A lot of our clients ask us about taking on consignment goods. At first, this seems like a dream come true – you get goods in the store that you don’t have to pay for until they sell. And if they don’t sell, you just send them back. Great, right? Well, maybe…
There are a few definite downsides to consignment goods that retailers should be aware of:
– Sure, you can send the goods back, but that means you are paying double freight for stuff that didn’t sell.
– What is the cost to you to have your staff (or yourself) pack up these goods?
– What about accounting? This definitely adds time to any accounting that you do to keep your books straight (not to mention your POS system!)
– Moving goods in and out this way can confuse your customer. A retail store has no better marketing than having the right goods at the right time.
We do recommend consigment goods when you are learning about a new line that is untested, or if you are having very difficult cash flow scenarios. Of course, difficult cash flow scenarios typically come from either buying too much inventory in the wrong classifications, or too much inventory in general, and that’s what solid open to buy planning prevents (OK, a not-so-subtle hint, but I do believe in that strongly, so I had to stick that in there.)
The recession isn’t over yet, so these kinds of issues must be carefully studied to ensure positive cash flow and success.