What is cost of goods sold?
Cost of goods sold (COGS) is an accounting metric that represents the direct costs a business incurs to acquire or produce the inventory it sells.
In a traditional retail business, COGS is straightforward: it’s what the store paid to buy the goods it later sold. In resale, it works a little differently depending on the business model.
COGS in consignment
In a consignment store, the store does not purchase inventory upfront — it only pays the consignor after an item sells. That payout — the consignor split — is the store’s COGS. If a jacket sells for $100 on a 60/40 split, the $60 paid to the consignor is the cost of goods sold for that transaction.
This is one reason consignment is an attractive model: COGS only exists when revenue exists. The store carries little to no inventory risk in the traditional sense.
COGS in buy outright
In a buy outright model, the store purchases items from sellers upfront. The price paid at acquisition is the COGS, regardless of what the item eventually sells for. This creates more traditional inventory risk — if an item does not sell or sells below the purchase price, the store absorbs the loss.
COGS in vendor malls
In a vendor mall, individual vendors rent booth or shelf space and manage their own inventory and pricing. The mall operator typically collects payments on the vendor’s behalf and remits earnings periodically. For the vendor, COGS is the price they originally paid to acquire each item sold. For the mall operator, there is generally no traditional COGS — their revenue comes from booth rental fees and commissions, not from buying and reselling goods. However, if the operator also sells their own merchandise alongside vendor items, those acquisition costs would be tracked as COGS separately.