Traditional inventory has some advantages over consignment inventory and vice versa. Some features of each type of inventory are more of a benefit to the retailer, and others are more of a benefit to the business. Here are some advantages of traditional inventory and consignment inventory for the retailer.
Advantages of Traditional Inventory for the Retailer
The retailer completely controls prices, discounts and marketing strategies. They can determine their own profit margins and prices according to the market and the competition. This control allows the retailer to optimize their prices and thus increase their profits.
Traditional inventory gives the retailer the freedom to organize their product selection based on their target customers and their preferences. They can choose which products to hold in store, how much to stock, and make inventory changes based on fluctuating demand. This flexibility allows for better customization of the product offering and an ability to respond to changing market trends.
Since the retailer owns the inventory, they can capture the full margin on each sale. Traditional inventory can increase profitability compared to consignment inventory, where the retailer receives a predetermined percentage of sales.
Retailers have more control over traditional inventory management than consignment inventory management. They can implement strategies to optimize their quantity of merchandise. This control allows for more efficient stock rotation, reduces carrying costs and minimizes stockouts. It improves the overall efficiency of operations.
Managing traditional inventory is also easier than managing consignment inventory. As if traditional inventory wasn’t complicated enough to manage, managing consignment inventory can become a real headache.
Consignment goods must be tracked separately from non-consignment goods. Profits from the two types of inventory cannot be tracked together either. All of this can quickly become complex, especially when you don’t have the right tools!
Branding and Differentiation
With traditional inventory, the retailer has an opportunity to distinguish themselves from competitors through the selection of products they offer. They can customize the packaging and the branding to create a unique selling proposition. It can help attract customers, build customer loyalty and stand out.
Traditional inventory is considered an asset on the retailer’s balance sheet and contributes to the overall valuation of the business. This can positively influence financial ratios, borrowing capacity and investor confidence.
Traditional inventory has many benefits for the retailer, but it may not be for all retailers. Here are some benefits of consignment inventory for the retailer.
Advantages of Consignment Inventory for the Retailer
Reduced Financial Risks
With consignment inventory, the retailer does not need to pay for merchandise in advance; they pay the supplier only when the products are sold to the customer. This eliminates the financial burden and risk associated with purchasing merchandise that may not sell or become obsolete.
Other risks are also mitigated with consignment inventory. It is the supplier who is responsible if there is any loss or damage. The retailer is not left with unsold stock or potential losses.
The consignment agreement between the supplier and the retailer helps to share risks between the two parties and offers some protection to the retailer.
Consignment inventory can improve the retailer’s cash flow. Since they don’t have to pay for the inventory before it’s sold, they can allocate budget to something else. This can be particularly advantageous for small businesses or for businesses with limited revenues.
Retailers receive a commission from the sale of consignment inventory merchandise, which provides them with a steady stream of income.
Variety of Products
With consignment inventory, the retailer can offer a wider and more varied range of products without the need to pre-purchase them. This increases the variety of products offered for sale to customers, which can potentially attract more customers and meet more needs and preferences.
The retailer can offer products from different vendors without the financial burden of purchasing inventory upfront.
Consignment inventory provides the retailer with the opportunity to test new products from new vendors without significant financial risk. They can gauge market demand and response before committing to buying the inventory.
With the financial flexibility of consignment inventory, you can explore new market segments and experiment with innovative products!
Cooperation With the Supplier
Consignment inventory providers often give support and assistance to retailers (e.g. product training, marketing materials, or promotional activities) because they have a vested interest in the success of the products. This collaboration strengthens the relationship between supplier and retailer. The supplier can also offer insights and guidance on inventory management and market trends.
Each type of inventory includes its pros and its cons, whether for retailers (consignees) or for suppliers (consignors). Carefully analyze all of your options to determine which is best for your store or business.