Saturday, September 11, 2010

The Business Chat - Selling on Consignment

We've spent the last few weeks talking about all the things you need to do behind the scenes to get yourself ready to sell. Now let's talk about selling your fabulous creations. There are 3 ways of selling:
  1. Retail - directly to the public
  2. Wholesale - a store orders X number of pieces and pays on delivery
  3. Consignment - a store displaying your work and paying you when it sells

Consignment is the most common method of selling to stores and the topic of today's post.
Selling your goods on consignment means that you get paid by the shop only upon the sale of your items- essentially, you retain ownership of your items until they sell, the store does not buy them outright. This is often the easiest way to get your products into a store and is a good first step if you're just starting out.

Consignment is beneficial for shop owners and designers alike: it allows shop owners to fill their shops with items at no upfront cost to them and lets them test out the saleability of your goods to their customers. For you, it's beneficial as you retain a higher % of the sales price on your items than you would selling via wholesale (or, you should!) while also testing our your saleability in different markets, and getting exposure in retail shops. A typical consignment agreement is 60/40 in your favour. Consignment is also good for selling one-of-a-kind or very high-end pieces. A big advantage of consignment over retail craft shows is that your work is continually on display somewhere, not just when you're doing shows or parties.

Even in a good store or gallery, there are disadvantages to consigning jewellery. One is the lag time between delivering your jewellery and receiving your money after it sells. Your inventory may be tied up for a long time without bringing you any return. The store or gallery may shut down and the owner may disappear with your jewellery and the money they owe you. The store may not issue payment promptly. Finally, a retailer has less incentive to promote your work since they haven't invested any of their own money in it.

It's very important to maintain more detailed records than you would in other types of selling. Inventory is money, your money, and it's sitting on a shelf in someone else's store under someone else's control.

When you do agree to place your work in a consignment store (either online or brick-and-mortar), make sure you get a consignment agreement signed! Most stores will have their own agreement: read it, and if you don't like parts of it, work it out before handing over your jewellery. Be sure that both parties have a signed and dated copy of the consignment agreement. A consignment agreement must talk about the following:

* Inventory: Generally, the agreement includes an inventory sheet of all the items that you are placing on consignment with the shop- it should list the item quantities, descriptions and retail prices.

* Sales split: When your item sells, the shop owner will retain a certain % of the sales price of your item, and you will receive payment for the remainder. The most typical consignment split is 60/40, with the designer/seller/you retaining 60% of the sales price and the shop getting a 40% commission.

* Payment schedule: The agreement should explicitly state when you can expect to be paid for work that has sold. Often, payments are made by the shops every month for all sales that occurred the month prior. You should also know how you will get paid (via check? paypal? cash in store?) and you should expect to receive a list of items that have been sold along with your payment.

* Duration of consignment: Each consignment agreement should have a trial period. Both the maker and the gallery needs to make sure that they are a good fit. Once the trial period is over you both have a right to end it. You should also be able to pull your items from the shop and have them returned to you whenever you'd like, as technically, you still own them- remember that. You don't want your items collecting dust on the shelves for too long and if they haven't sold after a period of time, then perhaps it's not the right market for you anyway.

* Shipping costs: For out of town/online consignment, it is usually the designer's responsibility to pay for shipping costs to the shop, and generally the shop's responsibility to pay for shipping costs back to the designer if the work doesn't sell. It's always best to ask the shop their policy upfront though.

* Insurance: It is usually the responsibility of the shop to assume the loss for stolen/lost property or items that are damaged by shop/customer error, make sure you clarify this up front!

* If damage occurs due to faulty workmanship on the designer's end (e.g. a clasp falls off one of your necklaces) then responsibility for that loss should be yours.

Here's one last BIG piece of advice. When you first start your jewellery career, and a store asks to carry your work, it is a real ego boost. Many beginner jewellers make the mistake of putting their work in every store that asks, thinking that stores = sales. This is not true. Take a really good look at a store you are considering for consignment. Make sure it's a good fit for your work. Would you invest money in this store? That's what you're doing by placing your work in the store. You are giving them your money in the form of your work. It cost you money (and time, which is also money) to make that jewellery. If you wouldn't give them cash, don't give them your work.


Diana said...

Thanks for the invaluable info! One question--do store owners usually want the designer to provide displays?

sailorgirl said...

Hi Diana,
In my experience, in a consignment arrangement the store provides the displays. As a store owner I would want all displays to be consistent with the stores branding. If you have your own specially made and branded displays designed to sell just your products, you could offer them on loan to a store. If I did this I would specify that they could not be used for any jewelry other than mine.