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ISSN : 1738-3110
Determinants of Department Store Sales Commissions Under Consignment Contracts: An Integrated Perspective
Yeom, Min-Sun
Seo, Hun-Joo
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Abstract
Purpose - This study aims to seek determinants of department store sales commission rates under consignment contracts based on transaction cost theory, the power-dependence view, and the resource-based view. A consignment contract is a unique contract where the retailer, over a given period, takes possession of goods owned by a supplier, promotes the sales of these goods, and receives a profit share from their sales. Under this contract, the supplier owns the goods until they are sold. In department stores in South Korea, over 70% of overall sales comes through consignment contracts. In other words, this is the most popular contract agreement between large retailers and vendors in South Korea. Consignment contracts yield high profits to department stores with minimal sales uncertainty, stock cost, and marketing investment. Many suppliers believe the consignment contract commission rates are too high. However, department stores disagree. They state that the commissions are not high as they generate new value for the suppliers by accumulating up-to-date merchandise and supporting various marketing programs on their behalf. Recently, consignment contracts have been critically examined and scrutinized by politicians, mass media, and the public of Korea. This study further intends to derive implications reflecting both buyer and seller perspectives as well as offer insights to policy makers in making appropriate decisions. Research design, data, and methodology - To verify the proposed research model and test hypotheses, the authors selected 164 suppliers, which currently have relationships with department stores. This study carefully investigated the reliability, content validity, convergent validity, and discriminant validity of the proposed model. The data were analyzed using SPSS 18.0 and AMOS structural equation modeling program Results - For the transaction cost theory and the power-dependence view, the results indicated that product diversity and demand volatility had a positive impact on the sales dependence on a department store. Dependence in turn had a positive effect on the sales commission under the consignment contract. Based on the resource-based view, the department store's marketing capability, the supplier's perception toward merchandising, and supporting activities could enhance the department store's channel leadership in the buyer-seller relationship. Subsequently, the channel leadership had a positive effect on the sales commission. However, product complexity had no relationship with department store dependence. Conclusions - This is the first empirical research that investigates the determinants of sales commissions under consignment contracts in the domestic retail industry. This study reveals several theoretical and practical implications for both marketing scholars and marketers. In terms of theoretical implication, this study integrated and enlarged certain theoretical background, such as transaction cost theory, the power-dependence view, and the resource-based view, to explain the determinants of sales commissions under consignment contracts that include sales revenue. From a business management viewpoint, this research offers useful insights for policy makers by applying two different perspectives, both the manufacturer and the retailer, in terms of the sales commission issue under a consignment contract.
- keywords
- Consignment Contract with Sales Revenue, Sales Commission, Transaction Cost Theory, Power-Dependence View, Resource-Based View
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