What is consignment inventory?
The consignee stocks and sells goods without buying them upfront and pays the consignor only when an item sells, keeping a commission on each sale. Money changes hands at the point of sale, not at delivery.
The model exists to lower risk on both sides. Suppliers reach more sales channels and test real demand without opening their own stores, and retailers offer more variety with less cash tied up and less exposure to unsold stock. That balance is why many teams manage consignment inventory as a standing part of their supply strategy.
You will see it most in fast-moving categories such as fashion, electronics, and food, where selection matters and shelf space is competitive.
Key characteristics
- Ownership stays with the supplier: The consignor keeps legal ownership and control until the item sells, so under U.S. accounting rules a business should not recognize revenue on delivery when the product is held on consignment, per FASB ASC 606 consignment guidance.
- The retailer pays only on sale: The consignee pays the consignor after a sale and keeps a commission, a set percentage of the selling price.
- A consignment agreement sets the terms: It spells out the commission rate, how long goods can stay on the shelf, and who handles shipping and unsold items.
- Risk shifts toward the supplier: Unsold goods can be returned, so the retailer avoids dead stock while the supplier carries more of the unsold-inventory risk; inventory distortion, meaning out-of-stocks plus overstocks, reached $1.7 trillion globally in 2026, equal to 6.2% of global retail sales, according to IHL Group inventory distortion research.
- Tracked separately: Consigned goods are recorded apart from owned stock, which keeps consignment inventory accounting clean. Recording it this way also helps the retailer control carrying costs.
Example
Picture an artisan cold-brew coffee roaster that places bottles in a regional grocery chain on consignment. The grocer shelves the bottles, sells what customers buy, pays the roaster only for those units, and returns whatever is left. This fits high-turnover categories well, where a healthy inventory turnover ratio keeps product moving. Both sides benefit when consigned stock is tracked separately from owned stock, which inventory management software is built to do.
Related terms
- vendor-managed inventory: the supplier decides replenishment, but the retailer may still own the stock, which is the key contrast with consignment.
- dropshipping: no stock is held at all, because the supplier ships direct to the customer.
- Carrying costs: the holding costs that consignment shifts off the retailer.
- Inventory turnover ratio: a measure of how fast consigned stock moves.
FAQ
Is consignment inventory an asset on the retailer’s balance sheet?
No. Because the supplier keeps ownership until a sale, the retailer does not record consigned goods as an asset, and the consignor keeps it on their books until it sells.
What is the difference between consignment inventory and vendor-managed inventory?
In consignment, the supplier owns the goods until they sell, while in vendor-managed inventory the supplier manages stock levels but the retailer typically still owns and pays for the inventory.
Which businesses use consignment inventory most?
It is common in fast-moving categories like fashion, electronics, and food, where variety matters and unsold stock is costly.