Consigning vs. Liquidating: Which Is Better for Surplus Stock?

As a business owner, managing surplus stock can be one of the most challenging tasks.  Unsold stock ties up cash flow, increases storage costs, and causes potential product obsolescence. Finding efficient ways to clear excess inventory is crucial to ensuring cash flow and storage space and maximizing profitability. The two most common strategies to get rid of surplus stock while recovering the cost are consigning and liquidation.

Consigning and liquidation are effective, practical and cost-effective strategies to sell surplus stock and cover a percentage of the cost. Both strategies have their own pros and cons; therefore, choosing the right one is important. The decision ultimately lies in your personal choice, but we can help you make the right decision. In this blog, we will share what consigning and liquidation are, along with their advantages and disadvantages. With this information, you can decide which strategy is ideal as per your preferences. 

What is Consigning?

Consigning is the process of giving goods to a third party like a retailer, a consignment store or a marketplace for selling on your behalf. In this, the original ownership of goods is retained with you (the consigner) until the goods are sold. The supplier (consignee) sells your goods using marketing and promotion and takes a percentage of the sale price as a commission. The remaining amount goes to you, the consignor. This is the best method for products like clothing, antiques, furniture, jewelry, and luxury goods. You should consign surplus stock if you want to sell items without handling the marketing and sales process yourself.

Pros and Cons of Consigning Surplus Stock

Pros

Higher Sales and Returns: In consigning, the suppliers sell your products at a retail or near-retail price, thus maximizing returns. Moreover, they use their expertise in marketing and selling, which can boost sales. 

Cash Flow Improvement: By consigning surplus stock, you can free up valuable cash that would otherwise be tied up in the unsold inventory. This improves your ability to tap market opportunities and invest in new products. 

Brand Visibility: Consignment inventory is placed in retail outlets with a dedicated customer base. Your products remain in circulation, keeping your brand in front of customers. This improves your brand awareness and visibility and attracts new customers. 

Low Risk: The biggest benefit is that you don’t have to pay anything to the suppliers until the goods are sold. This means there are no shipping, marketing, or warehousing costs, offering low financial risk.

Ownership: You retain the ownership of gods until the seller sells them to the ultimate customers. This reduces the risk of fraud and scams, offering peace of mind and financial stability.

Access to New Sales Channels: Consignment provides easy access to new sales channels like retail stores, specialty stores, online marketplaces, etc. It’s an ideal arrangement for testing new products or those unsure about market demand.

Reduced Marketing Expenses: Since the consignee is responsible for selling the items, you don’t need to invest in marketing and sales efforts. The consignee takes on the responsibility of promoting the products.

Cons

Lower Profit Margins: Compared to direct sales, consigning offers a percentage of the sale price, which is lower than the full retail price. However, it’s always better than keeping stock in the warehouse with no chance of direct selling. 

Slower Cash Flow: You don’t get paid until items are sold, which can take time depending on the retailer’s marketing, selling, and customer base. This can create cash flow issues if you rely on quick turnover.

Risk of Unsold Inventory: There’s no guarantee that surplus stock will sell; even if it does, it may take time. If products don’t sell, you have to take back your stock, which can incur extra costs, as well as negotiate with retailers.

Complex Inventory Management: You have to track and coordinate deeply with the retailers to monitor stock levels, sales, marketing, and replenishment needs. 

Reliance on Retailer Performance: The product’s sales depend on the retailer’s ability to sell it. Lack of proper marketing, poor stores, less online traffic, or high competition can negatively affect sales. 

What is Liquidating?

Liquidating is the process of selling off excess or unsold stock to the retailer, business, or wholesaler at a discounted price. This is beneficial if you quickly want to free up space and generate cash. In this, the ownership goes to the buyer (retailer, business, or wholesaler) as soon as you receive the payment and the paperwork is completed. This is often done when you have more inventory than demand, when products are seasonal or are no longer in demand.

Pros and Cons of Liquidating Surplus Stock

Pros

Improved Cash Flow: Liquidation allows you to convert your unsold or excess stock into cash, which you can use to cover daily expenses and fund new inventory.

Clearing Out Old Inventory: You can clear out outdated, slow-moving, and excess inventory, making space for new products. This is helpful for seasonal items or those that are out of demand. 

Reduced Storage Costs: The buyer takes away the surplus stock that you sell, eliminating the need to store these items and reducing ongoing storage expenses and maintenance costs.

Minimized Risk of Waste: Once the buyer purchases the products, you don’t have to bear the risk of products becoming damaged, outdated, or unsellable. 

Tax Benefits: Sometimes, liquidating surplus inventory offers tax benefits, as writing off unsold goods reduces taxable income. 

Simplified Inventory Management: Once you sell inventory, you do not need to track or manage it. Moreover, the volume of unsold stock reduces, improving overall inventory efficiency.

Cons

Lower profit margins: The main disadvantage of liquidation is that you have to sell your products at a reduced or discounted price. This means you earn less than you would by selling at full price, which hurts overall profitability.

Brand Devaluation: The buyer company will sell your surplus stock at a much lower price, which can negatively impact your brand’s perception. Customers may think that your brand’s products are of low quality, which can even affect the sales of new products. 

Customer Expectations: When customers learn that liquidation sales happen when stock goes unsold, they will wait for discounts rather than purchasing at a standard price. This can cause a long-term issue for your company and potentially impact sales and profit. 

Limited Sales Opportunities: Some liquidation channels have limited visibility or fewer opportunities to engage with customers. In such cases, you may miss out on direct consumer sales.

Reduced Control Over Sales Channels: If you liquidate with the help of a third party, you lose complete control over how your products are marketed, displayed, or sold. This can even affect the brand’s customer experience, and customers may perceive your brand negatively. 

Conclusion

Both consigning and liquidating are effective ways to sell surplus stock and improve cash flow. Consignment is the best method if you want a slow, steady, and low-risk way to sell excess stock while getting reasonable returns. However, if you want instant cash, no matter what, you can go for liquidation. Understand the pros and cons of both methods and decide which one aligns with your brand goals and values.