Consignment Stock: Definition, Examples & Best Practices
For many ecommerce and retail businesses, the biggest challenge in scaling is managing inventory risk. Buying stock upfront ties up cash, while not buying enough risks missing sales. One solution that bridges the gap? Consignment stock.
Consignment stock allows retailers to hold goods without owning them. Instead, the supplier retains ownership until the item sells. This arrangement lowers barriers for retailers and provides suppliers with a path to wider visibility.
In this guide, we’ll explore what consignment stock is, how it works, its pros and cons, and best practices for managing it effectively.
What is Consignment Stock?
Consignment stock refers to goods that are physically stored with a retailer but legally owned by the supplier until they are sold.
The supplier provides the goods.
The retailer sells the goods to customers.
Payment only occurs after the sale.
This differs from traditional wholesale purchasing, where the retailer buys stock upfront regardless of whether it sells.
How Consignment Stock Works
The process of consignment stock typically looks like this:
Supplier delivers products to the retailer (physical store, boutique, or online marketplace).
Retailer displays and sells the products to customers.
Retailer records sales and sends payment to the supplier, often keeping a margin or commission.
Unsold stock may be returned after a pre-agreed period.
Example:
A fashion brand consigns 100 dresses to a boutique. The boutique displays the dresses and sells them to customers. The brand is only paid for the dresses that sell, minus the boutique’s commission. Any unsold stock may be returned to the brand.
Advantages & Disadvantages of Consignment Stock
Consignment stock offers benefits but also introduces risks for both suppliers and retailers.
For Suppliers (brands, manufacturers):
✅ Lower barriers to enter new retail channels.
✅ Gain visibility and reach without relying solely on wholesale.
❌ Delayed payment reduces cash flow.
❌ Risk of goods being returned if they don’t sell.
For Retailers (boutiques, marketplaces):
✅ No upfront cost for stocking products.
✅ Ability to test new product categories with less risk.
❌ Storage, display, and handling costs fall on the retailer.
❌ Administrative complexity—tracking consigned stock vs owned stock.
Accounting & Ownership Considerations
Consignment inventory creates unique accounting requirements:
Ownership: The goods remain on the supplier’s balance sheet until sold.
Retailer’s books: Retailers do not record the inventory as assets; only sales revenue and payable amounts to the supplier.
Agreements: Contracts should define pricing, duration, payment terms, and what happens to unsold stock.
Consignment Stock in Ecommerce
Consignment isn’t limited to traditional retail—it’s increasingly relevant in ecommerce:
Boutiques & Pop-Up Shops: Shopify or DTC brands can consign products to physical boutiques for exposure.
Online Consignment Marketplaces: Platforms like The RealReal, Vestiaire Collective, Poshmark operate entirely on a consignment model.
3PLs & Fulfillment Centers: Some logistics providers manage stock on consignment, distributing goods across multiple sellers or retailers.
For ecommerce brands, consignment can be a low-risk way to expand into new markets without carrying the full cost of distribution.
Best Practices for Managing Consignment Stock
To make consignment work smoothly:
Create clear agreements → Define ownership, sales reporting, commissions, payment timelines, and unsold stock terms.
Track separately → Use inventory systems that distinguish between owned stock and consigned stock.
Regular reporting → Ensure retailers send frequent sales and stock updates.
Audit consigned stock → Spot-check regularly to avoid disputes.
Integrate technology → Use IMS, ERP, or POS integrations to sync consigned inventory in real-time.
For ecommerce sellers, syncing Shopify or marketplace sales directly with inventory tools ensures consigned stock is updated accurately.
The Role of Technology
Tracking consignment stock with spreadsheets quickly becomes messy and error-prone. Modern systems make the process more efficient:
Inventory Management Systems (IMS): Provide clear visibility on consigned stock levels and sales.
ERP Systems: Handle ownership and accounting complexities at scale.
AI-powered tools: Help suppliers forecast how much stock to consign and when.
👉 While Verve AI focuses on forecasting and replenishment of finished goods, accurate forecasts also help suppliers decide what inventory to consign, reducing excess risk.
Conclusion
Consignment stock can be a win-win: suppliers expand their reach with less friction, while retailers access more products without upfront costs. But it also comes with challenges—delayed payments, administrative complexity, and ownership issues.
With the right agreements, clear tracking, and modern technology, consignment stock can be a powerful tool for both suppliers and retailers.
📌 Next Steps:
Review our WIP Inventory Guide to understand production-stage inventory.
Explore our Inventory Report Example for reporting best practices.
Learn how Verve AI helps Shopify merchants forecast and replenish stock more effectively.