Saturday, January 24, 2009
Selling on Consignment
Q: I am concerned with the high consignment rates I have seen around Toronto. What is a fair consignment rate to pay and how can you ensure that your product is being marketed well in the venue? Where do your own merchandising opinions end and where does the store's begin? Help! - Stephanie
A. Many people are surprised to find out that stores keep 40-50% of consignment sales. This seemed outrageous when I was starting out. But now, having run 3 stores over a decade, I know that if I ran a shop strictly on consignment, covering the expenses and trying to make a living off 40%, I'd be sunk.
Take a look back at my pricing column to review the pricing breakdown. In a nutshell, 25% of retail covers the cost (materials and labour), 25% covers the work of getting it into a shop and other overhead, and 50% of retail goes to the retailer for all their work and expenses. If your pricing formulas are right, you should be able to make a 60/40 or 50/50 split work just fine, at least as a way of starting your business, getting your product out there and building some brand recognition in the public's eye.
(I've heard rumours that some stores in Toronto are offering less than 50% to designers, which I think is an arrangement just not worth pursuing.)
Store owners need to pay the rent every single month, whether the city is in a deep freeze, having huge snowstorms or heat waves. They have other expenses such as repairs, staffing, hydro and property taxes. Then there's the 24/7 worry in the back of their minds. I've had about 10 middle of the night phone calls because the alarm has gone off at my shops. Only 2 of these were false alarms. 8 times I flew down to the store at 3 am to find a broken window which cost between $400-600 to fix, and a wasted day the next day as I tried to catch up on sleep.
As well, successful store owners put in endless work staying in touch with their customers, promoting the shop, re-merchandising and working on window displays as well as totally unfun tasks like mopping up flooded basements and calling a repairman AGAIN for a broken air conditioner! My husband always teases me that I'm going to "sit around at the store all day" because he knows I almost never sit down! If I'm there, I'm folding, ironing, helping customers, making sale signs, marking down, changing mannequins and generally in constant motion on my feet.
All this is to shed a bit of insight and show that running a shop is a huge amount of work, risk and expense.
When I did consignment in the early years of my business, I did a 50/50 split with most of the stores. I felt it was worth the extra percentage to know the shop owner was motivated to sell my stuff, and helped the relationship stay successful over time. I had one creative relationship with a shop, where it was a 50/50 split most of the time, 60/40 when we agreed to mark things down, but as well, I worked in the shop for free on Saturdays in exchange for 100% of the sales of my product on that day. Some days I ended up working for free, but sometimes I sold 2 or 3 sweaters or more! The best part of this arrangement was giving me a home base to meet my customers on a regular basis and build up my own clientele, while helping to direct that clientele to her store. I was able to tell people to come in on Saturday for a custom order fitting, and just generally promote my line and her store all in one go. The relationship thrived because we both benefited so well.
Lately, when I think about what makes a business work, the word "relationships" keeps popping up. Every time you deal with another person, you start a relationship, whether it's a customer, a supplier, an employee, contractor or store owner. A business is a series of systems, that once set up, continue to function to serve the business's needs, and good relationships are the best systems out there!
Just like personal relationships, when one party's needs aren't being met, the relationship starts to break down. Similarly, your relationship with a store has to answer both your needs equally. To keep that system working, you need to put effort into finding out what your store owner needs to sell your stuff. Just listening is a huge part of finding out what you have that can help them. What you probably don't have to offer (yet) is a super sell-able product with a following and brand recognition.
We know they need money, so consider a 50/50 partnership. But they may find fresh stock sells better, or signs that you make up in your own style make their store look cool and help communicate product info about your stuff to the customer, or a sell-off of your old merchandise (at a different split 60/40 or 70/30 depending on the price) brings people in and helps pay the rent in sleepy January. A special display you build with a gorgeous mirror that helps sell your stuff and make their store beautiful may be welcome. They may want to host a trunk show or fashion show for you, or be into you taking on the work of an amazing window display ( heavily featuring your stuff, of course.) They may love the idea of you publishing a newsletter for them (again, peppered with features about your product!) to give out at their store or email to their customer base. You could also give out the newsletter at craft shows you do, bringing in a whole new clientele to shop at their shop, and buy your stuff there as well.
It's important to be creative to make the relationship work! While there are standard ways a consignment arrangement works, it really is much more than that. It's a great opportunity to start a long term relationship with a store owner that will answer both your needs in ways you didn't see at the beginning.
You may think, "Ugh! I don't want to have to do all that!" but this isn't just more work for you! It's a fabulous opportunity to work on and grow your business! All relationships take time, effort and nurturing, but after a while you start to see the opportunities present themselves. For example, by stopping by your stores often, and staying in touch, you may notice the window display hasn't been changed in a while. By chatting with the owner, you find she doesn't have the time, and feels she doesn't have the knack for putting together a good display. The next time you come by, you could present a sketch, and ask if she'd let you try to make a great eye-catching display.
Once you understand the concept of getting successful systems started for your business, you want to multiply them. If you can bring in $200/month in consignment sales in one store, you want to find 10, then 20 to make the same systems work at. Then a new system comes into play; rotating your stock. It makes sense to spend a day contacting your stores to see what new stuff they need, then a day running around town to exchange your merchandise. Doing this every month or two is a great way to maintain the relationship, which is a big piece of the puzzle of making this work.
Like many things in life, you get out what you put in. Because I run the shops as collectives, I'm always concerned about keeping the members happy. A couple of years ago, two of our kids designers left our shop to open their own. Since then, I focused a lot of energy on the kids section, creating new products of my own to keep the one remaining kids' designer in a "nice neighborhood" and make the section attractive to customers. As it turned out, over time my own sales of kids' stuff quadrupled! And when this designer decided to move on anyway, I had such a strong, focused kids' line, I was able to take over the rest of the space myself. I really had put the effort in to try to have something to offer for her, and yet, it came back in big rewards for myself.
These good relationships mean a lot more than selling your stuff well at any given shop. You develop a network of people you can ask advice of, get help from on one project or another and generally rely on for a bit of camaraderie when times seem tough.
So keep an open mind and open ears to hear where they may be an opportunity to offer something. Be prepared to dig in and work even more, and take opportunities as they arise. You'll find when you look back over time, you'll be amazed at the advantages of having a strong network of good relationships, and at all you've accomplished.
Thanks for the question, Stephanie! Enjoy the book you won, and good luck with the growth of your business!
Start Your Own Jewellery Business is available for purchase at www.sailorgirl.com, where Catherine Winter is running a special for the month of January regular price is $29.95 - for this month the book is available for $25 including tax and shipping.
It is also available at www.beadfx.com (in their book section) for $29.95.