Consignment vs firm sale

In a firm sale the buyer takes title on delivery and pays for the goods whether or not they sell. The seller converts inventory into cash immediately and stops worrying about it. The buyer takes the full spread between purchase price and eventual realization, and the full risk that the realization is lower than expected.

Closeout and off-price trade is overwhelmingly firm sale, because the seller's whole purpose is to remove the goods and the obligation from its own books.

Under consignment the supplier retains title until the goods sell. The distributor holds and sells them, remitting an agreed share. Nobody has to agree a price for goods whose value is genuinely unknown, which is consignment's advantage.

Its disadvantage is that the supplier's capital stays tied up, and it keeps the inventory on the supplier's balance sheet, which is exactly what a retailer clearing a glut is trying to avoid.

A firm-sale buyer is pricing three things the consignment holder never touches: the possibility that the assortment is worse than described, the carrying cost of the slow part of the lot, and the fact that there is no recourse. A discount that looks aggressive next to a consignment split is usually just those three risks priced honestly.

size composition of the lot is the single largest driver of that risk, which is why firm-sale buyers negotiate hardest over the inventory file rather than over the headline price. See lot valuation.