Consignment stock

Consignment stock is inventory that's physically located at the customer's premises (typically a retailer or distributor) but is still owned by the supplier. Title transfers — and the supplier records the sale — only when the retailer actually sells the unit through to the end customer (or in some agreements, when they pull it for use or transfer).

It's a working-capital arrangement that suits both sides:

• The retailer doesn't have to fund the inventory upfront
• The supplier gets shelf space they wouldn't otherwise have
• Risk of unsold stock sits with the supplier

Where consignment is common

The model shows up most in:

• Furniture and high-ticket retail — the retailer's display piece on the shop floor often belongs to the supplier
• Medical devices and high-value parts — kept on hospital premises until used in surgery
• Wholesale luxury — bought at the season but settled monthly as units sell
• Independent retail / boutiques — small retailers without working capital to commit
• Showroom and trade display — products at exhibitions, distributor showrooms

It's relatively rare in mass D2C and grocery retail, where the retailer typically wants to own the inventory to control pricing and merchandising.

How it changes the inventory picture

For the supplier:

• Stock at consignment locations is your on-hand inventory. You own it. It sits on your balance sheet.
• It is not the customer's inventory.
• It reduces from your books only when the customer reports a sale (or uses it, per the agreement).

For the retailer / customer:

• Consignment stock is not on their balance sheet
• They typically have a contractual obligation to pay within N days of selling it
• They usually don't pay storage or capital cost on it

This is the key reason brands sometimes prefer consignment despite the working-capital cost — it gets product on shelves where direct sales would have failed because the retailer didn't want to fund the inventory.

The reporting problem

Consignment introduces a reporting gap:

• The supplier knows what was shipped into consignment locations
• The supplier sees sell-out (units sold through) only when the retailer reports it
• In between, units are at the retailer but not in either party's sales

This is why consignment relationships need explicit:

• Sell-through reporting cadence — usually weekly or monthly
• Stock count reconciliation — periodic agreement on what's actually still at the retailer
• Aged stock policy — what happens to consignment stock that's been at the retailer for too long without selling
• Return mechanism — how the supplier gets unsold stock back

Without these, the supplier ends up with stock somewhere they can't see, can't easily recall, and isn't being sold.

Consignment vs vendor-managed inventory (VMI)

Often confused:

• Consignment is about ownership. The supplier owns the stock at the customer's location until sale.
• VMI is about who decides replenishment. The supplier manages reorder decisions for the customer's location, but ownership transfers normally on delivery.

You can have consignment without VMI (supplier owns; retailer reorders) or VMI without consignment (retailer owns; supplier replenishes). They're separable choices.

Common pitfalls

The model has known operational challenges:

• Aged consignment stock. Units sitting at retailers for months without selling. Working capital trapped in someone else's warehouse.
• Lost or shrunk consignment stock. The retailer reports lower stock than the supplier expects. Reconciliation conversations.
• Sell-through underreporting. Retailer reports sales late or partially. Supplier's revenue recognition lags reality.
• Channel cannibalisation. A consignment SKU sold cheap at one retailer undercuts the supplier's own D2C pricing.
• Recovery friction. Getting unsold consignment stock back from a retailer who's lost interest is operationally painful.

When consignment is the right model

It works when:

• Trial requires shelf presence. New product, new brand, new category — getting customers to try the product depends on it being on the shelf.
• The retailer is otherwise unattainable. Specialty boutiques, smaller retailers, exhibition spaces.
• Cash flow asymmetry favours it. Supplier has the capital; retailer doesn't.
• The product is high-margin. Margin has to absorb the cost of capital tied up in consignment stock.

It doesn't work when:

• The brand wants pricing and merchandising control (give the retailer ownership instead)
• Working capital is constrained on the supplier side
• Operational visibility into the retailer's stock and sales is poor
• The product has a short commercial life (consignment delays add risk of obsolescence)

Accounting and audit considerations

Consignment is one of the inventory states auditors test most carefully — because it's stock the supplier owns but isn't physically holding. Expect:

• Confirmation of consignment balances with major retailer customers at year-end
• Cut-off testing to ensure sales are recognised on sell-through, not on dispatch
• Aged-stock review for write-down candidates