The dream of every new maker and entrepreneur is to have their goods on the shelves of brick and mortar stores. We all want to walk into a shop and see our shiny, new products for sale, open to the customers of the world. This defines product entrepreneurial success. But at what cost and sacrifice are we willing to have this dream come true?
A consignment shop does not buy the products it sells, but instead, charges the consignee to have their goods in the shop. A consignor is the one who owns/operates the consignment shop. Most consignors offer agreements where the consignee either pays a monthly shelf rental fee, a percentage of product sales, or a combination of both. In comparison, a wholesale relationship is when the store owner/manager purchases product at a reduced price to resell in their store.
So what’s the problem with having your goods in a consignment shop?
- The shop is not invested in the product. The shop has not spent any money to have your product in their stores, so they are not motivated to get it sold, especially if they are charging you a monthly fee. Essentially, they are just looking to get their rent paid by you.
- Displays are usually the responsibility of the consignee, which means you have to take time away from your business to set up their shop.
- The consignee is responsible for collecting money from the shop at the end of the month, which not only puts you at an initial loss for having products there, but taking more time out of your schedule to get funds (believe me, consignment shops are NOT running to the mailbox with your check).
- The consignee is responsible for restocking merchandise which is tiresome, troublesome, and time-consuming. You have to visit every month to see what needs to be restocked, what isn’t selling – you’re already busy doing this for your retail business, you don’t need to do it for others.
- Consignment shop owners aren’t taking the time to learn about the product and inform customers. Most small business entrepreneurs need to sell sell sell their products to get consumers to initially purchase it because there is not enough brand awareness. You want someone who has taken the time to buy your product to pass that knowledge on to consumers.
- Who is responsible for lost, stolen, or broken items? When you sell your products on consignment, you are taking a huge risk that the shop owner will actually be careful with goods, and even with the best of intentions, things happen. So, who is responsible?
- What happens if there is a fire, flood, robbery? Again, it comes down to responsibility. Let’s say you have $500 worth of goods in a consignment shop, if a large accident occurs, the shop is going to retrieve its funds from insurance, but what about you and your products?
- What if the store closes its doors tomorrow? You can only hope the consignor will do the right thing and send you your goods back, but this is not a guarantee. Even if you have a contract, to legally chase after a closed business would cost far more in litigation than what you probably had in stock – costing you even more time and money.
- What’s to stop competition? A consignment shop is just looking to make their monthly rent without regard to whom is renting, so if the consignor decides to have multiple competitors in the store, that’s eating away from your sales.
- You have to do all of your own advertising. The effort needed to get people into the store to buy your product could go right into your direct retail sales, which drive a higher profit margin for you.
- The consignee is actually starting and staying at a loss since so much of your inventory is being held-up unsold.
- If sales are low in the store for the month, there’s a chance where you will actually be at a loss paying for rent.
As a small business owner, you have worked far too hard to build your brand and your business to make money for other people. If they want to earn from your goods, they should invest. Even if you run your business because you love what you do, remember it is still a business – and in order to be a business, you need to be driving a profit, or you’re just a hobby.
Consignment is the death of entrepreneurs. It seems like a quick solution to gain brand awareness, but there are so many other means, such as vendor shows, social media, home parties, and wholesale. If you truly want to see your brand grow into brick-and-mortar stores, spend the time to work on your wholesale contracts and line sheets. I highly recommend working with Jane Ambrose Button of Design2Market Success to build your wholesale brand. Jane also runs a Facebook group called Creative Product Blueprint which helps entrepreneurs make their business profitable.