There are varying concerns and opinions regarding the consignment relationship. According to Rosella Robertson, store manager of Just, it is an ideal arrangement because the storeowner has laid out the capital to pay rent and fit the store, but might not have the capital to buy merchandise, whereas designers have the stock but not necessarily the resources to open their own store. However, Gavin Reddy from Dretan Consulting (SA) does not think that it is beneficial to the small business owner as he says they become squeezed for price.
Grant Blackbeard, owner of Blackbeard and Dare stores, disagreed, “If a designer can’t make money then their business will fail because the consignment model is in fact a micro model of owning your own shop. I have designers in my shops who do make good money, so if people don’t make money on consignment it might not necessarily be the system but rather poor business management or poor business planning.” he said.
Who takes the risk?
He added that shop owners actually take on the most risk when it comes to consignment. “If I don’t make money to pay rent, then the sheriff will come knocking on my door. If the shop fails and closes, designers still have collateral in their stock, they can still get their money back by selling their stock elsewhere,” he said.
Rosella agreed and said that sometimes designers bring in stock that is not suited for their store clientele and then the stock just sits and they then have to return the stock to the designers. She added that if stock does not sell, the shop is also not making money.
According to designers there is an equal amount of risk as they have to put up the capital to produce their collection and they can end up out of pocket if they are on the receiving end of poor business practice. “It has built and hindered our company, it enabled our company to be available nationally and achieve brand recognition but there have also been exceptions with stores that have hindered our business, for example three years ago when a store closed it took us three years to get our stock returned to us. We’ve also had instances where we have not been paid and we’ve had to chase payment,” said Caren Waldman of Two.
When it goes wrong
Stefanie Beyers, who has two clothing labels Silverspoon and Maria, has experienced the really bad side of consignment. In September 2008 she was contacted the owner of a new store in Cape Town, called Portfolio.
Beyers received payment for both December and January and was waiting for her February payment when she started to grow suspect as she was unable to contact the storeowner since the shop landline did not work and she was not answering her cell phone. She was finally contacted by the owner and told that the shop was closing and moving to Johannesburg and asked her to fetch her stock in the next week. She was assured of payment for sold stock by 7 March.
After not receiving payment Beyers made numerous attempts to contact the storeowner. “I eventually tracked down the owner of the retail space and found out that he was suing her because she owed him rent money and she had ripped the shop fittings out when she moved. His lawyer advised me that because she only owes me R4000 I could only take her to small claims court, but would have to fly down to Cape Town to do this, as this is where the sale occurred. I cannot afford to fly down to Cape Town for that amount of money.”
Although she has tried to contact Portfolio’s owner through various forms of communication, she has still not received any payment. “As a result, I am now scared of going on consignment. I don’t want to speak badly of consignment because of my experience but I’ll definitely be more cautious next time around. I don’t think I’ll ever stock a young shop again. Portfolio had only been open for about 8 months when I sent them stock,” she said and added, “The worst is writing off the money, especially since I have not had a salary for the past six months.”
For designers starting out, consignment is their only option. According Nobukhosi Nkosi, of Khosi Nkosi, she is using her experience of stocking YDE stores as an opportunity to learn. Isabelle Lotter, of Sies by Isabelle, agreed that it is great as a learning experience and added that it also gives designers complete freedom to stock the stock the store with whichever designs they like.
However, Nkosi said that when designers are young they don’t really know what kind of terms to expect. “While I am happy with the system I do think that retailers take too much – a percentage of your sales is deducted and tax also needs to be deducted. You don’t initially factor tax into your pricing and when you do you have to keep a balance between being affordable and making a profit,” she said.
Caren agreed that deductions can be steep and said that while it is definitely worth being in the stores; you can struggle with cash flow. “To make it work you have to get weekly stock counts and sales reports and once a month you have to do stock takes. Also, you have to merchandise your clothing, we have noticed an increase in sales when we take the time to do this,” she explained.
Lotter and Nkosi both agreed and said that sales reports and speaking to the store staff ensure that you are getting constant feedback of which garments are selling. “I have built relationships with the staff who are at floor level and encourage them to wear my clothes because this is free marketing and they might then push my label to customers,” Nkosi said.
Advice for success
So how do you ensure that consignment works for you? Caren thinks that designers should try to negotiate with the store from the start. “Do not sign a one-year contract, rather choose a three-month trial period to test the store out and see if it works for you and if you get paid on time.”
While it is a good idea to try negotiating terms with a store from the start, both Nkosi and Lotter agreed that this could be intimidating. “It is difficult to go from consignment to store owners buying your stock because people become very picky when they are putting up the cash. You could try once you have a proven track record but if you try up front the store owners could look at you and say: who are you?” Lotter said.
Other routes to take
The expected progression from consignment is that shops will buy your merchandise or you will open your own store. However, Blackbeard points out that opening a store is far more expensive than the overheads of consignment. He estimates that to open a store on Long Street in Cape Town will cost in the region of R200 000 (R100 000 for rent and to get the shop fitted and to make stock for the store and R100 000 to tide you over for the first six months when you are not breaking even but still have overheads to pay).
Gina Waldman of Two added that when stores are buying your stock they are very particular about when the stock arrives and the quality – they will send it back if it arrives late or if the quality is not good enough.
A lot of shop owners would like to get the point of buying stock from their designers but according to Justine Robertson, ultimately the designers would end up losing income. “Some designers put in R40 000 worth of stock in my store and it gets sold, I don’t have the resources to buy R40 000 of stock from each of my designers and if I bought less from them, they would make less money,” she explained.
So if both opening a shop and convincing boutiques to buy your merchandise are long shots, what are your options other than consignment? Reddy said that designers should go back to basics and try to sell their clothes directly to the public. “I think there is an idea that in order to go your own you have to have a massive retail space and you do not. Selling direct to the public will make you more streetwise as it will put you in touch with your consumer. It also teaches you how to sell and how to collect money. I am not discarding consignment but I think that a better option is to sell your products yourself.”
In light of this, Lotter said that she is considering starting her own online store. “I have been featured in a few magazines and I get phone calls from people all over the country. I know the interest is there,” she said. “Also if you have sell direct to the public and build a solid business before going into stores it strengthens your hand in business negotiations should you ever want a store to stock your merchandise,” Reddy concluded.
To ensure that you are protected when placing garments on consignment:
- How long has the store been in business? If it is a new store and new owner then hang on and do some investigation. Although you might be an unknown designer and waiting for someone to give your label a chance, if a store owner is new you have to check their reputation and consider how they do business and if you can build a relationship with them.
- Talk to other suppliers in the shop. The shop should be transparent enough to hand over the contact details of people who are already selling stock in the store. Ask their honest opinion of the running of the shop, how often do they receive sales reports and how punctual is payment.
- Visit the store as a consumer and view it as a consumer before you approach the store owner for a business relationship. In this way you can look at the other brands in store to see if they will complement your brand. Also you can see the sales people in action and see how the store is maintained.
- Ensure that you have a contract that is signed by both you and the shop owner. Do not hand over any stock until you have the signed contract in your hands, as Gavin Reddy points out, if the shop owner is late on rent payments and the rental agent has to recoup costs they will repossess your stock unless you have a document to state that the stock is not owned by the store owner.
- Set out the negotiations in the contract. Ask if you can do a three-month trial and renew the contract after this. In this way you can decide whether the store suits your brand and if you are going to make money. This also gives you an opportunity to test out whether you’ll have to chase payment.
- Also, if you are hoping to change the conditions of your contract then stipulate this in the contract. For example, state that if you are able to sell X amount of stock within six months, you would like to review the terms on which you stock the store.
- Ensure that the store sends you weekly sales reports. This is your guide to seeing how much money you are making and what is selling. In this way you can keep track of your cash flow and you will know with which stock to replenish the store.
- Communication is key to building a solid relationship with the store owner and the staff at the store. You should have a landline and cell phone number for both the shop owner and the shop manager. You should be able to contact them at any time to voice your concerns or to ask them any questions.
- Follow your gut, if you are not sure you can trust the person from the start then perhaps wait and get to know the person and do some research into their store.