Consignment vs Wholesale, and What Goes Wrong After the Yes

The difference in one line

Wholesale: they buy it, they own it, you get paid regardless of what happens on the shelf.

Consignment: they hold it, you still own it, and you get paid only for what sells.

Everything else follows from who owns the stock while it sits there.

Consignment pays more, and later

Consignment usually returns a bigger share of retail, often around sixty to seventy percent, against roughly fifty under keystone wholesale.

On a spreadsheet that looks like the better deal.

The spreadsheet is missing three things. You funded the inventory. You are waiting an unknown time to be paid. And you may get the goods back in a state you cannot resell.

The higher percentage is the price of carrying all of that.

This is a well-studied trade. Cachon and Lariviere showed revenue-sharing contracts can genuinely coordinate a supply chain better than a flat wholesale price, and also mapped the limits, including the cases where the gain over a plain wholesale contract is small and the admin is not.

Which is the honest summary. Sometimes it is worth it. Often it is just more work.

Sale or return sits in between

They buy the stock, but can send back whatever has not moved inside an agreed window.

Simpler than consignment. You set a wholesale price, they mark it up, you keep price control and a clean invoice.

You still carry the return risk. So agree the window, and agree what condition returned goods have to be in.

When consignment is worth it

When the shelf is worth more than the margin.

A store you badly want, that will not buy outright until you have proof. That is a real reason, because what you are buying is the sell-through record that makes the next twenty pitches easier.

Treat it as a way in, not as standard terms.

Brands that consign across the board end up financing a distributed warehouse they do not control.

If you consign in Australia, register on the PPSR

Almost nobody tells a first-time brand this one.

Under the Personal Property Securities Act, stock you have consigned counts as a security interest. Not simply as your property sitting in someone else's shop.

Register that interest on the Personal Property Securities Register and your claim is protected.

Skip it, and if the retailer goes under, your stock can be treated as part of their assets and distributed to their creditors. Stock you still own.

Registration is cheap and belongs before delivery, not after. Worth a short conversation with a lawyer the first time to get it right.

The ways it goes bad after the yes

Signing is not the end of the risk.

Larger retailers in particular carry terms you only see once you are inside them. All of these are survivable if you read for them first.

• Chargebacks: deductions off your invoice for late delivery, wrong labelling, wrong carton markings or paperwork, often with no warning
• Margin protection: they discount to move your product, and the discount comes out of your margin
• Damage and shrinkage: some vendor agreements make you responsible for stock damaged in their warehouse
• Recall exposure: clauses requiring you to reimburse full retail value on recalled units
• Compulsory promotion: expected advertising contributions that arrive as invoices
• Payment drift: thirty day terms that quietly become sixty or ninety on slow stock

When an account stops paying

Chase early. Send it to whoever processes payments, not the buyer who placed the order.

Then stop shipping before the balance grows.

Brands almost never get hurt by chasing too hard. They get hurt by continuing to supply an account that is already behind.

The real protection is not a clause, it is your spread. A brand whose revenue depends on one large stockist has handed that stockist the terms.

Forty independents means you can lose one without noticing. That is the underrated argument for building the small accounts first.