What is Consignment?
Consignment is a retail arrangement where goods are supplied by a vendor or consignor to a retailer (the consignee) but remain the property of the vendor until sold. The retailer pays the supplier only after the product is sold, while unsold items can be returned. This model reduces upfront costs for retailers, lowers risk, and allows vendors to access more distribution channels.
Why is Consignment important?
Consignment plays a critical role in retail ecosystems, especially for industries dealing with high-value goods, seasonal products, or fast-changing trends. It benefits both vendors and retailers by providing flexibility and risk-sharing while ensuring a steady flow of products to customers.
Key reasons why consignment is important:
- Reduced financial burden for retailers – They don’t need to purchase stock upfront, lowering cash flow risks.
- Wider market reach for vendors – Suppliers gain exposure through multiple retail outlets without direct investment in storefronts.
- Efficient inventory turnover – Retailers can test customer demand for new products without overstocking.
- Stronger partnerships – Aligning interests between vendors and retailers fosters long-term collaboration.
- Customer benefits – Consumers enjoy greater product variety and availability without price inflation from retailer risk.
This model ensures balance between risk management and business growth for both parties.
Example of Consignment
A fashion brand provides its latest collection to a boutique on a consignment basis. The boutique displays the items and sells them to customers but does not pay the brand until pieces are sold. At the end of the agreed period, the boutique returns unsold items to the brand and settles payments for sold goods. This allows the boutique to offer fresh designs without locking up capital, while the brand benefits from extended visibility and sales opportunities.
Best Practices for Consignment
Managing consignment effectively requires transparency, accurate tracking, and streamlined processes. Best practices include:
- Track inventory in real time: Ensure both vendor and retailer can monitor stock levels and sales performance.
- Define clear agreements: Establish terms for payment cycles, unsold returns, and liability for damaged goods.
- Automate reporting: Use digital systems to reduce disputes and simplify reconciliation between consignor and consignee.
- Balance product mix: Avoid over-reliance on consignment by combining it with owned stock strategies.
- Maintain strong communication: Regular updates between vendor and retailer build trust and prevent misunderstandings.
These practices maximize the efficiency of the consignment model while minimizing risks for both sides.
How ConnectPOS works with Consignment
ConnectPOS simplifies consignment management by integrating real-time inventory tracking across vendors and retailers. When items are sold, the system automatically updates stock counts and generates reports to track consignor-owned inventory. This ensures both sides have full visibility of what has been sold and what remains.
