What Is Consignment Stock?
Simply put, Consignment Stock is inventory that is not paid for until sold or used. In terms of retail, this can be as simple as an apparel item brought in to be sold at a consignment shop or as complicated as Scan Based Trading at a huge department store.
In a consignment transaction, there are typically two parties, the consignor and the consignee. The consignor is the party providing the goods to be sold or used. This can be an individual, distributor, vendor or manufacturer. The consignee is the party receiving and selling or using the goods. The vendor (consignor) retains ownership of the inventory and the retailer (consignee) maintains physical possession of the goods until sold or returned to the consignor. If the goods are sold, the consignee retains an agreed upon portion of the profits.
As mentioned earlier, a simple example is the “consignment shop” or “second-hand store”. In this example, the consignor brings items they want to sell to the consignee’s store for review. These are generally used items in good condition, but can be new items. The consignee selects the goods that are acceptable to be sold in their store and agree upon a minimum price the consignor will accept or terms for a percentage of the sale. When the goods are sold, the retailer pays the owner based on these terms. The owner or the retailer can end the agreement at anytime unless otherwise stated in the terms. This can be a verbal agreement or signed documentation.
Popular categories for Consignment Shops includes clothing, antiques,
furniture, sports equipment, musical instruments and books.
The consignment process becomes more complicated on a large scale, often
involving Vendor Managed Inventory and Scan Based Trading. Consignment Stock
on this level requires precise bookkeeping and Inventory Management to
ensure Suppliers are paid properly and Retailers are billed properly. This
is the perfect application for Inventory Management software that can be
used to track Consignment Stock and create accurate invoices.
Some categories where Consignment Stock is used on a large scale are magazines and books, greeting cards and giftwrap, live plants and even groceries. As large retailers push to improve the efficiency of their inventories and suppliers push to maximize sales, these categories continue to multiply. Consignment Stock allows retailers to increase rewards without taking the risk of investing in added inventory.