Many retailers feel that having consignment merchandise to supplement their purchased inventory is a good thing, but is it really? They think this because if it doesn’t sell, they can return it for credit, cash or other merchandise. But in reality, every item of merchandise in your store, purchased or consignment, must carry its proportionate share of overhead and, hopefully, profit.
When merchandise is returned to the vendor, it is exactly the same as taking markdowns on that merchandise, because there is no contribution to overhead or profit! Consigned merchandise normally receives a smaller markup because of the vendor’s “risk” factor and can also take away from the sale of the merchandise you have actually purchased, causing additional markdowns.
It is always desirable to have the highest maintained margins on your products and to turn them as frequently as possible with the fewest markdowns possible. Even if you do carry consignment merchandise it is important that the quantities be correct in the right categories and that they fit into your merchandising plan and not be just additional merchandise.
Your open to buy plan will tell you whether you have room or need for consignment merchandise. But beware, consignment merchandise is merely giving the consignor a free place to sell his merchandise. If you do the math, you will see that you don’t really make money on consigned merchandise.