Consignment agreement for brands and shops
If a shop wants your collection on its rails but does not want to buy it, selling on consignment soon comes up. For a young label it is a way into a concept store that is not yet ready to place an order. An established brand uses it to try out a new product line or a new shop. Either way, the consignment agreement decides what happens to pieces that do not sell, go missing or are still in the shop when it closes.
A consignment agreement is the agreement under which a brand or maker places products with a shop that sells them for the brand’s account, while the brand remains the owner of everything that has not been sold and the shop only settles up for what a customer has bought. That applies to any fashion or design brand that sells through a shop.
Placing your collection with a shop on consignment or taking in brands on consignment yourself? Call 020 675 88 21 or get in touch. You will have a reply within one working day.
How selling on consignment works between a brand and a shop
On consignment you do not sell to the shop. You deliver your pieces, the shop puts them on its rails and settles up with you afterwards for what has been sold, after deducting an agreed percentage. Unsold pieces come back.
In legal terms the shop usually acts as a mandatary, selling for your account and allowed to do so in its own name (Article 7:414 of the Dutch Civil Code, in Dutch). Because the shop also keeps your pieces until they are sold, the Dutch rules on custody apply as well. If a customer buys a dress from your collection, that customer simply becomes the owner. You remain the owner of everything still on the rail, so you do not need a retention of title clause.
Even if the contract says nothing about it, the shop has to keep you informed and account for the money it receives on your behalf (Article 7:403). That still does not tell you when you will get that overview. The rhythm is something you agree yourself.
Selling in the shop’s own name or in your brand’s name
If the shop sells in its own name, the customer buys from the shop. The shop then also deals with that customer’s returns and complaints. If the shop sells in your brand’s name, the customer’s purchase is with you and you are the one who answers to the customer for the piece.
That second form has a consequence brands often miss. If a shop acts for a fixed or indefinite period and for a percentage in the sale of your products and concludes those sales in your brand’s name, the relationship may be a commercial agency agreement (Article 7:428 of the Dutch Civil Code, in Dutch). You then cannot simply send the shop away. Without an agreement on notice, a notice period of four months applies, which increases after three years. At the end, the shop can claim a goodwill indemnity for the customers it brought you (Articles 7:437 and 7:442). So agree expressly in whose name the shop sells.
More about the commercial agency agreement →
On consignment, the risk of theft and damage in principle stays with you
The collection stays yours, so a stolen coat is in principle your loss too. The shop does have to take the care of a good custodian (Article 7:602 of the Dutch Civil Code, in Dutch). That is not a guarantee. If the shop can show that it secures its premises and stockroom properly, it does not automatically have to pay for a piece that disappears anyway.
In fashion and design it is not only about theft. Customers try things on. Pieces hang on a mannequin or stand in the window for months. So agree who insures and for what value, in what condition pieces come back and what happens to pieces missing at a stock count. Without your consent, the shop may only use your pieces to keep them in good condition. Nor may it place them with someone else for safekeeping (Article 7:603). Lending a dress to a stylist or taking a chair to a trade fair is therefore off limits unless you allow it.
The retail price and discounts when selling on consignment
When a shop buys your collection outright, you may not impose a fixed or minimum retail price on it. That is resale price maintenance and it is prohibited (Article 6 of the Dutch Competition Act and Article 4(a) of the EU Vertical Block Exemption Regulation). A recommended price or a maximum price is allowed.
On consignment that can be different. If the shop does not become the owner of your pieces, bears no costs for the stock and can return unsold pieces free of charge, the European Commission treats it as an agent. You may then decide the price at which that agent sells (Guidelines on vertical restraints, paragraphs 33 and 41). That room can disappear if you make the shop contribute to your campaign or pay for missing pieces. An agreement that missing pieces count as sold therefore affects your price agreement as well.
Agree too whether the shop may give discounts and who pays for them. Otherwise the end-of-season sale comes out of your margin, without you ever having signed up for it.
How often the shop settles up and when your collection comes back
Record how often the shop reports what has been sold and within how many days after that you receive your share. Settling up weekly means more admin than once a season, but it limits what you lose if things go wrong. Ask as well for access to the till data for your item numbers, so that you can check the report.
Agree also how long the collection stays in the shop and when unsold pieces come back, preferably tied to the end of a season. Set out who pays for transport and how a piece is handled that a customer brings back after the settlement. If you want to be able to choose afterwards between taking stock back and letting the shop buy the rest at a fixed price, arrange that in advance.
What happens to your consigned collection if the shop goes bankrupt or its goods are seized
Unsold pieces in the shop remain yours. The trustee in bankruptcy hands them back, but only if you can identify which ones they are. Item numbers, a signed delivery list for each consignment and your own label or rail make that a good deal easier. Do expect a wait. The supervisory judge (rechter-commissaris) can declare a cooling-off period of up to two months, which can be extended once by a further two months. That period also applies to third-party goods in the bankrupt shop (Article 63a of the Dutch Bankruptcy Act).
The money for what has already been sold is harder. For money a customer has paid at the till that the shop has not yet passed on to you, all you have is a claim against the shop. You submit it to the trustee and then join the queue with the other ordinary creditors. If the customer has not paid yet, for example on a business order on credit, you can take over the claim against that customer by written notice to the shop and the customer (Article 7:420 of the Dutch Civil Code, in Dutch). That is possible if the shop sold in its own name.
Then there are the Dutch tax authorities. For, among other things, the shop’s unpaid wage tax and VAT, the Belastingdienst may seize goods that serve to fit out the shop’s premises, even if they belong to someone else (Article 22(3) of the Dutch Tax Collection Act 1990, in Dutch). In Dutch this is known as the floor right, bodemrecht. The Belastingdienst reads that notion broadly, so a collection on the rails is not ruled out from the start. Under its own policy, it does spare goods that, both legally and economically, belong predominantly to someone else (Tax Collection Guidelines 2008, section 22.9.1, in Dutch). That is the obvious reading for consignment where unsold pieces come back at your risk. If the shop has also undertaken to you to buy a minimum amount of your collection, that protection falls away.
More about retention of title →
A lawyer for your consignment agreement
Consignment feels like a small arrangement, because there is no invoice involved. That is why little tends to be put in writing. Yet the shop holds part of your stock for weeks on end. Liaise drafts and reviews consignment agreements for brands and makers in fashion and design and for shops that work with brands on consignment. We look straight away at whether the shop is your agent in law and what that means for your pricing. We also set out what happens to your collection if the shop goes under. If you have a space of your own in a department store, see also the shop-in-shop agreement.
Want a consignment agreement drafted or reviewed? Get in touch or call 020 675 88 21.
