A delivery contract is an agreement between a product manufacturer and a retailer to sell the product on their shelves for a share of profits. Liability and ownership remain with the manufacturer. This arrangement benefits small businesses by providing exposure and reducing inventory costs. Consignment sales are difficult to assess, but the market is estimated at over $3 billion in the US. Small businesses should consider location, display, fees, and inventory when entering a consignment agreement. Each contract should be negotiated and clearly defined in writing. Delivery contracts remain a popular way to get small runs of products in stores.
A delivery contract is usually a formal or informal contract between a person who manufactures a particular product and a retailer who agrees to stock it on their shelves for sale, in exchange for a share of the profits. Title to the product is retained by the creator, not the reseller, and all liability for loss, damage, and expense of delivery and custom display generally rests with the creator of the product. The reseller, or consignee, generally offers the place of business as a point of contact with customers for the sale of the product and does not otherwise assume responsibility for expenses incurred.
Viewing inventory under a delivery contract is often beneficial to both small product manufacturers and small retail outlets that might otherwise struggle to locate product suppliers for their retail space. The store also benefits from having no tied up inventory, and if a product doesn’t sell, it can terminate the delivery agreement with the shipper at a perceived loss on their part. Conversely, the small business product manufacturer benefits from the fact that they can place their product in multiple outlets without actually having to own and operate the outlets themselves. This provides widespread exposure to clients in various market environments and offers a quick and cost-effective way to start a business.
It is estimated that more than 3 billion US dollars (USD) is spent annually in the United States on the purchase of handicraft-related items sold on a consignment basis. Assessing the consignment market in general, however, is a difficult proposition, because consignment sales are often lumped together with sales figures for resale stores that sell used goods such as clothing and charities that accept donations. and then sell them for whatever profit they can make. The delivery contract is also used for the sale of durable goods, such as those of cars, furniture and heavy machinery.
For small businesses considering a consignment agreement, there are a few key points to look for. The retail business needs to be a good match for the type of product being delivered and in a location that receives adequate customer traffic, as a delivery contract reduces profit margins much more than selling the goods outright. The shipper or product creator should also be aware of how their products are displayed in the store, what fees the store may decide to charge for this, and how excess inventory will be treated. Small shops often have limited storage space, however, if a product sells well, they also require sufficient inventory to keep the displays well stocked.
Each delivery contract should be independently negotiated and an exact structure of commissions and payments should be clearly defined in writing. A store that specializes in consignment merchandise may be reluctant to hire a new supplier without a proven track record of selling products in other locations, or may offer trial shipping first to see if the product will sell. Regardless, it’s estimated that the delivery arrangement will continue to be a popular way to get small runs of products in stores, with 12-15% of Americans shopping in stores as of 2009.
Protect your devices with Threat Protection by NordVPN
