With consigning, property is transferred to the hands of a retailer, but the supplier still holds the legal rights of ownership to the product until the company is paid by the retailer. Sometimes suppliers and retailers reach an agreement to sell a product even without a physical transfer of goods. Consignment inventory programs are increasingly popular as retail stores offer special ordering and drop shipping to provide more choices to buyers without having to stock additional physical inventory.
Traditional
A supplier of a product may have difficulty getting a retailer to stock a particular product, because the retailer may not be sure if the product will sell well. Since retailers are hesitant to invest capital and shelf space in untested products, the supplier shares the risk with the retailer. The supplier will provide the merchandise for free until the products sell and may stock the store himself. This way, the retailer gives up valuable shelf space, but does not have to pay anything for the products until they sell. This model is most commonly used in traditional retail stores.
Special Order
Consignment inventory can also be offered as special order. Special order products may be listed in a retailer's product catalogue, but the items are legally the property of the supplier. When someone requests a product, the supplier may ship directly to the retailer's store or to a customer's address. In this way, the retailer takes no risk when using a consignment inventory program. In addition, pay-as-sold consignment programs can greatly increase customer satisfaction by finding the right product for the buyer, even if the retailer does not have the product in stock.
Drop Shipping
Consignment programs are increasingly popular on the Internet. Drop shippers on popular auction websites will form a relationship with suppliers. The seller will list items on a website which they do not physically own. After an order is placed by an auction buyer, the seller will contact the warehouse and purchase the product. In many cases, the drop shipper will then ship the product out directly to the seller. In this case, the seller does not have to keep any physical inventory.
Consignment Shops
Another form of consignment program includes second-hand stores or eBay physical auction stores. With some second-hand stores, a retailer will stock items provided by sellers. When the items sell, the retailer will take a commission and give the rest of the money to the original owner of the product. Consignment stores by eBay work much the same way. The retailer will list items on an auction site. When items sell, the retailer will package and ship out the product for a commission and give the rest of the proceeds to the former owner of the item.
