as you are prepared for the cost.
Testing a new market or product. A few pieces in a successful consignment shop that matches your customer is a great way to get feedback and see if your product is a good fit.
Moving bits & pieces and broken stock. If you are left with some individual items that no longer group well with your current inventory, or if you have a few pieces of one thing in one or a few sizes only, moving these to a store that will display them with other similar goods or categories is a great way to sell them.
Getting into a store you really want to be in. Many retailers are worried about taking a chance on a new maker. Their fear is most often financial. BEFORE offering to consign, consider a couple of other mitigating risk strategies - offer returns - agree to take unsold items back at the end of a specific time period, or offer mark down money - you pay for part or all of the mark down. You should be prepared with these options before visiting with the buyer. If neither of these work, then consider consignment. NOTE: There is a difference between Returns and Consignment. In the return model, the store pays you your full wholesale price on what they have sold and return the unsold items. In the consignment model, the store takes their percentage and pays you your percentage on what they have sold and returns unsold items. What you receive from the store may be far less than what you would receive from wholesale. Know before you go and negotiate accordingly.
The Take Away
Consignment can be a great sales channel when used for a specific goal. Make sure you understand all the terms before you agree. Many contracts will allow the shop to mark down your product after a certain number of days. That means even less margin for you. Who is responsible for lost or damaged goods and how are you compensated? Read the fine print. If the store and contract are a good fit for your goal and other brands are positive go for it, but don't rely on it. To create a profitable and sustainable business keep working your other sales channels as well.