Consignment: The Good, The Bad, and The Really Ugly

Posted by admin     Category: Brick and Mortar, Starting Up

One of the common mistakes a newbie metaphysical shop owner will commit is to get involved with consignment goods.

Their thinking is that they can stock the shelves quickly and only pay for things as they sell.

In theory, this should be a good idea. In practice, however, it can turn into a nightmare.

What can go wrong? Ohhh let me count the ways… For I myself have nearly lost a business by succumbing to this temptation.

First thing I did wrong was not to have a contract, and by contract I mean an actual written agreement between your shop and the “vendor”. I say “vendor” because what you usually are dealing with is half flaky ass artist and half money hungry dreamer who thinks that sticking things on your shelf and then never coming in to check on them, except at random unannounced intervals, when they need any money RIGHT THEN for rent that was due yesterday, is a great way to make a ton of quick money.

Right off the bat you should make them sign a piece of paper that explains what your terms are. YOUR terms. Not theirs. And you should definitely have terms, rules, and conditions thought out and spelled out right there on the page. They’ll need a copy of it too so make sure to photocopy one for them AFTER they have signed it.

First thing your contract needs to explain is what percentage you are taking from them. 35% (1/3) is common. Art galleries charge 50%, some other venues might take a smaller fee, but for consignment of this nature, 35% is the normal fee.

Usually a shop will do a 3 times markup on items in the store. Your return is allocated thusly: one time to pay for the item and two times to pay for your overhead and hopefully make a profit. You get this percentage because you have laid out cash money to put that item on the shelf, taking on the risk of it being damaged by handling or breakage, or being stolen.

With consignment you get an inverted return. The vendor is basically renting your shelf and paying you a VERY small fee to look after their product until it sells. YOU have to care for it, wipe off fingerprints, dust, straighten, see to it that nobody steals or breaks it. But you have no outlay of cash and can pull it off your shelf at your pleasure at any time with no lost money.

That is another thing that needs to be clear on your contract – they have no right to expect that you will carry any of their merchandise for any reason at all. This means if it is problematic, too fragile, not selling, or even you are just sick of looking at it, you can pull it at any time. You are not a crafter’s mall renting space. You are a metaphysical store with hopefully a well-juried selection of inventory.

You can, in fact, try out their product and see how it sells, then order something like it from a wholesale vendor to fill that same space and get your 2/3 return on it. It is your store and you are allowed to do that. This tends to make consignees mad for some reason, though, because they get it into their heads that somehow get to have a say in how you run your shop.

As part of your contract, you need to have them provide a clear and itemized list of all their merchandise, what it should sell for, and how you want them to mark it. We used our own vendor codes and the store price gun rather than letting them stick tags on the merchandise in order to keep the pricing consistent and prevent shoppers from switching tags. But they also need to provide you with a price list of wholesale prices, in case their items start flying off the shelf and you want to minimize your loss by buying the items outright.

The wholesale price is also what you agree to pay them in the event of breakage. If someone breaks an item (and it does happen), you will still have that item and still have the responsibility to the consignee to pay for it. If it was something you bought from a wholesale vendor, you would have lost that money too, so just get used to the idea that if it’s in your shop and it breaks, tough cookies, you have to pony up for the wholesale price. The consignee will get their broken item back along with their third (or whatever the wholesale price is). They lose and you lose. It sucks.

If someone steals a consignment item, which also happens, you can’t prove it was stolen, so you get to pay them their whole 65% as if it had been sold. This really sucks, so be extra careful where you are placing their goods and keep a close eye on them.

This is why it’s so very important to have itemized inventory lists from them Every Single Time they bring stuff in, and to use tracking codes on their tags (and pull the tags at time of sale so you have a physical relic of that item).

Check their wholesale prices carefully before accepting delivery of their items. Some consignees will attempt to trick you into paying more than 1/3 of the sale price up to and including the whole 65% they would be due otherwise. Check their math, and if it’s a percentage you can live with such as 40% of sticker, then you can allow it. But if it’s 45% or more, you need to have a discussion with them.

Does this sound like a lot of work? We haven’t even gotten to the bookkeeping aspect of it yet.

On the contract, they need to provide you with their proper ID such as a driver’s license, a social security number, and permanent mailing address. Phone and email is desirable as well but you need the first three in order to send them a 1099 in the event that you wind up paying them over $500 in consignment fees. The driver license part is optional but we found that asking for it in a routine manner kept out the would-be consignees who provided stuff only for the purpose of getting cash to spend on drugs. What people do in their own time is their business, but as vendors they are unreliable and hard to get a hold of, and it’s my personal preference not to do business with flakes. I have enough mess in my life without wondering when or if they will turn up again.

I cannot stress this enough: get it upfront before selling anything. If you put it off you may never be able to get it. Refusing to put their items on the shelf until they provide you with the information you legally require will make them think twice about whether or not they are ready to do business with you.

IRS. 1099s. If these thoughts make you cringe you definitely should not carry consignment items. Get used to the idea that you are a legit business and that includes keeping track of your income and expenses and payouts. Each 1099 cost me $15 to file from my CPA. Keep this in mind as your consignment payment tally starts to get up there, you might want to make a rule for your business that if you are nearing a level where a 1099 is looking likely and it’s near the end of the fiscal year, that you switch to only buying wholesale from that vendor to avoid having to pay the CPA fee for someone who is not really pulling all that much weight in your shop. We had some consignees whose payments were in the thousands (mostly minerals dealers who left large specimens to see how they would go in our market), and the fee to file their 1099 was totally worth it. It’s your call.

Be sure to inform the consignee that they will be required to file their taxes that year since you are 1099-ing them. In the case of one of my vendors, who was also my employee, it caused her to have to pay taxes rather than get a refund. People can get really sensitive about this for some reason so make sure to inform them that if their products are great successes, this is something they’ll need to think about.

Now if you have a consignee who has a business ID and an EIN issued by the IRS, they will not need to provide you with driver license or social security card. They will give you a copy of their tax license and you do a W-4 which is request for EIN. You can print it out (or they can) and they bring it in with their signed contract. You don’t file a W-4, you keep it in your records and give it to the CPA who does the 1099 (if necessary).

DO NOT. DO. NOT. DO NOT DO CONSIGNMENT with someone who refuses to give you their Social Security number (unless they provide an EIN). I had a horrible time trying to 1099 this dude who had, until the moment of my request, seemed like a normal businessman. “I don’t believe in the IRS and I don’t file or pay taxes because it’s thievery” was what he said. Wellll buddy, I don’t like having to take up your burden to have my interstates fixed and other things we pay taxes for. But besides that, I had to pay more money to my CPA to file forms that said this jackass refused to provide a tax number. Don’t even. Just don’t. No matter how amazing their merchandise is. It isn’t worth it.

Keeping track of consignment inventory, sales, and income

If you are using a computerized POS program, there will probably be a way for you to tag the item as consignment and it will ask you upfront what the split is. I, however, do my books the old-fashioned way on spreadsheets, tracking the vendor sales at the register by hand on a sheet of paper and then later putting them in the computer.

If you are using QuickBooks though, you will have a separate “book” for consignment. QuickBooks is double-entry bookkeeping, although it does half of it for you, so you only have to enter each thing three times instead of six.

Let me explain this, it’s how I do it on my (single-entry) spreadsheets too.

First of all, when you buy an item for inventory, you pay for it, mark it up, stick it on the shelf, and eventually sell it. If you take an inventory of your products, it will show up there as an item you own (an asset). It has value on your shelf because it is a chattel (item for sale) of your business and is therefore contributing to your bottom line, aka your wealth.

But a consignment item is NOT yours until the moment of sale. In that glorious instant you both purchase (or commit to paying for) the item and sell it. It passes through your loving hands as an item you own only momentarily, and then to the customer. If you did an inventory, you would NOT count this item, because it belongs to the consignee, not to you. If your store burned down I’m not entirely sure whose liability that would be. In the case of my past shops, we didn’t have insurance (couldn’t get it, due to being a “witch shop” in the Bible belt), so no matter whether or not I was supposed to pay for it, I would have just been out of business and the consignee would have just lost their goods. You might check with your own agent to find out how that will work (or if they allow it).

But that’s beside the point here. So in your Sales workbook, you will record the sale and the cost of goods sold (the 65%) on that month’s sales tab along with the other daily sales. On the Consignment workbook you will go to that vendor’s tab and you will enter in the item that sold, the sticker price, their fee (the 35% you get) and their percentage. Then in your General Ledger workbook you will enter it on the consignment tab as inventory purchased. The purchase price is the 65% you paid them.

There you have three nice little opportunities to get something entered in wrong, especially because technically, you shouldn’t enter the payouts until you actually pay them, which will probably not be that same day.

Oh no, there I went and did it – brought up payments.

How and when to pay your consignees: the Copper Lady dilemna

Good lord this was the absolute worst part about consignment, having the vendors wander in with no notice the day after I paid all the bills, looking to get some money.

Whether or not they like it, your first duty is to pay the rent and the payroll. If you do not have a roof over your head, their pesky little payouts are not really significant in the big scheme of things. But try telling them that you had to use all available funds to pay your bills and they will scream at you. I mean this literally screaming in your face demanding that it wasn’t your money and that you need to pay them whatever cash is in your till right at that minute because their son used the cable bill money to buy pot with, and now they are going to have their internet cut off unless they get paid RIGHT NOW cash money on the spot or else they are going to call the police. When that happens, offer to call them yourself and have them escort your previous vendor off the premises (you will still owe them money though).

You might guess that yes, that did indeed actually happen, and that vendor gave me TWO things to add to my contract.

Establish the acceptable method by which you will handle consignment payouts. For us, we did NOT automatically cut checks or pay vendors by ACH, because when we were a young and stupid store, we did not always have the money in the bank if we said we’d pay on Fridays, or hold it in the shop, or send it or whatever. We did pull whatever cash we owed them from the till (if available) and put it in a ziplock with a two-ply receipt they had to sign at the time they picked up their payment.

Our contract states “[our shop] is not required to inform Consignee of goods sold. It is the responsibility of the Consignee to find out if the item(s) has/have sold. Consignee must pick up money owed to him/her in a timely manner.”

This gave us a little wiggle room to pay the bills, but we further had to add that we could pay by cash or check (our preference) and that they needed to keep in regular touch with the shop, such as by calling once a month.

It is true that it isn’t really your money, just like that tax withholdings and payroll withholdings aren’t your money. But if you do a lot of consignment, such as 85% of your sales that week as was the case with the Copper Lady, you will find that you are going to come up pretty short when it’s time to pay the rent if things have been slow for a few weeks, which they will be if you are a new shop.

I refer to the Copper Lady as such because she made really neat hand-hammered copper jewelry out of hardware store copper wire. It was pretty and she displayed it on handmade jewelry holders she’d made from real oak tree twigs and branches.

Copper needs to be polished every three or four days. Her jewelry was not mine to polish or care for, it was hers. Polishing copper takes a lot of time. We sold silver and pewter as well, which we had purchased outright from wholesalers. The employees were tasked with polishing our jewelry and keeping up with de-fuzzing the velveteen displays on which they sat. Copper Lady’s oak displays had oakmoss and bark on them. They began to shed, leaving bits of bark and dirt on the shelf where they sat. Combined with the growing grodyness of the tarnishing copper jewelry, this started to look pretty nasty in my otherwise spotless and sparkly shop.

I had tried to call Copper Lady several times about coming in to clean up her display and products. Probably due to the pothead son’s malappropriation of household funds, their phone was cut off. I tried to email and got no response. What do you do with a well-selling product (they were popular) when you can’t reach the vendor? I polished them a couple of times but after the third try and no contact, I pulled them off the shelf. It was taking up too much time to keep after the shedding branches and polishing the jewelry, so as was my perogative, I pulled them off the floor.

She had signed a contract that did not specify “The Store will take reasonable care of the item(s).  It is the responsibility of the Consignee to check on his/her inventory periodically to ensure it is still in saleable shape.” I added that to the contract after this experience.

I also added “Lack of contact after 90 days of last sale is considered abandonment of goods and any money owed.  The Store can dispose of them in any manner we choose.  If the Store chooses to keep items on the sales floor, we keep 100% of the sale price” in response to this vendor’s lack of contact. It had been well over three months since we had last heard from her (make sure you keep track of the phone calls and attempted emails), yet she somehow thought we would keep her merchandise hanging around when she had not been in touch with us for several months. Those 90 days begin the day after the consignee drops off their stuff. Having this in your contract keeps them from yelling in your face about their cable bill problems.

The Weird Rock Guy

Unfortunately, the problem with the mineral dealer who didn’t want to pay taxes went beyond the lack of a 1099. I had originally had a partner (up til two weeks before we opened, when she bailed on me) who had owned a metaphysical shop with another lady and it had closed, allegedly, because the other lady had serious health problems. Which she did, but I began to suspect that my would-be partner miiiight just have contributed to the downfall of that store shortly after she left me holding the bag on about $5000 of tumbled stones, crystals, carved stone statuary, and some other rock shop type merchandise all gained from the Rock Guy.

This dude was an old hippie who liked running around naked on his property somewhere out in the sticks. He also went around the world, clothed as I understand it, gathering crystals and doing deals with mines and other rock hounds. His selection was really good, we could get all kinds of unique minerals from him that nobody else had.

My ex-partner had been long time buddies with this guy so when he came to my house to sell us rocks, she made an arrangement to pay him within a set period of time for the stuff she picked out. She was bringing in the $15,000 (retail) of minerals as her contribution to the partnership. I was bringing my business name, fixtures, credit score, and a lot of other inventory, which made us more or less even.

It was two weeks before we were to sign the lease that she wigged out in a big way. Details will be spared. I had not heard from her for at least three weeks prior to that, and had stopped leaving messages for her or trying to text her two weeks prior. I knew she was bailing but also knew that she didn’t know it yet. I proceeded with my own plans to open the shop without her.

Weird Rock Dude calls me up and asks have I heard from her, because he hasn’t got a check yet. I said no, but I’ll go by her house and see what’s up. “Partner” says she doesn’t want to lose the rocks and will I hold on to them until we open? I say sure, take possession of this stuff and the itemized bill and go away.

I call the Rock Dude and explain what’s going down. He’s now living 1500 miles away. Does he want me to send him this stuff, hold it for him, or what?

“Put it on consignment,” he says. “Pay me as you can.” Oh, what a fool I was!

So I did that, keeping meticulous records. I paid him regularly, eventually using ACH because otherwise he would sit on my checks for weeks. But I didn’t have any contact with him, had no need to until I ran out of one of the minerals and tried to get a hold of him. I left message after message and no return call. I sent email after email and no return message. I mailed a letter to his address and it came back, and then one day, the ACH was returned as “account closed.”

Well WTF do you do then?! I couldn’t pay him, I couldn’t get a hold of him, I had no good information, and he hadn’t checked his Facebook for two years from the look of unanswered birthday greetings. I had pulled his stuff some months previously because of the tax thing, but I still had a balance, between having agreed to purchase some of the stuff outright and not quite paying off the consignment debt.

Now I still owed this guy like five hundred bucks and couldn’t get a hold of him. For all I knew he’d fallen off a mountain or died in a rock slide. I also had a lot of his inventory in my office, just sitting there collecting dust.

Eventually I worked out how much I had paid him in total, and it came within eleven dollars of what the original bill was. So I prepared a letter for him and mailed it (knowing it would be returned) so that I would have had proof of trying to contact him.

Eighteen months after I had pulled his stuff, I got tired of tripping over it in my offie and put it back on the shelf.

Two days after I did that, the guy calls, wanting to know if there’s any money to pick up. I let it go to voice mail. He says he’s going to have his brother come and pick up his stuff, plus any money. All this time, the brother has lived 15 miles away from my store. Right.

What the brother picked up was a letter explaining that we had made other arrangements for the merchandise due to lack of contact (on this date, and this one, and this one, and returned mail, and returned ACH, and…). GEE WHIZ for some reason, Weird Rock Dude Tax Dodger was mad at me!

The Employee Problem

If you do decide to go ahead and accept consignment, it is unwise to allow your employees to become consignment vendors. As I found out, the clerk would push her own merchandise a lot harder than the things we already owned, insisted on getting paid a lot more often than the other consignees (because she was in the shop), and started copying things we sold – including things I made – and then putting a lower price on them. None of this helped pave the way to her paycheck clearing the bank, but she did not understand that aspect of running a business. She just wanted to use my store as a free sales venue and threw an enormous hissy fit when I decided to end ALL consignment, hers included. It had been a good income for her, but what was good for her was bad for my bottom line. She nearly lost her job over it.

Another thing to think about is that an employee with stuff on consignment might nick their own items so that it appears they have been stolen. We did lose one of our employee’s items, but I don’t think she took it herself. However, the loss of it made me realize that lost or sold, if it wasn’t on the sales floor when we audited the remaining inventory against the incoming stuff list, we’d have to pay our full share as if it had sold.

Well my dears, at over 4100 words this is a mighty long post, but I hope that you think long and hard before making your decision. If you do plan to go with consignment, please make yourself an excellent contract that protects you from bad experiences. It will seem very one-sided, but you don’t have to give up your autonomy or accede to ridiculous requests or pander to problem vendors. This is YOUR store, your business. Look out for your own self.

Getting a Business Started, Part 1: Getting in the Door

Posted by admin     Category: Brick and Mortar, Business Talk, Promotion, Starting Up


I’ve been asked about how to start up a crafty, arty, retail-flavored business so much that I’ve decided to write a series of posts about it.

Today’s topic is “how to get started”. By this, I do not mean “how to find your calling in life”. If I had the answer to that, I’d sell it for a zillion dollars, and I would be my first customer.

Actually, today’s topic is “how not to get kicked out the door by a shop owner”. We will proceed to the actual Getting Started bit in the next post. I actually didn’t intend to write this one today, but it happens with such frequency that this post more or less wrote itself.

Let’s assume that you are the typical person I’m chatting with on my sales floor. You have come in with a ziplock bag full of handmade sparkly stuff, no price list, no business cards. What you have, in spades, is a drive to Make Stuff. You are an artisan crafter, but you need to destash, sell, or consign some of your pretties so that, mostly, you can buy more beads, silver, or other supplies. Alternately, you have fallen heir to someone else’s stuff and just want to get rid of it. That’s a different matter, but some of the following advice still applies.

You probably did not call me for an appointment but instead just walked in, pulled the bag out of your purse, and started detangling your finished projects from the wire and pliers and laying them on the counter. Probably in front of actual customers (“civilians”).  Or perhaps you sent me an email or PM to ask if you could come over, got all excited, didn’t wait for a reply and just came on in.

Just for the record, this is never cool. At the very least you should call the shop and ask for an appointment. If you were to call me, assuming I were in the mood and/or budget to buy stuff this week, I would say, “text or email me your website and let me get back with you later.”

I’m a pretty easy-going, open-minded individual, but when I am at the shop, if I do not have customers, I am working. I, like most independent retailers (“mom-and-pop stores”) have a hundred thousand things on my to-do list at any given time. Writing blog posts, for example. Making lists of things I need to restock. Thinking ahead to the next major holiday or change of season, and it’s probably just around the corner. Planning promotional ads or flyers for the psychic fair coming up this weekend.

So to just come in and try to sell us stuff is really inconsiderate to a lot of shopkeepers simply because we have to drop anything we were planning on attempting to achieve that day and deal with you right then and there. As awesome as your wares surely are, it is highly unlikely that they couldn’t wait for an appointment.

Generally speaking I will stop you before you get your stuff out of the ziplock and ask if you have a website or Etsy shop. If your answer is “no”, you will get no further, because I will know you are not serious about selling your stuff. You might drop by this one time, but if I bought your things and they sold well, I would not be able to get in touch with you again to restock. Maybe I don’t have money today because I just went to a trade show and spent it all, but in a couple weeks I might like to pick up some more stuff, maybe yours. Do you really want to make it hard for me to buy from you?

If your answer is “well, I’m working on it….” you are going to want to read all the rest of my blog posts in this topic. I am writing these for you who mean well, maybe have even purchased a domain, but the big world of computers and websites and blogs are, you feel, over your head.

Trust me. They are not and we will get you through this. It’s not hard and can be quite a lot of fun!

So then I will ask, “Flickr page? Anything? Paper brochure with some pictures and a price list? Business card?” and if your answer is still no, I’m going to send you packing, unless what you have is something you inherited or a one-time sale of basically estate wares, in which case I will request to see you after hours, away from the prying eyes of civilians.

So that’s what you can expect if you just show up at a shop. You might not even get to speak to the owner, in which case you’ll certainly wish you had a card and at least a Flickr page for your items, so they can take a look and get back with you. If we happen to be bored AND flush at the same time, you might get a look-see, but it’s still very inconvenient, because we will have to stop and deal with customers. Sometimes customers can stand around and talk an ear off, or we may get a four-hour rush. In either case most shop owners don’t want someone they don’t know hanging around in their office unattended.

So the take-away for today’s lesson:

1) Phone ahead and get an appointment – no cold calls ever. You can also drop in and make an appointment, but do not pull out your stuff unless you are asked to do so. You want to avoid stressing out the shop owner.

2) Have some way to get in contact with you. A business card is best.

3) Be able to leave behind some way for the buyer/owner to peruse your things when they are not in the middle of running their store – website, brochure, even a color flyer with a few photos and price guide.

If you make a lot of the same kind of stuff, such as soap, it’s okay to phone ahead, ask the shop owner if they have a moment to speak with you (a customer might be standing right there so maybe they don’t). If no, ask when you can call back – after hours? Before opening? Or would you prefer that I email you?

If they are able to talk right then, introduce yourself and ask if you can send a sample. Try to get their mailing address and confirm it rather than asking them what it is or assuming that they receive mail at their shop (we don’t). But oh my god please be brief.

“Hi, my name is Ande Spenser and I have a soap-making company, Magickk Suds. I was wondering if I could send you a free sample of our castille soap and a one-page brochure.” [Shop owner says sure, hey free soap, awesome.] “We also do private labelling with your shop name and logo, would you be interested in that information as well?”

Please note – we little guys love private labelling, so if it’s possible, try to offer that!


What Keeps You Motivated?

Posted by admin     Category: Brick and Mortar, Motivation, Prosperity in All Its Forms

I was just hanging around in the forums, and submitted the following reply to a post, “What keeps you motivated?” I would love to hear what others have to say!

We decided you needed posters for it.

Read more…