Consignment deal gone bad? Take it to The People's Court!!!

When a consignment deal gone bad reached an impasse, a crafter and a shop owner took it to court - The People’s Court that is! I saw it myself this morning.

The crafter was a laid-back casual sort of old soul who truly enjoys the art of decorative painting. He claims to generally work on specially commissioned projects only. The shop owner was a polished, slick business type who seemed to put on a few airs, billing his shop as an upscale boutique offering “hearth products - home décor items.”

It seems the painter was an acquaintance of the shop owner’s mother-in-law who just happened to be the shop’s bookkeeper at one point in time. She suggested the shop carry some of the painter’s work “on consignment”. A verbal agreement was reached and the artist delivered the goods which were then displayed in the shop. It is unclear if this ever really resulted in any sales.

In time, there was some sort of family falling out and the mother-in-law left her position with the shop. The shop owner decided he no longer wanted to carry the painter’s merchandise and advised the mother-in-law to tell him to come and get his things. She did not want to do this as she wanted to spare her friend’s feelings. The shopkeeper removed the items from display and put them in storage.

The painter got wind of this and showed up to claim his merchandise since it was no longer on display. It was a “bad time” and the shop owner told him he would have to come back . After several attempts, the merchandise was picked up by the painter’s representative. The shop owner explained the delay as a “paperwork problem” and inferred that situation was due to his mother-in-law’s record keeping.

Had this been the whole dispute, the players would have taken their respective toys and simply agreed not to play together anymore.

Ahhhh, but there’s more…

At some point in this time period, the shop owner visited his mother “upstate”, where she either owned or worked for an antique shop. (Her role was a bit disputed but really not important here.) He returned with two antique milk cans which he wanted the painter to clean up and paint as room accents. He indicated to the artist that he had been given the cans but, in Court, maintained he paid $75 for each of them. The agreement between the two was such that the painter would paint the cans with whatever design he deemed appropriate and the shop owner would place them in the shop. When sold, at whatever price, they would split the profits. They actually had this agreement in writing!


The painted cans were placed in the shop but they did not sell . (We’re talking well in excess of two years later, here). At this point, the artist requested payment for the painting job. He demanded $250 for the work he’d done on each can as the shop owner had them priced at $500 a piece. (This was marked down from $700. Apparently, this shop is in a high rent district!) Funny, this particular dilemma had not been dealt with in the agreement. What would happen if they didn’t sell? Good question.

Judge Milian saw three possible solutions to this mess:

(1) The cans could remain in the shop waiting for a buyer to come along. (The shop owner blames the poor economy. He is convinced they will sell at that price when the economy improves.) Everybody would simply have to wait to make the profit. The Judge didn’t really feel this was an ideal solution.

(2) The shop owner could simply pay the artist outright. He didn’t like this solution.

(3)They could each take one of the cans and do with it what they will.

Since it seemed most equitable to all concerned, Judge Milian went with the third option. They actually reached easy agreement on which can each would take. No money exchanged hands as a result of this ruling.

However…

The artist took his can and left the courtroom. On his way down in the elevator, someone admired the can and, get this, bought it right then and there for $250!!!!
The moral of this story?

Make sure you take EVERY possibility into mind when entering a consignment agreement and get it ALL in WRITING!!!!

Of course, there is an underlying marketing lesson here, too. Take one of your best pieces and simply ride elevators all around town, who knows who might fall in love with the product!! LOL

The Consignment Selling Experience - Part III

Okay, so now you know where you are going to consign your products and you’ve worked out what percentage of the selling price you will receive. Now, you need to sign the contract. Never do consignment without a contract!!!


RULE NO. 1 : READ EVERY WORD OF THE CONTRACT. KNOW WHAT EVERY PART MEANS.


One cannot emphasize enough - NEVER, NEVER sign any any contract you have not read and understood! If you don’t know what it means, ask. Don’t accept a vague answer saying, “it’s just legalese.” “Legalese” usually carries a lot of impact and can be extremely important.
Read the contract very carefully. It should cover all aspects of your relationship with the shop.


Check to be sure each of the issues listed below is dealt with and you are satisfied with each provision.

1) Percentage of selling price to be paid to you (the crafter). Be sure the percentage you have discussed and agreed upon is the same as the one written in the contract.
2) When will payment be made for any sales. Most shops pay in 30 or 60 day cycles.
3) DO NOT accept any provision that allows the store to lower the marked price on an item at a specific point in time. This is a practice often used in consignment thrift shops but is NOT used in the gift/craft business arena.
4) If the store runs any type of sale that would reduce the selling price of your product, your payment should still be based on the original price you agreed to. (For example: If the shop has a 10% off sale for a specific holiday or such and an item you agreed to price at $20.00 sells for $18.00 during that sale, your percentage will still be based on the $20 price.)
5) The contract should specify a specific schedule for reporting to you regarding sales. Many shops issue bi-weekly or monthly e-mails.
6) How long will the shop keep merchandise if it is not selling. Most shops will return unsold merchandise after a specific time - often 3 or 6 months.
7) Who is responsible for lost, stolen or damaged merchandise? Do they carry insurance for these situations? Will you be paid your full percentage for such losses?
8) Some shop contracts will demand exclusive rights to sell your merchandise in a specific geographic area. This issue is entirely up to you but, generally, anything beyond a 5 mile radius for exclusive territory is excessive.
9) The contract should state that the shop is responsible for paying all applicable sales taxes on the total selling price. Do not agree to any other arrangement on this issue.
10) Some shops will have a clause pertaining to special custom orders on your merchandise.
11) Some contracts will also specify how an item can be tagged with regard to identifying you as the crafter. It is not unusual for a shop to request that you do not provide a website or phone number on your personal tagging. Most will allow you to include your name or your business name on that tag. Some will allow a non-sales venue internet address such as an e-mail or blog address. ** This is generally considered a reasonable request on their behalf.
12) Contracts may include language regarding a shop’s inventory listing procedure.


Just because something is in a pre-printed contract, it does not mean it must be included. Negotiation can occur and clauses can be crossed out and initialed by all parties or written in and initialed by all parties. Any changes written into a printed contract MUST be initialed by both parties.

Be sure you are given a copy of the signed contract. I also request a written alternative phone number and contact address for the store owner to be written on the contract.


If by chance the store does not provide its own contract, you should be prepared with one of your own making. Sample contracts abound online for free. Simply search the term “consignment sales agreements” (or contracts).


Part IV of the Consignment Selling Experience will cover inventory sheets and any other miscellaneous information I feel you may find helpful.

The Consignment Selling Experience - Part I

THE CONSIGNMENT SELLING EXPERIENCE - PART I
(What is it and what are the pros and cons?)

Within the last few weeks, I’ve been approached by several retailers about selling my work on consignment. I’m sure this resurgence in the consignment system is based strongly on today’s economic conditions. There just isn’t a lot of capital out there to fund small businesses at the moment. Cash flow is limited for just about everybody from Fortune 500 companies right down to the one-woman gift shop. Only those who can creatively manage their shops will survive. They need to be resourceful in maintaining a fully stocked store and in getting those shoppers who actually do have a few bucks in their pockets into their businesses.


When I started to seriously sell my work, way back in the early 70s, there were a huge number of stores that worked predominantly with the consignment system. It was the norm at that time. As time went by, they became harder and harder to find. Then, the craft mini-mall and co-op system took hold for a while. That now seems to be declining. When I left my job in the legal field a few years ago, I searched for a few consignment markets for my work and had trouble finding any in my area. There were a few craft malls within a reasonable distance but nothing very impressive.


Today, small gift-based businesses are suffering and there simply isn't enough cash flow to fully stock without being resourceful - in comes consignment selling! If crafters enter these arrangements in a professional manner, with written contracts that spell out everything, and with caution (check out every shop to the best of your ability), consignment can be very beneficial to both you and the shop. You can get considerably more exposure and sales without a lot of marketing effort on your part. The shop is fully stocked which encourages more sales (hopefully, of your product). The concept of “handmade” is kept alive.


Over the years, I have been on both sides of the consignment contract. I have sold on consignment in a number of stores along the way and I have owned and operated my own shop where I hosted a number of consignors. I’ve experienced the pros and cons from both sides of the issue. There have been good and bad experiences.


Let’s start with the basics:


“Consignment Selling” is when you create the product and then turn it over to someone else to sell in their shop for you. When the product sells, you receive a percentage of that selling price. You retain ownership of the product until it sells but it is not in your possession.


From the Seller’s Point of View:

The Pros of selling on consignment:

You do not need to devote your time and energies to marketing, whether that is sitting at craft shows, listing and promoting items on line, working a party-plan system, whatever. This is ideal for those who have physical limitations and cannot get out and sit through a long day at the craft show or haul their merchandise and displays in and out. If you are not “a people person,” you don’t need to interact with strangers and make small talk simply trying to push a sale. If your time is limited, this gives you time to devote to creating and not sitting and waiting for a sale. You have the opportunity to reach an audience that may never see your work otherwise. Your work is on display at all hours of the shop’s operation without tying you down for that time period. You don’t have the overhead of doing shows such as entrance fees, travel expenses, display costs, etc. In most cases you control the selling price of your product.


The Cons of this system:

You do not have physical control of your merchandise. You are not there to protect it and see that it is being handled gently and displayed in a safe or appropriate manner. You cannot talk up the sale or attempt to “sell up.” You may be subjecting yourself to possible losses of merchandise or damage to your goods. In some cases, crafters have trusted their products to less than reputable folks who have absconded with the goods or have sold the merchandise but not paid you for them. Shops have closed up and simply disappeared without any warning to the crafter and you are left with trying to find the owner and your merchandise.


From the Store Owners View Point:

The Pros:

You can provide a better quality, quantity and wider variety of merchandise to your patrons without the huge initial cash layout. Crafters are not paid until the product has actually sold and the money has come into the till.

The Cons:

You are now responsible for someone else’s merchandise. You have a tremendously increased amount of paperwork, both for inventory purposes and bookkeeping purposes. You cannot always count on what merchandise is coming and when. Often, quality of the workmanship will vary. Some crafters see consignment as a means of dumping whatever doesn’t sell in their other markets (odd colors, weird color combinations, etc.) Dealing with the crafters can be trying at times. All believe they should have the best spot in the shop and special treatment when requested. Some will call or come in almost daily to check on their sales and advise as to what you should be doing to move their merchandise.

You are responsible for display racks, insurance coverage, taxes and other business licenses. You are paying the lease, utilities and promotional expenses. You are often devoting a large amount of space to merchandise that simply isn’t moving but you cannot mark it down or run a special as you have agreed to a specific price with the crafter. Crafters often come in without notice and want to pick up their merchandise for whatever reason. Many like to treat the shop as if it has a revolving door and want to “borrow” their merchandise back to do a craft show and then bring it back to the shop after that show. Checking those products in and out takes time and disrupts the flow of business.


Done wrong - consignment can be a nightmare for all involved. Done right - everybody can benefit and make money from a good consignment arrangement.


So, how do you find the right shop, get the right contract and work it out to have a good experience? That’s what I will address in Part II of the Consignment Selling Experience.

So, take some time to create and I'll be back to tell you how to find the right consignment arrangement that works for you.

Part III of the Consignment Selling Experience - The Contract

THE CONSIGNMENT CONTRACT


Okay, so now you know where you are going to consign your products and you’ve worked out what percentage of the selling price you will receive. Now, you need to sign the contract. Never do consignment without a contract!!!


RULE NO. 1 : READ EVERY WORD OF THE CONTRACT. KNOW WHAT EVERY PART MEANS.


One cannot emphasize enough - NEVER, NEVER sign any any contract you have not read and understood! If you don’t know what it means, ask. Don’t accept a vague answer saying, “it’s just legalese.” “Legalese” usually carries a lot of impact and can be extremely important.
Read the contract very carefully. It should cover all aspects of your relationship with the shop.


Check to be sure each of the issues listed below is dealt with and you are satisfied with each provision.

1) Percentage of selling price to be paid to you (the crafter). Be sure the percentage you have discussed and agreed upon is the same as the one written in the contract.
2) When will payment be made for any sales. Most shops pay in 30 or 60 day cycles.
3) DO NOT accept any provision that allows the store to lower the marked price on an item at a specific point in time. This is a practice often used in consignment thrift shops but is NOT used in the gift/craft business arena.
4) If the store runs any type of sale that would reduce the selling price of your product, your payment should still be based on the original price you agreed to. (For example: If the shop has a 10% off sale for a specific holiday or such and an item you agreed to price at $20.00 sells for $18.00 during that sale, your percentage will still be based on the $20 price.)
5) The contract should specify a specific schedule for reporting to you regarding sales. Many shops issue bi-weekly or monthly e-mails.
6) How long will the shop keep merchandise if it is not selling. Most shops will return unsold merchandise after a specific time - often 3 or 6 months.
7) Who is responsible for lost, stolen or damaged merchandise? Do they carry insurance for these situations? Will you be paid your full percentage for such losses?
8) Some shop contracts will demand exclusive rights to sell your merchandise in a specific geographic area. This issue is entirely up to you but, generally, anything beyond a 5 mile radius for exclusive territory is excessive.
9) The contract should state that the shop is responsible for paying all applicable sales taxes on the total selling price. Do not agree to any other arrangement on this issue.
10) Some shops will have a clause pertaining to special custom orders on your merchandise.
11) Some contracts will also specify how an item can be tagged with regard to identifying you as the crafter. It is not unusual for a shop to request that you do not provide a website or phone number on your personal tagging. Most will allow you to include your name or your business name on that tag. Some will allow a non-sales venue internet address such as an e-mail or blog address. ** This is generally considered a reasonable request on their behalf.
12) Contracts may include language regarding a shop’s inventory listing procedure.


Just because something is in a pre-printed contract, it does not mean it must be included. Negotiation can occur and clauses can be crossed out and initialed by all parties or written in and initialed by all parties. Any changes written into a printed contract MUST be initialed by both parties.

Be sure you are given a copy of the signed contract. I also request a written alternative phone number and contact address for the store owner to be written on the contract.


If by chance the store does not provide its own contract, you should be prepared with one of your own making. Sample contracts abound online for free. Simply search the term “consignment sales agreements” (or contracts).


Part IV of the Consignment Selling Experience will cover inventory sheets and any other miscellaneous information I feel you may find helpful.