Sometimes new designers will be offered consignment deals from retailers who are unsure if their customer base will desire the products of the designer. This can be a risky venture for a designer, particularly with seasonal or trend items, which may only have a short window for desirability. In a consignment deal, you are trusting the reputation of the retailer to sell the products for you. While this may seem like a great deal in the moment, consider that your inventory, which you’ve paid the manufacturing costs for, is now held up by a retailer, with no guarantee of a return on the time investment. When you are agreeing to a consignment dealing, you are giving up the opportunity to sell the products to other retailers, or directly to customers. In order to get the most out of this time and potential loss of opportunity investment, you’ll want to carefully negotiate the terms.
1. Length of Consignment
You’ll need to agree upon a starting and ending date for your agreement. You can get creative with this, adding in mile-markers of extension for positive sale performance, or term dates varying by product.
2. Payment Terms
a. Setting Price and Percentages: Work with the retailer to decide on price point and any discounts that may be allowed. Additionally, you’ll need to agree about the percentage of the sale price that you and the retailer will take away from the sale.
b. Taxes: Clarify how the sale tax is being calculated, and who is responsible for paying it. Typically, the retailer will collect the sales tax from the customer. The tax is taken off from the sale price amount before the retailer and designer take their fee percentages.
c. Returns / Exchanges: The agreement should also state how the parties will handle a customer with a return or an exchange. Usually, the designer must defer to the retailer’s general return & exchange policies. If there is a return for the item, the return item may not be calculated in the payment to the retailer, essentially the parties behave as if the sale never happened. If the return happens after the percentage of the sale price is already given to the designer, retailers often ask for a credit. If there is an exchange, the parties may treat the sale as a return, or in some cases, the product is now owned by the boutique and is no longer part of the consignment system.
d. Dates of Payments: Once a product gets sold, you and the retailer will have to agree on the terms of payment. For high-priced, low volume items, it may be best to plan the payment for a certain number of days after each sale. For example, seven days after sale of product. However, if you are expecting multiple sales, happening within a short period of time, you could require that the payment from the retailer to the designer occurs at a set time interval, such as every two weeks, or on the first of each month.
3. Location of Products / Display of Products
In most cases, retailer will have control over marketing, sales associates, and store layout. If you are concerned that your products will not receive adequate attention from customers, you can work with the retailer to create marketing campaigns and in-store displays. If you product requires explanation or has a story that would assist in the sales pitch, you may also want to request that you help train the retailer’s employees on how to sell the product. All these details can be negotiate and added into your agreement.
4. Damaged or Stolen Products
Once in a while, you may be faced with a damaged or stolen product. You’ll want to discuss this potential occurrence with the retailer to determine who is be responsible for covering this risk. You may want to include a provision that the retailer will pay the wholesale price for those stolen or damaged items.
5. Return of Unsold Merchandise
After the term of the consignment agreement is over, the retailer may still have unsold merchandise. Add into the agreement the steps of returning it to the designer (by mail, in-person pickup, or in-person delivery). You’ll also want to specify delivery or pickup dates.
This blog is general information on the basic terms frequently found in consignment agreements. If you’d like assistance on a consignment agreement, please contact an attorney. To reach Law On The Runway, please email Rachel, email@example.com