How does selling on consignment work? A success guide for retailers & creatives

If you’re reading this you may be a retailer or store owner who is already stocking product of some kind on consignment or is planning to. And if you’re reading this and you refer to yourself as an artist, potter, designer, sculptor, jeweller, or a maker of some kind, in this article we refer to you collectively as “creatives”.

On this page you can expect to learn the answers to these questions:

• How does selling on consignment work?

• What are the benefits of consignment for retailers?

• What are the benefits of consignment for a creative?

• Are there any pitfalls to avoid with the consignment model?

• What do people who enjoy success through consignment arrangements do?

We’ve compiled this information from our own experience and our clients' experiences. We’ve seen what can leave people frustrated, disappointed or feeling burned by the experience, and we’ve seen how consignment arrangements can help both creatives and retailers thrive as a result. So let’s help you get up to speed about what to know and do to set yourself up for success.

What does consignment mean exactly?

As an example, an artist or designer may strike an arrangement with a store owner to display their works in their store.The artist's work may then be discovered and purchased by customers of the store. In this example, this provides an opportunity for the artist’s work to be discovered in a different context and potentially by a different audience, with the goal that it leads to a sale. 

For creatives, consignment is an arrangement that gives you the ability to showcase and ideally sell one or multiple items through one or more retailers. For retailers, consignment is the arrangement that allows you to have a supply of one or more items from one or more creatives, showcasing them in your store. Upon a sale, the retailer pays an agreed percentage of the sale or an agreed amount to the creative for their sold items. 

When consignment agreements work well

For creatives, you may have tried to sell online through your website, gallery or done the hard slog at markets. If you don’t sell out of all of your works then it helps to have other avenues available.

So many creatives tell us that selling isn’t their strong point so markets are often tested to see if good sales can be made. Markets can be costly to run, there’s also the huge set up involved, a very early start and if the weather isn’t great, then your window of opportunity is immediately gone with you needing to pack up early in a hurry and head home. However, if you consider selling your works on consignment through existing stores, then you have the opportunity of the store's visitors having access to see and purchase your creations, with no set up and pack down and no short window of time. This goes for online stores too, not just walk-in stores.

Cute Stuff by Law is an example of a website that sells its products as well as others, on consignment. They also have their stock in others’ physical stores on consignment. 

For creatives, think about what type of audience you would like to get in front of. For retailers, what benefit could showcasing art or other creations do for your environment?

For retailers, one key benefit of a consignment arrangement of having paintings, sculpture, jewellery, pottery, clothing etc on offer is that unlike the rest of the stock in their store, they don’t have the financial outlay of having to purchase it to make it available. Another key benefit is the ability to stock unique items in the store, which can be an incentive for people to return more regularly.  Some well placed displays of unique handcrafted items can really make your store pop.

Retailers generally need to pay for stock before it is sold, and sometimes even before receiving it in-store. So, a consignment arrangement can be a cost-effective way to have unique creations in the store, with the opportunity to make money, without the risk of having to buy and hold stock that may never sell. 

However, like any commercial arrangement, there can be hiccups and risks, so let’s get to those!

When consignment arrangements can be a headache

Generally speaking, consignment tends to be an informal arrangement. That’s not to say creators and retailers don’t do well from it but it is easy for a mismatch in expectations to creep in at some point in the relationship.

Here’s what you want to ensure is in any consignment agreement to benefit you both: 

For Creatives:

• Ensure you retain ownership of your stock

• You get paid upon a sale

• Notification of when stock is low (for volume consignments)

• Protection of your intellectual property.

For Retailers:

• Ability to pick and choose what you think your customers would like

• Terms of percentage or amount to be paid

• Terms of when payment will be made on a sale

• Terms in which you can cancel the arrangement (if stock isn’t selling and taking up space)

Like most things in business, when expectations are met on both sides, then the working relationship is going to be smooth, and you each increase the likelihood of success. When elements of the arrangement like those above are specified in an agreement, specifically a consignment agreement,, the better the opportunity for a positive, ongoing business relationship.

How does selling on consignment work well for both parties?

The way to reduce the risks when selling on consignment is best achieved by having a Consignment Agreement, to detail the terms of the arrangement so you are both on the same page.

Clarity about ownership and care

As the creative, you must ensure that it is clear that you own the item or stock at all times, until it is sold.

If you don’t have an agreement in place that specifies this, it can become hard to prove who owns what, particularly if there are numerous items and creatives offering their works on consignment to the retailer.

The agreement needs to specify that the creative retains ownership and can take the item(s) back at any time. It is also important that the retailer knows, by way of the consigment agreement, the expectations of the retailer when it comes to care for the item/s and even the in-store display. This is a legal concept called bailment and another example is a dry cleaner protects your clothes like their own, until you collect them.

Terms and conditions of payment

It is critical for the terms of payment to be specified in the consignment agreement. It will detail the flat fee or percentage of the sale price the retailer retains and when they must pay the remaining amount to the creative. That is, weekly or monthly, or upon individual sale within 7 days of the sale processing, for example.

Tracking of stock and sales

The consignment agreement should detail the reporting intervals for both stock levels and sales. This is particularly important if you are selling a number of items. This should also include reporting of loss or damage where appropriate. The records should also be kept for 7 years, just like other business records.

Including this in your consignment agreement helps create trust and puts in place a robust commercial relationship.

Protecting IP

As with retaining ownership, the creative needs to ensure that the goods aren’t being consigned for the retailer to send a copy offshore to get them manufactured for less or share with a competitor. Intellectual Property (IP) is super important and the consignment agreement should clearly state that the IP is retained by the creative and that the retailer must protect the intellectual property.

And of course, if you are the creative in this relationship, you need to consider carefully which retailers to approach and agree to a consignment arrangement with. A consignment agreement is only beneficial if it is win/win for both creative and retailer. One-sided agreements can cause heartache, so always think carefully about you partner up with contractually.

Ending the agreement

As with all relationships, sometimes it is time to call them quits. For example, the retailer has moved to sell other items that don’t align well with your products, or the items haven’t sold well and you think it is more work than it is return on investment having them on consignment. If you are the retailer, the reverse applies.

In such cases you need clear ways to end the agreement, to know when you can take your stock and how any final invoices etc need to be paid out.

Successful consignment relationships start here

Like all good business relationships, setting out the terms of how the relationship is to start, is a great start toward enjoying positive outcomes. When you take misinterpretations and perspectives out of the mix, both parties to the agreement are completely aware of what can and cannot happen.

Having a comprehensive consignment agreement in place will not only help protect you both but it will also establish a good, professional baseline from which to operate your businesses in this way. And, if it suits your business, applying these clear agreements with multiple others can be a great way for you both to financially benefit.

If you are a retailer, artist or creative who is already using the consignment model or intends to, take a look at our customisable Consignment Agreement template.

Related: The art of getting paid: How to recover unpaid invoices

How to make more money as an artist, designer or creative

Creative business owner templates

Ready to Boss Legal is a legal publisher. We are not a law firm and you acknowledge that by purchasing, downloading and customising this template, Ready to Boss Legal is not acting as your lawyer or providing you with legal advice. This article is legal information only and should not substitute for or constitute professional legal advice. We recommend you consult with a lawyer for legal advice, noting Ready to Boss Legal is a legal publisher and not a law firm. All copyright in this article belongs to Ready to Boss Legal. If you share it we ask that you acknowledge us as the source.