Consignment

In the past, before the mid-1980s, shoes and jewelry were often sold to department stores on consignment. I was at Macy’s when they transitioned from consignment to fully owning shoes in-house, like all the other wearable goods. I had no involvement except watching from afar, but I always wondered what the reason was for the shift.

Over a decade ago, we visited a store in Newport Beach, CA, where the majority of the brands were on consignment. The sisters who owned the shop had been around for decades and obviously had deep relationships with certain brands and customers. One thing that was certain was that brands were so deeply entrenched in their assortment that I wondered who was making the decisions about what to carry in the store. Was it a group effort, or did they let the brand make the decision?

A good friend with ties to the retail world told me that Saks has full floors that are all on consignment. We were talking about Bergdorf and the post I wrote last week. When she clued me in on the consignment, it all began to make more sense. The store resembles a showroom, with each designer having their own rack or an entire department.

Consignment allows the brand to retain ownership of the products, and the store only pays for the product after it has been sold. The split depends on the markup, although that may have changed. The benefit is that there is no up-front cost for retailers. Stores like Saks and Bergdorf, which are experiencing cash flow issues, can keep their doors open with merchandise, and brands do not find themselves with large amounts of cash owed to them, as we are seeing from online stores such as Ssense.

The act of selling still rests on the shoulders of the department stores. The brands then produce for their own stores, their online shops, and now their consignment partners, which is a significant capital investment every season. We have all learned that the bags that sell for $ 2,500 cost a fraction to make compared to what they sell for, so perhaps the brands are pushing hard for a markup and being conscious about inventory.

On the flip side, how do young designers break out? They use Instagram, they find small, highly curated stores that want to carry their merchandise, and more importantly, they are paid for the products in the regular fashion of 30 days upon receipt. However, most stores tend to lag in payment time.

I am not convinced this new model will keep enormous department stores open. Between the on-floor sales and online sales, and the insurmountable debt that these stores are in, can the concept of consignment keep the lights on? Particularly when the salespeople are mediocre at best, and there aren’t many of them on the floor.

Luxury brands have become ubiquitous, with the same shirt or jacket featured in their campaigns. You can buy that product almost anywhere with the ease of your phone. There is no discovery. Discovery often occurs in smaller stores featuring new brands.

Local small stores are continuing to pop up. Consumer behavior and desires are changing. People want community, relationships with their stores, unique experiences, and most of all discovery. Truth is, that is precisely what we are trying to do at Gotham, and nothing is on consignment.