What is a Clothing Consignment Agreement?
A clothing consignment agreement is a legally binding contract between two parties, the owner of the goods (known as the "consignor") and the retailer (known as the "consignee"). In a nutshell, a clothing consignment agreement identifies the items of clothing that the consignor is leaving with the consignee for a period of time. With the clothes, it identifies how much the consignee can sell the clothes for as well as how much they will be reimbursing the consignor should the clothes not be sold. Usually, this is implemented when a clothing consignment retailer is contracted to sell the clothes on behalf of the consignor. These agreements are drafted mostly for legal purposes , so that in the case that a dispute arises, the written evidence of this party between the two will be recognized in the court of law.
Although having a clothing consignment agreement cannot guarantee success for the clothes being sold, it does bind the two parties together, and lays out the parameters by which they both have to operate. It makes it clear how long the consignor and consignee have for selling the clothing items, and is an easy way to transfer ownership of the clothing items from one party to another, with the option of giving back to the original owner after the sale period has ended.
Clothing Consignment Agreement Components
What are the key elements of a clothing consignment agreement? A clothing consignment agreement should include the following essential elements:
Parties. Parties to the contract should be identified, including contact information for both the consignee and consignee. If the parties are doing business as ("d/b/a") the same name, then it should be clear who is the consignee and who is the consigner.
Description of Goods. The goods being sold by the consignee should be described in such a manner that there is no confusion as to what is being consigned and what is not. If possible, photographs should be attached showing what items are included and are not included in the consignment agreement.
Pricing. The pricing for the goods being sold on consignment should be clearly and specifically detailed. If the agreement specifies a range of prices, that is acceptable but needs to be limited to avoid confusion. Giving the consignee the ability to price at the low or high end of the pricing range leaves much room for doubt.
Payment. Payment terms should be clearly stated, including when the consignee will be paid and how payment will be made (check, cash, PayPal, etc.) Under what circumstances would the consignee or the consigner not be paid immediately upon sale of the goods and under what circumstances will payment be made? For example, if a customer pays an initial nominal amount to put a good on hold, what happens if that customer cancels the sale?
Liability. What happens if an item being sold is damaged while in the consigner’s possession? Who pays for that damage? These are all important questions to answer in the agreement.
Termination. What happens if the relationship between the parties changes? Who is entitled to get what and what method is to be used?
Advantages of Consigning Clothes
When you consign with a trusted consignment shop, you are teaming up with a business model that is mutually beneficial for both parties. It’s in the best interest of the shop to sell your pieces at a profitable price so they can make money off your pieces. When the shops profit, you profit. All parties win. It’s quite a deal. When you consign with a reputable consignment shop, the shop will take care of marketing your items and become an advocate on your behalf. Most consignment shops have a list of loyal shoppers that will stop in weekly or monthly to browse and look for new items. This takes the work of marketing your items and finding a buyer out of your hands and puts it in the hands of an expert that knows who to reach. Additionally, when you consign with a reputable consignment shop, there’s no risk of ending up in the dumpster. Your pieces have been thoroughly vetted for quality by an expert and are placed on the sales floor shortly after arriving at the shop. And each piece is handled with care (versus tossed around in a pile of stuff at a garage sale). Consigning clothing is risk-free inventory. If it doesn’t sell, simply pick it up or ask for it to be disposed of. You don’t have to worry about having invested too much, losing top dollar and having to sit back and watch all those beautiful clothes go in the dumpster at your next garage sale.
Common Clothing Consignment Agreement Provisions
While no two consignment agreements are exactly alike, the terms and conditions are frequently highly similar among them. Following are some of the standard items that could be included in a clothing consignment agreement.
Duration or Loan Period
The duration or loan period in a clothing consignment agreement is the length of time for which the clothing items are entrusted to the seller, i.e., an art gallery or second-hand shop. Depending on how much time is allotted, consignees can store the consigned items for as long as a year.
List of Consigned Clothes
Most clothing consignment agreements contain a list of the specific items that are being entrusted to the seller. This includes each individual item and its value according to the owner. These values determine how the percentage of sale is calculated.
Percentage of Sale
The percentage of sale refers to how much of the reselling price will be paid to the owner. The percentage determined in the consignment agreement is almost always significantly lower than the percentage of retail price would be if the items were sold on the owner’s own.
Return Policy and Expiration
If the owner of the consigned clothes wants his items returned at a certain time, a specific return date could be laid out in the contract. Alternatively, it’s common for the consignment period to expire after a certain number of days. Many times, sellers will only want to sell the consigned items for a specific time period.
Price Concurrence Clause
Some contracts may contain a price concurrence clause, which states that if the consigned items do not sell within a certain period of time, the consignee must consult with the owner before any new price is set.
How to Write a Clothing Consignment Agreement
This section of the clothing consignment agreement should include any legal considerations that are required in a clothing consignment agreement between the seller and buyer. Any clause that is specific to either party’s business practices should also be included here in order to avoid misrepresentation and potential legal issues in the future. When drafting any contract or agreement, you should consider clarifying the following legal issues:
a. Discretion for Seller. The Seller should retain discretion to make the final decision on what the Buyer can sell through their consignment store .
b. Shipping and Title Transfer. How will the holding firm pay the Seller for property sold? Will the price be shipped along with the inventory to the Seller, or will the Seller use another method of payment—such as check or online payments—to pay for the shipment?
c. Theft Clause. What should happen in the event Theft occurs? Will the Seller hold the Buyer financially responsible, or will the Buyer be able to mark down the price of the item to match the Buyer’s loss? Can the Buyer discount the item to remove it from their shelves?
Consignment and the Law
When entering into a clothing consignment agreement, it is important for both the consignor and consignee to have a clear understanding of their rights, obligations and the potential liabilities associated with the consignment.
Ownership
It goes without saying that ownership should be clear from the outset, and should not shift depending on the situation. While the consigner is free to sell his or her clothing to a consignee in exchange for a percentage of sales in the original consignment agreement, once that agreement is legally terminated, the consignee must return the clothing in its original condition. The parties could contract to the contrary, but it would be against public policy to allow a consigner to sell items to a consignee free of charge as long as an agreement is in force. In other words, the consignee is not authorized to keep the clothing if the consignee is not going to make a profit selling it to a third party at 40%. Any consignment agreement should also stipulate what happens if some or all of the clothing becomes damaged and not able to be resold. At the outset, the parties should contractually agree who is responsible for any costs of repair for damaged clothing, or whether damaged clothing can and should be donated to a charitable organization.
In the case of a dispute under a consignment agreement, it is to the benefit of all parties to participate in some sort of alternative dispute resolution, whether mediation, conciliation or neutral evaluation. Generally, some form of dispute resolution is likely to be required under a consignment agreement, so it is important to refer to the dispute resolution provision in order to avoid the litigation route. One of the parties may have signed up for the alternative dispute resolution in order to avoid the costs associated with going to court, while the other party may be eager to proceed to litigation immediately. It is important not to do so because of the alternative dispute resolution requirement in the consignment agreement, which will likely put the other party (the other party who may have been more interested in going to court) at a disadvantage.
Clothing Consignment Tips
Successful Consignment
This seller tips section will offer practical tips and suggestions to both consignee partners and sellers looking to ensure a successful consignment process.
Inventory tracking: Make sure you have a system in place to track your inventory. This will almost always involve a software program and a method for tracking each item in your inventory. There are a wide range of software programs available that are either inexpensive or free that will allow you to track your inventory with ease.
Selection of a consignee partner: Where possible, it is advisable to select a consignee partner who has specific experience in selling the type of goods that you are planning to offer in consignment . There are a number of factors to consider in the selection of the consignee partner including:
Marketing: Lack of effective marketing will result in your goods sitting on the shelf and collecting dust. Select a consignee partner that is able to effectively market goods you are placing on consignment. Besides your own efforts, make sure that the consignee partner is engaging in a meaningful and successful marketing effort. The marketing effort will vary depending upon the type of goods, but some common methods to market products include:
Relationship Management: Once you have established a relationship with a consignee partner, you should monitor whether the relationship is resulting in positive results, including timely reporting and sales and payment of all sales proceeds. Also, timely communication with your consignee partner is very important.