Consignment Definition: What It Is, How It Works, and Examples

What is consignment and how does it work? Explore the ins and outs of consignment sales and shops, including the benefits for sellers and buyers.

Consignment is a business arrangement where one party sells goods on behalf of another party, or consignor, for a fee or commission. The practice is making waves in the retail world as the second-hand market continues its boom. Here’s an eye-opener: The US second-

hand market is set to hit a value of $70 billion by 2027, growing nine times faster than traditional retail clothing. That’s a huge opportunity for smart entrepreneurs like you.

Whether you’re thinking about selling through consignment or adding it as a new revenue stream to your business, we’ve got you covered. This guide will walk you through everything you need to know about consignment, from how it works to its pros and cons.

What is consignment?

Consignment is a business model where a shop (the consignee) sells products on behalf of their owner (the consignor). As a consignor, you provide your goods to the shop, and they handle the rest: storage, inventory management, and sales. In return, they take a cut of each sale (or sometimes a flat-rate fee).

Popular products in the consignment world

Consignment works great for unique, second-hand, or niche products. Some hot consignment product categories include:

• Clothing and shoes
• Athletic equipment and gear
• Toys and baby accessories
• Antiques and collectibles
• Furniture
• Musical instruments
• Art
• Jewelry

How consignment shops work

Think of consignment shops as your sales partners. They showcase your items, market them to potential buyers, and handle all the sales details. When an item sells, you both celebrate—and split the profits based on your agreement.

What’s the typical split?

Most consignment shops take between 40% to 60% of the sale price. Keep in mind that every shop sets its own terms. The split often depends on the shop’s brand reputation and sales volume. A well-known shop might ask for a bigger cut, but they might also sell your items faster.

What can you consign?

Consignment shops are always on the lookout for in-demand, quality items. But remember, they usually have limited space and want to keep inventory moving. Here’s what they typically consider:

• Their specialty: Most shops focus on specific product niches, lines, or brands.
• Hot sellers: They want items that are likely to sell quickly.
• Quality: Some shops only take items in great condition, while others might accept pieces needing minor TLC.
• Seasonal appeal: Smart consignees adjust their inventory based on what’s in demand each season.

Who owns the goods?

Here’s an important point: In most consignment deals, you keep ownership of your items until they sell. This is different from traditional retail, where stores buy your product outright before selling them to customers.

Benefits of consignment

Consignment offers several benefits for both consignors and consignees:

Pros for consignors

• No storefront required: When you sell via consignment, you don’t need to create listings on marketplaces or maintain an online storefront.
• Marketing taken care of: Consignment businesses develop their own audiences, so you can skip the hassle of creating a marketing strategy.
• Simplified logistics: Consignees usually handle shipping and delivery, and may even arrange the collection of your items.

Pros for consignees

• Improved cash flow: You don’t need to pay for inventory upfront; any products that don’t sell can be returned to consignors. When items sell, you can make payments on your own terms.
• Build a loyal customer base: Develop a reputation for sourcing in-demand items and watch your motivated clientele grow.

Consignment challenges to keep in mind

While consignment has its perks, it’s important to consider these potential downsides:

Cons for consignors

• High fees: You might earn less than selling directly to buyers, as consignment shops typically charge high commissions.
• Delayed payment: Be prepared to agree to payment terms that can include lengthy waits for your money.
• Limited customer interaction: When consigning, you may miss out on collecting valuable customer information or sales data.

Cons for consignees

• Supply uncertainty: Your business depends on consignors for a steady stream of inventory.
• Complex inventory management: You’ll need space to store, organize, and protect potentially valuable merchandise that you don’t own.

Real-world consignment success stories

Consignment is popular in various industries, from auction houses to import companies.

Let’s explore some businesses that have mastered the consignment model:

Art galleries

Art galleries are classic examples of consignment businesses. Artists (consignors) entrust their artwork to galleries (consignees). The galleries display the artwork, handle marketing and sales, and take a commission from each sale. The artist retains ownership of their work until it’s sold.

Rebag

Rebag is shaking up the luxury consignment world. Its flexible buying and selling features include advanced payouts, item trades, and a buyback scheme where shoppers can return products for credits toward their next purchase.

The RealReal

The RealReal is an online consignment powerhouse for authenticated luxury goods. They accept a wide range of high-end items from consignors, including designer clothing, jewelry, watches, and home décor. The RealReal handles everything from consignment agreements to pricing and selling.

eBay consignment

While eBay is known for peer-to-peer sales, it also offers a consignment service for select products, such as luxury handbags. Sellers can send their items to the platform, which authenticates, lists, sells, and ships them. Once an item sells, the consignor receives a portion of the profits.

How consignment payments work

Consignment offers a win-win payment structure for both sellers and stores. Here’s how a typical consignment arrangement works:

• You bring your items to a consignment store.
• The store agrees to sell it on your behalf.
• You both sign an agreement outlining the terms of the sale.

Unlike traditional retail, the store doesn’t buy your items upfront. Instead, it displays and markets it to its customers. Both parties have a stake in the sale.

Key elements of the payment structure:

• Revenue split: You’ll agree on how to divide the sale price (e.g., 60% for you, 40% for the store).
• Payment timeline: Typically, you’ll receive your cut within 30 days of the sale.

If your item sells, you earn money without the hassle of running a store, while the shop profits without risk of unsold inventory. If it doesn’t sell, you usually don’t owe anything, and the store returns your items.

What “consignment only” means

“Consignment only” refers to a unique selling arrangement, where you retain ownership of your item until it sells. You entrust your goods to a store or platform (the consignee) to market and sell on your behalf.

This model is especially popular in fashion, art, and antiques. It allows you to reach a wider audience without opening your own store, while consignees can offer a diverse inventory without the upfront investment.

Is consignment right for you?

The numbers speak for themselves: Consignment is booming: 

• ThredUp’s 2023 report projects second-hand clothing sales to hit $350 billion by 2027 in the US, growing three times faster than traditional retail. 
• The report also found that one-third of apparel purchases in the past year were second hand.
• eBay’s 2024 Recommerce Report shows 70% of global consumers plan to buy used goods this year. 

Gen Z and millennial shoppers are driving this trend, prioritizing second-hand items for both economic and environmental reasons. Consignment taps into this shift by giving products a second life and reducing waste.

Consignment: A flexible solution for changing times

In today’s dynamic economy, both individuals and businesses are turning to consignment to generate extra income or expand their offerings. While it’s not a one-size-fits-all solution, consignment can be an excellent option if you:

• Don’t have a physical storefront
• Want to test new product lines without a large inventory investment
• Are looking to tap into the growing second-hand market

Whether you’re selling fashion, luxury goods, or other items, consignment offers a promising opportunity in today’s market. It’s a smart way to adapt to changing consumer preferences and potentially boost your bottom line.

Consignment FAQ

What are the risks associated with consignment selling?

While consignment selling can be lucrative, there are some potential downsides. Items might not sell as quickly as you’d like, or they could be damaged while in the store’s care. You might also earn less than expected if market prices change.

How does a consignment shop differ from a thrift shop?

The key difference lies in their business models. Consignment stores are typically for-profit businesses that split sales revenue with consignors. Thrift shops, on the other hand, often operate as nonprofits and rely on donated items.

What’s the difference between resale and consignment?

With a resale business model, a store buys items outright and then sells them at a markup. With consignment, you retain ownership until the item sells, and then you share revenue with the store.

Can I reclaim my goods from a consignment store?

Absolutely. Since you maintain ownership until sale, you can usually request the return of your items at any time, subject to the terms of your agreement with the store. Once a sale is made, the item’s ownership transfers directly from you to the buyer.

What if my items don’t sell in a consignment store?

Most stores have a policy for unsold items. They’ll either return them to you or, with your permission, donate them to charity after a specified period.

How do I choose the right consignment store for my items?

Do your homework. Look into the store’s target market, accepted items, and their terms. Consider factors like location, reputation, and how they price similar items. Don’t hesitate to ask questions—a good consignment partner will be happy to explain their process.