Consignment Store Contracts: Everything You Need to Know
Consignment store contracts are legal agreements in which one party grants legal rights from another party to sell merchandise on its behalf.3 min read
Consignment store contracts, also known as consignment inventory agreements or consignment sales agreements, are legal agreements in which one party grants legal rights from another party to sell merchandise on its behalf. The consignment process entails sending merchandise from a consignor to a consignee. The consignee is responsible for then selling the merchandise to an independent third party. The consignor continues to retain ownership of the goods until the sale occurs.
Who Is the Consignor?
The consignor is the individual who owns the goods. The consignor is often someone looking to quickly flip the goods and make a profit.
Who Is the Consignee?
The consignee is the individual who is allowed to sell the goods on behalf of the consignor. Often the consignee is a business or storefront that operates solely for the purpose of selling the consigned goods. Most of the time these organizations are known as consignment shops.
When Is a Consignment Agreement Applicable?
A consignment agreement should be created when one party is selling goods for another party. It is a good way to document the terms for selling goods through another party. Consignment agreements outline the procedure for the sale of merchandise. Generally, the consignee will receive a specified percentage of sales as a commission.
Consignment agreements specify the rate of commission, sales deadline, and the consequences in the event that a sale doesn't occur. For example, the contract could stipulate that the consignment store donate unsold merchandise to a nonprofit organization.
Additional optional paragraphs may be added to the consignment agreement to fit the requirements of a negotiation. An attorney should be consulted in cases where there are unusual circumstances.
What Should be Covered in a Consignment Store Contract?
The most significant components of a consignment contract are:
Contact information: The first page of the contract should identify the consignment store's contact information. This information is typically the:
- Store owner's (consignee's) name.
- Store's address and telephone number.
- Consignor's name, email address, and telephone number.
- In cases where the store has numerous consignment split options, adding a section to identify the selected consignment split is also recommended.
- Consignment merchandise specifications: All consignment contracts should declare the condition and types of admissible merchandise. For example, a men's clothing consignment store may only accept suits, dress shirts, and ties that are less than two years old, with no missing buttons, and no stains or other irregularities. A furnishing consignment store may only accept furniture that's less than three years old, with no structural or cosmetic defects such as cracked or chipped chair legs. It's also recommended that the contract include terminology that allows the store to reject merchandise that doesn't meet the quality control guidelines.
Pricing: This section of the contract will establish that the store will set its own pricing based on the merchandise it receives. The store should describe how the pricing will be created based on the following attributes:
- Market demand.
- Consignment terms: The length or period for which the consignment store will attempt to sell the merchandise should also be included. Often this is driven by the store's climate or location. For example, a New York men's clothing consignment shop may operate on a short 120-day summer clothing season, replacing tank tops and shorts when the weather begins to cool down. Also, it's important that the contract clearly states that the store's employees will make all final pricing arrangements, and it should identify the schedule for marking down merchandise.
- Payment structure: A well-drafted contract will identify the exact percentage of commission that the store and consignee will receive based on the sale of merchandise. It's quite common for the store owner and consignee to evenly split the commission. In other cases, the store owner may elect to retain 70 percent of each sale's revenue, while paying the consignee 30 percent. Other stores may select the opposite approach, forwarding 70 percent to the consignee while the consignor nets the remaining 30 percent. In cases where the merchandise sells at a decreased sale price, the contract should address whether the commission will be split based on the sale price or the original price.
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