One way to stretch your inventory dollar is to purchase on consignment, which means you don’t pay unless the product sells. The risk of stocking the merchandise is thus placed on the vendor, not the store. 

Goods sold on consignment usually have a lower markup than merchandise purchased outright, so your profit margin will often be 40 percent or lower. A consignment arrangement makes it less risky to try unusual merchandise you are not sure will sell but would like to try. It is a method best used for art, crafts, or expensive items such as antiques. Keep careful track of consignment goods so that at the end of the predetermined period you remember to return the remaining portion of the order and to pay for what you have sold. A price tag with a tear-off stub that can be removed at the time of purchase is one way to track consignment merchandise. Another way is to assign a code for each consignment vendor and to have that as a category in your POS system.

Two caveats regarding the consignment arrangement:

  1. Even if you don’t pay for the goods until they are sold, it still costs you money to have the merchandise on your shelves.  You are of course paying overhead for the space and staffing the store, but there is also the lost opportunity cost from a product that doesn’t sell but takes up room that could have been devoted to more popular goods. Always have a time limit on consignment goods and give them back if they linger.
  2. Problems may arise if merchandise on consignment is damaged or stolen. Have a signed agreement stating your responsibility should this occur.

The consignment arrangement can be a wonderful opportunity for artists, or the owners of items such as antiques, to bring their goods to market.  And while it is not recommended for stock that you feel confident will sell well, due to the reduced margin, it may be worth considering as a way of supplementing your existing inventory without added investment.

Happy Retailing,

Carol “Orange” Schroeder