The new era of selling on consignment pt.1

Call it editorializing but it seems to me that consignment arrangements are evolving in truly draconian ways. It used to be that a designer and retailer came to terms and quibbled about replenishment, inventory shrinkage, shop worn goods and all that but the split was pretty standard (which I don’t like across the board, you shouldn’t do consignment). Typically that was 60/40 -in your favor but offers of 75-80/15-20 splits weren’t unheard of for well priced in-demand goods. These days though, it’s getting crazy out there so I’d thought to post a small reminder of what is typical or acceptable among professionals.

There are three examples I’ll tell you about currently making the rounds:
1. What can only be described as a retail scam -today’s entry
2. a retailer offering an “opportunity” to “emerging designers” for consignment …(see pt.2  tomorrow)
3. a social media hip children’s retail business scouring the intertubes for designers hungry enough to sign on. (pt.2)

The first company wrote me saying:

My name is M from ABC (www.abc.com) – New York fashion company operating worldwide in 7 countries through over 80 concept stores, department stores, e-commerce, franchise and distribution partners. We are opening a new 26,000 sq ft flagship store New York at xx Broadway where we will be offering affordable clothing, shoes, and accessories from independent designers and our own brands.

We will be working with dozens of independent designers. We offer an exclusive opportunity to sell their products in our 26,000 sq ft New York flagship. There are no deposits, no key money or fixed monthly expense. I was hoping that you can assist us with promoting this exclusive opportunity through your network of contacts.

Sounds pretty good, no? I did some digging; Google had never heard of this company beyond the splash page I was given. One could argue that the company has a very low profile and makes the most of marketing funds but you’d think consumers would mention it a time or two. Being a trusting soul, I’m willing to give M the benefit of the doubt but I still don’t think it’s a good deal. If the company can’t drum up more than two or three Google results (that’s two or three, not two or three pages of results), the company isn’t going to be able to do much for you either in the way of exposure. Know what I mean?

But anyway. Being that I’m a fashion person and therefore presumed to be abjectly stupid, I guess M didn’t expect my response which was:

This raises a few red flags. For a company so large and established, there should be more out there about it on the internet. Mostly all I find is what the company has posted itself. Minimally, opening a 26,000 sqft store in NY is big news but I don’t find any news stories on it.

Another aspect that is troubling is that you say “There are no deposits, no key money or fixed monthly expense”.  There shouldn’t be if you’re buying product so there is no reason to say that. The question is how quickly do you pay, where is your vendor compliance manual and how does someone contact a buyer. Please advise and thanks.

M responded:

We have been changing our concept for [the NY store] until the last moment and therefore we put the marketing and PR on hold until finalized thus no coverage on the opening as of yet. We are not buying the product but working on consignment. The basic terms are as per below but they are flexible.

To be provided by vendor:

  • Products to sufficiently stock the designated are at all times
  • Staff to serve the designated area
  • Fixtures and displays

Fixed monthly costs: $0
Deposit: $0
Set up costs: $0-$5,000 depending on the location in the store (i.e. store front area $5,000 (for 200-100 sq ft); all other spaces $1,000 (for 200 sq ft) and $0 (for 100 sq ft))
Sales commission: 40%
Please let me know if you have any further questions or we can schedule a call.

The long and short of it is, M is technically correct in saying there are no fixed monthly costs. However, there are costs, they just aren’t fixed. It seems rather like going to a bank to get a mortgage and the banker saying there are no fixed monthly costs as though it were a good thing.

In a nutshell, this no-name store gives you 100-200 square feet of space for nothing once you’ve paid a “set up” cost of $1,000 to $5,000. You’ll need to have a person on the floor to sell your stuff ($$$ in wages), and fixtures and displays ($$) to say nothing of product ($$$$). Once you sell something, you get 60% of the sale with no specifics on how timely payments are made to you or anything else for that matter. I’m guessing that if they have any takers for this deal, designers will be cycled from the front of the store to the back if their stuff doesn’t sell because the store won’t settle for 40% of nothing when they can resell that slot to someone else for $5,000. Over and over. That’s not the worst of it. “Deals” like this seem to grow legs and pretty soon, that sets expectations for people who have limited experience. Plenty of people who have been around will tell you this is not the norm. You’re better off being old school when it comes to establishing wholesale terms and sales policies.

People say “old school” as though it were a bad thing. The industry has changed in a lot of ways (pt.2), many of them are not good. If your stuff is any good, selling the traditional way is best, more than ever.

Related:
I can’t think of a spiffy title for this sales rep post you must read
The Consignment Trap
Consignment policies

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