Definition
Consignment refers to a business arrangement in which a person or entity (the consignor) ships or entrusts goods to another party (the consignee) to sell on their behalf. The consignee takes possession of the goods but does not gain ownership. Ownership remains with the consignor until the items are sold. If the items are not sold, they are returned to the consignor.
Key Components
- Consignor: The owner of the goods.
- Consignee: The agent or entity responsible for selling the goods on behalf of the consignor.
- Goods: Items under consignment.
- Revenue Sharing: Typically involves the consignee taking a commission on the sales.
Examples
Example 1: Retail Clothing Store
A local fashion designer consigns their newest clothing collection to a boutique shop. The boutique sells the garments and takes a percentage of the sales revenue as commission. The designer retains ownership until each item is sold, and profits are split according to the agreement.
Example 2: Art Gallery
An artist consigns a collection of paintings to an art gallery. The gallery displays the art and handles sales transactions. Once sold, a part of the proceeds goes to the gallery as their fee while the artist receives the balance.
Example 3: Online Marketplace
An individual consigns their used electronics to an online reseller platform. The platform markets the items, facilitates the sale, and takes a portion of the sales as a service fee.
Frequently Asked Questions (FAQs)
What is the difference between a consignment sale and a wholesale sale?
In a consignment sale, the consignor retains ownership of the goods until they are sold by the consignee. In a wholesale sale, goods are sold to a retailer, who takes ownership and responsibility for selling them.
How are revenue and commissions typically handled in consignment sales?
Revenue from consignment sales is usually split between the consignor and the consignee according to the terms agreed upon in the consignment contract. The consignee typically takes a commission or fixed percentage.
What happens if consigned goods do not sell?
If the consigned goods do not sell within the agreed upon timeframe, they are typically returned to the consignor. Some agreements may include provisions for markdowns or donations.
What are the benefits of consignment from the consignor’s perspective?
Consignment allows the consignor to reach new markets without the need for immediate payment. It reduces inventory risks and promotes exposure through established sales channels.
Related Terms
Consignor
The original owner of the goods who entrusts them to another party for sale.
Consignee
The third party tasked with selling the goods on behalf of the consignor.
Revenue Sharing
An agreement where proceeds from the sale of goods are divided between the seller and the service provider.
Inventory
The stock of goods held by a business, whether for direct sale or consignment.
Commission
A portion of the sale proceeds kept by the consignee as payment for their sales services.
Online Resources
Suggested Books for Further Studies
- Consignment & Distribution Models in Supply Chain Management by Dr. Samir Kumar Bhattacharya
- The Art and Science of Consignment by Lara Ramsey
- Retail in Detail: Consignment and Small Business Management by Ronald L. Bond
Fundamentals of Consignment: Business Basics Quiz
Thank you for exploring the concept of consignment and testing your knowledge with our quiz. Continue leveraging this competitive business arrangement to its fullest potential!
