Consignment stores occupy a unique niche in the stratified world of retail sales. The consignment store is a third-party seller, called a consignee, that takes physical possession and sells merchandise for the legal owner, called the consignor. The consignor contracts with the consignment store to sell merchandise at an agreed upon price. The consignor and consignment store split the proceeds of the sale according to the terms of the contract. The consignor retains legal ownership of the merchandise until it is sold.
Consignment Stores vs. Thrift Stores
Consignment stores are often mistaken as thrift stores. Both stores sell used merchandise but there are significant differences in their business models.
A major difference between thrift stores and consignment stores is thrift stores are stocked with merchandise donated by people who no longer want or need it. Donors are not compensated, but may be eligible for tax benefits. Donated items deemed unsuitable for sale are discarded or donated to charity.
Consignment stores split the proceeds of any sale with the consignor. The proceeds are commonly split evenly, but percentages can vary. Consignment stores only accept items consistent with their product mix and quality standards, and declined items remain in the owner's possession. This factor enables most consignment stores to maintain a higher level of quality than the typical thrift store or secondhand store. The consignment contract lasts for a specified time, and the store returns unsold merchandise to the owner when the contract expires.
Typical Consignment Merchandise
Consignment stores typically specialize in a certain type of merchandise. Many sell gently used clothes, with baby clothes being a popular item. Designer labels are always in demand, as is vintage clothing in good condition. Household items such as china, stemware, flatware and toys are also commonly found in consignment stores.
Antiques and art are extremely popular consignment items, with many bargains for the astute buyer. Galleries often sell art on consignment, offering opportunities for unknown artists to display their work to the public with little financial risk to the gallery.
Sporting goods, exercise equipment and consumer electronics are popular consignment items. Dealerships can sell cars on consignment as well.
Advantages of Consignment Stores
Consignment stores offer benefits to buyers, sellers, and owners of consignment goods.
Buyers have access to high quality products at bargain prices. Consignment stores give buyers access to items that might otherwise be prohibitively expensive. A designer dress retailing new for $500 may be sold on consignment for $200. Consignment stores are also an ideal place for buyers to find interesting or vintage clothing not available at other retail outlets.
Because the owner is not paid until merchandise is sold, the consignment store benefits by having a varied, constantly changing inventory of merchandise that does not require an upfront financial commitment. Unsold merchandise is returned to the owner and the seller incurs no cost.
The consignor benefits because the store is responsible for all costs associated with selling merchandise. The owner relies on the consignment store to display, market and sell the merchandise. The store sells the goods at an agreed upon minimum price, which is typically higher than what the owner would receive trying to sell them independently at a yard sale, garage sale or online.
Disadvantages of Consignment Stores
For the consignment store owner, the disadvantage is uncertainty of supply. Consignment shops rely on people bringing their unwanted goods to them and they must know the local market well to prosper. Consignment stores are responsible for damages occurring to merchandise in their possession.
Consignors risk losing ownership of their property if a consignment store goes into bankruptcy. Likewise, a landlord may seize all merchandise in a store if the owner defaults on a lease.