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Consignment is the act of consigning, which is placing any material in the hand of another, but retaining ownership until the goods are sold or person is transferred. This may be done for shipping, transfer of goods to auction, or for sale in a store (i.e., a consignment shop). To consign means to send and therefore consignment means sending goods to another person. In case of consignment goods are sent to the agent for the purpose of sale. The ownership of these goods remains with the sender. The agent sells the goods on behalf of the sender, according to his instructions. The sender of goods is known as consignor and the agent is known as the consignee.
Features of consignment are:
- The relation between the two parties is that of consignor and consignee and not that of buyer and seller
- The consignor is entitled to receive all the expenses in connection with consignment
- The consignee is not responsible for damage of goods during transport or any other procedure
- Goods are sold at the risk of consignor. The profit or loss belongs to consignor only
A consignor who consigns goods to a consignee transfers possession but not ownership of the goods to the consignee. The consignor retains title to the goods. The consignee takes possession of the goods subject to a trust. If the consignee converts the goods to a use not contemplated in the consignment agreement, for example selling them and keeping the proceeds of the sale for himself, then the consignee commits the crime of embezzlement.
The word consignment comes from the French consigner, meaning "to hand over or transmit", originally from the Latin consignare "to affix a seal", as was done with official documents just before being sent.
"Consignment shop" is an American term for those second-hand shops that sell used goods for owners (consignors), typically at a lower cost than new. Not all second hand stores are consignment shops. In consignment shops, it is usually understood that the consignee (the seller) pays the consignor (the person who owns the item) a portion of the proceeds from the sale. Payment is not made until and unless the item sells. Such shops are found around the world, including developing countries like South Africa. They can even be chain stores like the Buffalo exchange in the USA, or individual boutique stores. The consignor retains title to the item and can end the arrangement at any time by requesting its return. A specified time is commonly arranged after which, if the item does not sell, the owner can reclaim it (or, if not reclaimed within a period, the seller can dispose of the item at his or her discretion).
Merchandise often sold through consignment shops includes antiques, athletic equipment, automobiles, books, clothing (especially children's, maternity, and wedding clothing which are often not worn out), furniture, firearms, music, musical instruments, tools, paragliders and toys. eBay, drop-off stores and online sellers often use the consignment model of selling. Art galleries, as well, often operate as consignees of the artist.
The consignment process can be further facilitated by the use of vendor managed inventory (VMI) and customer managed inventory (CMI) applications. VMI is a business model that allows the vendor in a vendor–customer relationship to plan and control inventory for the customer, while CMI allows the customer in the relationship to have control of inventory.
Consignment shops differ from charity or thrift shops, in which the original owners surrender both physical possession and legal title to the item as a charitable donation, and the seller retains all proceeds from the sale. They also differ from pawn shops, in which the original owner can either surrender physical possession (but not legal title) of the item in exchange for a loan, and then reclaim the item upon repayment of the loan with interest (or else surrender legal title to the item), or alternatively can surrender both physical possession and legal title for an immediate payment; the pawn shop would retain all proceeds from any subsequent sale.
In the UK, the term "consignment" is not used, and consignment shops that sell women's clothing are called "dress agencies". Although the other types of consignment shop exist, there is no general term for them.
A consignor brings their second-hand items in to be reviewed.
After being reviewed, the consignee will return those items deemed unsuitable for resale to the consignor (such as torn or dirty items, or items deemed to be fakes, which cannot be sold in some jurisdictions), accept those to be resold, and agree on the consignee's share of the resale price and the length of time the items will be held for sale.
When a consignor's items sell (or, in some cases, after the agreed-upon period ends), the consignee takes its share of the profits and sends the consignor his/her share. Items that are not sold are returned to the consignor (who must retrieve them within a set time or forfeit title to them; in some cases the consignor may agree ahead of time to allow the consignee to donate them to charity).