CONSIGNMENT: FRIEND OR FOE?

emptyrail_thumb.jpgThere are two sides to the consignment relationship: designer and storeowner and both are taking risks when entering the relationship. Does it work?

 

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.

clothesonrails.jpgGrant 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

outofbusiness.jpgStefanie 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.

mannequins.jpgThe challenges

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.
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Add your comment (13)
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written by francoisd, September 22, 2009
I just want to thank Jennifer for this article and the one titled "Payment woes in the consignment world". My wife (and I) are looking at starting a shop for a specific niche market in clothing and are currently considering the consignment model. I'm currently reading about this subject and it is good to get articles like this as well as accompanying comments that helps one hear the feelings of the people on the other side of the transaction.
Still a lot to read but thanks again for this information!

Will go along way in helping us in developing our plan.
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written by Tatumpaperdoll, May 08, 2009
PORTFOLIO...smilies/sad.gif I never got into any sort of probelm with them because I was lucky to be exposed to their devious ways early...as a witness to what they pulled with a couple of my recent grads...but yip, they did ceratinly bombard me too with wanting me to stock them, but NO!
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written by ragtrade, May 08, 2009
Regretfully, a lot of innocents have lost money due to the unhealthy antics of the lady that started Portfolio. I predicted the demise of the store, before she even opened. The methods used to attract talent and stock to the store were suspect from the beginning.
Please do insist on a contract drawn up by a reputable firm of attorneys before handing over your precious cargo to anyone.
Many of our innocents have been badly burnt...
Cathy
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written by Dollface, May 06, 2009
What great advice, ifashion really has helped and answered all my design and business questions!!
If it was not for ifashion i would have never had such a wide knowledge of this industry!!
I think consignment is not a bad start but for beginners i think selling yourself is the way to go!!
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written by jenjamjar, May 06, 2009
I stock a very few great stores on consignment - they are professional, pay on time, look after the stock as if they had purchased it and keep exact records. Other than that it’s COD all the way, which has improved my cash flow dramatically. I was also approached by Portfolio and bombarded on facebook and by email for stock – luckily I didn’t ever send stock, but I think that there needs to be a forum of sorts where designers can go to ask the design community and do some research about boutiques and which are better or worse. It’s about time that the shops that don’t pay and abuse designers are made public. This would be beneficial all round, increasing quality of design and product and enhancing industry standards.
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written by roarkestar, May 06, 2009
thank goodness for the insight of Ifashion to publish such a good "report" on consignment stock. Yes, we all face a catch22 situation, need cash and exposure with the least overheads and companies in turn need stock for merchandising without breaking the bank.

Thank you for the comments regarding the "Portfolio" saga and Iam truly sorry for those designers that had to learn a valuable lesson by not just "trusting" smooth talking shop owners and I agree completely with another person that commented and said that designers need to do research on individuals and companies that approach them for consignment stock.

I used to run a very successful interior store in Cape Town which soully was stocked by consignment, I had to generate a buzz for the up and coming designers by appraching magazines and media houses for exposure, built up a data base of stylists, photographers, advertising agencies etc that I used to mail introduction of the "New Designers" we launched.

The store has been in existance for over 12 years and doing well.

Let the unfortunate "Portfolio" and other likewise "cheme-ers" educate us instead of taking us for a ride....

Good luck and God's speed for those who are making fashion beautiful.

Jason Venter
Stock Manager
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written by kumari, May 06, 2009
I am totally disgusted at the latest scoop on PORTFOLIO and I commend you on publishing this article regarding "Consignment". I recently opened a boutique in the Cape and also offer the consignment option to local and international designers. It's great that designers are now being educated about researching the consignees prior to any business transaction. I can only reiterate how pleased I am that this information was made public. We all need to work together to eradicate businesses that exploit our talented designers who are the future of the SA FASHION INDUSTRY.
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written by paixste, May 06, 2009
I think the true problem here is that, as I've found out, it was Portfolio's plan from the begining to scam starting designers out of money. Since the whole incident I've spoken to people who stocked there who got emails warning them that the shop was a scam and that the owner was known to pull these 'tricks'. The owner did not only scam designers, but also stylists and photographers. My only wish from this chaos is that people will start speaking out and ask questions when they still have a chance to get out or get their money.

I do stock other shops onconsignment, and these shops are amazing, sales reports and transfers are given on time. Portfolio just broke my trust and although R4000 might not sound like a massive amount, it is to me, its a repayment on my business loan, a bonus to my seamstress, or a chance to move out of a garage and get a bigger space.
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written by wiedaad, May 06, 2009
I too had a bad experience with Portfolio. From Dec to March I have not received payment. Its sad writing off money as my business is still young and it was a setback.
I have found another way of selling my things. At a market 210 on Long in Cape Town, Every Wednesday they have a market for young designers.
You go, set up. Make money (CASH) and get out. It’s a bit of a mission setting up and things, but you get to chat with the clients and selling my own designs is great, for a small fee I found it’s the best way to make some much needed moola smilies/smiley.gif
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written by Stefi, May 05, 2009
I am glad to know that I wasn't just a softy who doesn't know how to fight for my money. The same thing happened to me at Portfolio. I haven't gotten my money and I stopped trying. Luckily my friend and I didn't loose as much. I just felt like a failure at that time because I borrowed the money from my dad and I have absolutely nothing to show for it.

Thank you for this article.
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written by Arwen Garmentry, May 05, 2009
As a business owner who has over the years been forced to stock on consignment in order to "get my work out there", I am completely against it. I do have my own shop, however it is also necessary to get exposure in other cities. I have stocked a number of shops over the years and like Handcrafted colour have also now decided to go for a cash only model. The experiences that I have had with consignment have ranged from my work been ruined by careless shop assistants yanking delicate fabrics to try and force someone into a too small size to having shop owners "modifying" (read hacking off trims, beadwork and hems) my garments and then giving them back to me in destroyed condition when they then can't sell them. I have had shops close and the garments and money dissapear. I am currently owed more than R13 000 by a boutique who is still in business and but is apparently having a bad few months. We came to the decision that she would pay off the debt at R2000 per month, I got the first payment and now have heard hide nor hair of the rest. Shops decide without my permission to put my garments on sale, take the loss off of my amount and take their full cut.
These experiences aside. I find it very insulting that boutiques will dish out thousands of rands on international brands but expect to only stock local designers on consignment. What they also don't seem to realise is that we have to pay to create the garments for their shop and then wait months for our money while still trying to keep our businesses afloat.
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written by handcraftedcolor, May 05, 2009
I picture a world...

A designer buys fabric for cash and produces a beautiful garment. The garment sells for cash and they take that money and buy more fabric, for cash...

The cash cycle is beautiful. If everybody bought in the feeling of the business landscape would transform into a pleasurable place. Gone is the angst...Will the money arrive on time for my bills?...Will it arrive at all?...Do I have any value in the commercial world if I cannot pay my own salary?...

The fashion industry has not yet realised that the government is clamping down on credit providers. If you are not a competent, registered service provider, you dare not extend terms to anybody in the current business landscape. You are setting yourself up for a hit. Entrepreneurs must shorten the sales cycle if they are to survive current challenges.

Yes, it takes more work to make a cash sale, on the surface. But when you go back to a client again and again to beg for your money, doesn't it feel like hard work to you?

Yes, you will likely make small sales to begin with and your growth will be incremental. But isn't incremental and stable growth preferable to stellar chaos?

In 2008 I changed my business to a "cash only" model. I am paid for all my work in advance, in cash. It took some courage at the time. Will I sell anything ever?

The struggle is still a struggle, but now I sleep peacefully in the knowledge that I have been paid for my value and tomorrow is not one long battle to get recognition for past work.
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written by theimagepolice, May 05, 2009
Hi there, I commend you on the article above. I have existing stores, and I am about to open a store in De Waterkant, where I will "rent" rail space but take NO COMMISSION on sales. I am doing this to get an idea of which designs amoungst the existing designers we buy from, are good and then use this information in turn to buy the collections for my stores. If you are interested in reading the contract I have to offer, email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it '> This e-mail address is being protected from spambots. You need JavaScript enabled to view it . We offer the space on a month to month basis and if it does not work out for you, you can leave immediately. We take no commission, only charge 2.5% which our banks charge for commission on credit card sales, and we supply weekly reports on sales. You as the designer can come in check on your stock and we offer the entire store to the stock, and not rail by rail so we merchandize all the stock the same, and color code etc. I buy from designers and I offer a luxurious environment in which to grow your own brand! Consigment can only work if the designs are good and selling at the right price.





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