Shop Talk: Practical answers for tough business questions
Question: Do you take items on consignment? I have some artist friends who make their own jewelry, and they want me to carry their creations in my store. I am thinking of accepting their items on consignment, but I worry the jewelry won’t sell and then I won’t know what to say. I also don’t know how much to charge for this service. Do you have any ideas?
Answer: We do not accept items on consignment at Elysian Fields, but I have worked with many store owners who do. Here are the most important pointers I have gleaned from them.
First, any time you accept merchandise on consignment, especially from friends, make sure all agreements are very clear and in writing. I suggest you create a consignment agreement outlining your arrangement and expectations, which both parties sign. The agreement should state you have full control over which items you will accept for consignment. It should clearly state who sets the retail price (usually the artist, but you can have final say) and the percentage the artist will receive when the item sells (commonly 40 to 60 percent).
Many store owners get stuck setting the commission percentage. If this happens, consider that even though you don’t have to purchase the merchandise outright, you do carry all the overhead costs for the artist to sell their creations. Without you paying rent, utilities, advertising, employee costs, insurance, and more, they would not have a space to place their wares. Splitting 60/40 or 50/50 is more than fair.
Be sure to include how and when the artist is to be paid. Most stores pay out consignment commissions once per month, with the artist receiving a check five to 10 business days after month end. Give yourself enough time to process the paperwork in case your consignment offerings expand.
Your agreement needs to state plainly the length of time the item will be for sale in your store. Some store owners say 60 days, some 90. Others have a plan that after 60 days the price will be decreased by 20 percent, and if the item still does not sell over the next 30 days, it will be picked up by the artist.
Finally, you may want to add clauses that cover other contingencies, such as disappearance—who is responsible if the item is missing? (Usually the store is liable.) Or, if the item does not sell in the agreed-upon length of time and the artist does not pick it up within a reasonable time (two weeks) after being notified, the item will be donated to a local charity,
Once you have outlined all the parameters, you should be able to accept consigned merchandise with the confidence you will not be placed in an uncomfortable situation should the merchandise not sell.
First published in Vol. 28 No. 4 of Retailing Insight. © 2014 Continuity Publishing Inc. All rights reserved.