Every business eventually faces the challenge of surplus stock. Excess inventory can tie up valuable capital & storage space, whether due to overproduction, seasonal shifts, or changing consumer trends. An effective strategy to offload this stock is crucial for maintaining a healthy bottom line. Two popular options are wholesale and consignment. But which one is right for your business?
To assist you in making an informed choice, let’s examine the advantages and disadvantages of each strategy.
Get into the Basics First
Wholesale
Wholesale sells products in bulk quantities to retailers, distributors, or any businesses at a discounted price. This strategy allows companies to move inventory quickly, ensuring immediate cash flow and reducing storage costs.
Benefits of Wholesale
- Quick Inventory Turnover – Selling in bulk helps businesses move products faster, preventing stock from becoming obsolete.
- Immediate Payment – Unlike consignment, where payment depends on sales, wholesalers receive payment upfront.
- Lower Storage Costs—Once a property is sold, the responsibility for storage shifts to the buyer, freeing up warehouse space.
- Predictable Revenue – Businesses can plan finances better with fixed prices and large-quantity sales.
- Stronger Retail Partnerships – Wholesale relationships often lead to repeat business and long-term collaborations.
Drawbacks of Wholesale
- Lower Profit Margins – Bulk pricing usually means selling at a lower per-unit price.
- High Minimum Orders – Buyers typically demand discounts for large orders, which might not always be feasible.
- Limited Control Over Retail Pricing – Wholesalers have little say in how retailers price or market their products.
Consignment
Consignment involves placing products with retailers without an upfront payment. Instead, the retailer pays the supplier only after the product sells. This strategy is often used for niche or high-value products with uncertain demand.
For companies seeking a streamlined and efficient way to consign surplus inventory, partnering with a specialized consignment service can be highly advantageous. It offers expertise and infrastructure to handle the complexities of consignment.
Benefits of Consignment
- Increased Market Exposure – Products are placed in stores with minimal risk to the retailer, increasing visibility.
- Higher Profit Margins – Since there’s no bulk discount, per-unit profits are usually higher.
- Better Retailer Relationships – Retailers are more willing to accept consigned goods since they don’t need to pay upfront.
- Market Testing Opportunity – Businesses can test new products in different locations before committing to large-scale production.
Drawbacks of Consignment
- Delayed Payments – Payment is only received when items are sold, affecting cash flow.
- Higher Risk – Unsold inventory remains the supplier’s responsibility, leading to potential losses.
- Increased Management Effort – Tracking sales, collecting payments, and retrieving unsold items require additional effort.
- Storage and Maintenance Costs – If products don’t sell, suppliers might need to retrieve and store them again.
Which One To Choose: Wholesale vs. Consignment
When deciding how to offload surplus stock, businesses must weigh several factors, including urgency, profit margins, brand image, inventory type, storage costs, and administrative resources. Your company’s objectives will determine which option is best for you. Wholesale and consignment both offer clear benefits and possible disadvantages.
- Urgency: How Quickly Do You Need to Sell Your Stock?
Wholesale is better if you liquidate your stock quickly and generate immediate cash. Selling in bulk allows you to clear inventory in one go without waiting for multiple transactions.
Consignment can be a more strategic approach if you can afford to wait for payments and don’t mind a slower turnover. Retailers will display your products in their stores, and you’ll receive payment only when they sell. While this takes longer, it can increase brand visibility and potentially lead to higher returns.
- Profit Margins: Prioritizing Revenue Over Speed
If maximizing profit is your primary goal, consignment may be the better choice since you control pricing. Retailers typically mark up consignment goods, allowing you to earn more per unit than bulk wholesale pricing. However, this requires patience, as payments will only be received after sales.
Wholesale is a viable solution if you accept lower returns for immediate cash. Selling in bulk usually means offering discounted prices, but you also benefit from quick transactions and reduced holding costs.
- Brand Image: Control Over How Your Stock is Sold
Consignment provides more control over how your stock is presented, priced, and marketed. This is particularly important for premium or luxury brands that want to maintain a strong image and avoid deep discounting.
Wholesale may be a better option if you’re less concerned about maintaining a luxury perception and more focused on moving stock quickly. However, be mindful that retailers may set their prices, which could affect your brand’s perception.
- Inventory Type: What Kind of Products Are You Selling?
Wholesale is better suited for perishable goods or fast-moving consumer goods (FMCG) like groceries, seasonal clothing, and electronics. These products have a short shelf life or high demand, making bulk sales a practical choice.
Consignment is ideal for high-end, handmade, or niche products that need to retain their value. Examples include art, jewelry, designer fashion, and specialty crafts, where retailers might not want to commit to bulk orders upfront.
- Storage Costs: Can You Afford to Hold Inventory?
Wholesale is better if storage costs are high and you need to free up warehouse space. Selling in bulk reduces logistical headaches and expenses related to storage and maintenance.
Consignment might be preferable if storage costs are low and you can afford to keep surplus stock for a longer period. While retailers store your goods, you are still responsible for unsold items.
- Administrative Resources: Do You Have the Capacity to Manage Inventory?
If you have limited resources and want a simple, hands-off approach, wholesale is the more efficient. The transaction is complete once a bulk order is placed, and the responsibility shifts to the buyer.
Consignment requires active management, including keeping track of inventory at multiple locations, handling returned unsold stock, and negotiating revenue splits. If your business has the resources to manage these aspects, consignment can be highly profitable in the long run.
Hybrid Approaches
In some cases, a hybrid approach may be the most productive. For example, you could:
- Sell a portion of your surplus stock through wholesale to generate immediate cash.
- Consign the remaining stock to maximize profits and protect your brand image.
- Use a flash sale online to move some stock, and then use wholesale or consignment for the rest.
Key Considerations:
- Due Diligence: Thoroughly research potential wholesale buyers or consignment partners. Check their reputation, financial stability, & track record.
- Contractual Agreements: Ensure that all agreements are in writing & clearly outline the terms of the transaction. Include details such as payment terms, inventory tracking, and return policies.
- Inventory Management: Maintain accurate surplus stock records and closely track sales. This will help you make informed decisions and prevent future inventory issues.
Final Thoughts
Both wholesale and consignment have distinct advantages, and the best choice depends on your business needs, financial situation, and market conditions. If quick revenue, bulk sales, and low-risk inventory management are priorities, wholesale is the way to go. However, consignment may be better if you focus on expanding market reach, testing new products, or maximizing per-unit profits.
Carefully evaluating your product type, financial goals, and market conditions will help you effectively determine the best approach to managing your surplus stock.
References:
https://www.netsuite.com/portal/resource/articles/inventory-management/consignment-inventory.shtml
