Consignment inventory: how it works both ways for small brands

Under consignment, the supplier (consignor) places goods in a store (consignee), the store pays only when the goods sell, and unsold stock goes back. It's the lowest-risk channel for the party holding the cash and the highest-risk one for the party holding the goods — and the whole operating discipline comes from one fact: the inventory stays the consignor's property until it sells. That single sentence drives the accounting, the shrinkage exposure, and the reconciliation routine below.

Consignment runs in both directions

Most articles cover one side only. If you run a Shopify brand, you may play both roles:

• Consigning out — you place your enamel pins or dog harnesses in ten boutiques. You own the stock, they sell it, they remit monthly minus their cut (commonly 30–50%, set per agreement — there's no universal rate).
• Taking consignment in — a local maker's goods sit on your shelves. You own nothing until you sell; your risk is shelf space and settlement bookkeeping, not capital.

The mechanics below are written from the consignor side (the more common direction for a growing brand), with the consignee-side notes flagged where they differ.

Whose inventory is it? (This changes your books and your risk)

Because title stays with the consignor, the goods remain the consignor's inventory — counted in the consignor's balance sheet and insured by the consignor, typically — even while physically sitting in someone else's shop. Standard accounting treatment treats consigned goods as the consignor's inventory until sale (standard GAAP/IFRS consignment treatment — see ASC 606/IFRS 15 revenue-recognition guidance on consigned goods or your accountant; accessed October 2026); confirm details with your own accountant, since this is a framework explanation, not advice.

Practical consequences:

• Your stock report is now wrong by the consigned units unless you track them somewhere. A common small-brand setup: a separate Shopify location called "Consignment — [Shop Name]" per consignee, so on-hand totals stay honest and nothing decrements until you record the sale.
• Shrinkage is ambiguous by default and must be made unambiguous by contract. If a boutique says 12 units went in and 10 remain, who eats the 2? Write the answer down before the first shipment — the usual split makes the consignee responsible from receipt to settlement, but that's a negotiation, not a law.
• Damage and theft on consigned goods are typically the consignor's inventory loss even when caused at the consignee's premises, which is exactly why the contract line exists.

The consignment agreement: six lines that prevent every later argument

You can write it on one page. Six items to pin down:

1. Consignment split and payment schedule — the percentage and the remittance date (monthly is typical).
2. Inventory list at delivery — SKUs, quantities, per-unit wholesale-equivalent value, signed by both sides.
3. Shrinkage responsibility — who owns losses between delivery and settlement.
4. Replenishment and recall rights — you can pull slow stock and swap in fresh; they can request replenishment at stated minimums.
5. Duration and exit — what happens to unsold stock when either side ends it, and how fast it comes home.
6. Records — the store provides sales-by-SKU with each settlement.

Without item 6, you're reconstructing what sold from a dollar amount — which makes rotation and reorder decisions guesswork.

Settlement and reconciliation: the monthly routine

Consignment dies of reconciliation neglect. The routine that keeps it alive, per consignee per month:

1. Receive their statement: units sold per SKU, remittance amount, units on hand.
2. Check the arithmetic: units sold × your agreed price × (1 − split) should equal the remittance. Discrepancies get resolved in week one, not quarter three.
3. Reconcile on-hand against your last known count. On-hand should equal last on-hand + replenishments − sales. If it doesn't, that's the shrinkage conversation — have it now, while both parties remember.
4. Record the sales in your system (consignment location decrements; revenue and the commission expense booked — your accountant owns the exact entries).
5. Update velocity per SKU per location. A pin display that sells 4/month in one boutique and 0.5/month in another is telling you where your next 100 units go.

Without per-SKU statements, you can't do steps 2–3 or any rotation logic — which is why item 6 in the agreement matters more than the split percentage.

The rotation problem: consigned stock is dead stock you can't see

Consigned units sit outside your daily sightlines, and slow consignment stock behaves exactly like the dead stock on your own shelf — tying up inventory dollars in someone else's display — except you also learn about it slower. Two habits fix it:

• Sell-through review per location, monthly. Rank each consignment location by units sold per month against the units placed. A boutique holding 40 units that sold 2 in three months is a recall candidate; the same stock downtown might sell 2 a week. Rotate rather than let it fossilize.
• A pull rule with teeth. Something like: "any SKU under X units/month after 90 days gets swapped or recalled." What comes home unsold flows into your regular dead-stock review — consignment is a distribution channel, not a disposal method.

Consignee-side note (if you're the shop taking goods): your risks are the mirror — unpaid-for shelf space, settlement bookkeeping, and the reputational side of shrinkage disputes. Your protection is the same written list-at-delivery and per-SKU statements; your advantage is that you hold the physical stock, so your counts are the ones both parties rely on.

When consignment beats wholesale (and when it doesn't)

The honest cost of consignment-as-consignor: you carry the inventory investment, the shrinkage exposure, and the settlement admin, while accepting a lower effective margin than wholesale would pay on the same units. What you buy with that is distribution you couldn't get on wholesale terms. It's a reasonable trade early and in new markets; it's a bad permanent state for proven SKUs, where a stockist who won't commit to buying probably shouldn't get your bestsellers.

Common questions

What is consignment inventory? Stock placed with a retailer who pays only when units sell; unsold goods return to the supplier. The inventory remains the consignor's property until sold, which shapes the accounting, insurance, and shrinkage responsibilities of both parties.

Whose inventory is consignment stock? The consignor's — title stays with the supplier until the goods sell, so consigned units count in the consignor's inventory and valuation, not the store's. Confirm treatment details with your accountant, since the principle is standard but the records must support it.

How does consignment differ from wholesale? Wholesale transfers ownership at delivery and pays on invoice terms; consignment transfers nothing until a sale happens. Consignment lowers the buyer's risk and raises the supplier's carrying cost and admin; wholesale pays sooner but demands the buyer commit capital.

How do you track consignment inventory? The common small-brand method is a separate location per consignee in your inventory system, replenishments and sales recorded per statement, with a monthly reconciliation: last on-hand + replenished − sold = stated on-hand. A signed inventory list at delivery anchors the whole chain.

What percentage do consignment shops usually take? It's set per agreement — splits vary by category, location, and who bears shrinkage, so treat any number you hear as one data point, not a standard. Negotiate it like any other term, and put the split, the remittance schedule, and the shrinkage responsibility in writing before the first shipment.

Where to go next

Draft the six-line agreement and the monthly reconciliation checklist before your next boutique conversation — the brand that shows up with a stock list and a settlement format looks like a supplier, not a hobbyist. Keep a simple per-location scorecard of sell-through and payment punctuality; the discipline is the same one behind a good supplier scorecard, just pointed at your own channel partners. And if you also sell in person at markets, the POS inventory sync issues matter here too — consignment decrements and till sales are both easy to lose.