Whether you are already an experienced Amazon FBA seller or thinking about throwing your hat into the ring, you probably heard that many people are making thousands of dollars by selling or buying goods on Amazon Seller Central.
Among its prominent methods is called retail arbitrage. While its concept may be easy to adapt, you have to be selective about the items that you opt to buy and sell to ensure that you’re maximizing your potential profit.
Beginners looking to start with this business model might find themselves asking, “Retail arbitrage — what is it?” They’re likely Googling phrases like “What is a retail arbitrage?” or “What does retail arbitrage mean?” to gather ideas.
What does retail arbitrage mean? The meaning of retail arbitrage is the practice where online sellers purchase items in retail stores at a discounted price and then resold at a marked up price. You might have heard about another term and will likely wonder: “What is online retail arbitrage?”
The practice is actually the same. The only difference with online arbitrage is that it involves finding products on other ecommerce sites and selling them at cheaper prices. Amazon sellers then list them up on their store with a higher price tag to increase their profit margin.
Sellers using the retail arbitrage model usually purchase products on sale or clearance. They purchase in bulk so they can take advantage of coupons and other kinds of discounts.
As a result, retailers may feel pressured to lower their prices online, allowing resellers to potentially earn higher profits.
Retail arbitrage is time-consuming. Sellers might spend hours every single week exploring coupons and marketplace ads or combing through the clearance isles at local stores and buying products to eventually sell them. While the vast majority of people sell these products on Amazon or eBay, other sites like OfferUp, Facebook Marketplace, and Craigslist can also be used to leverage retail arbitrage. The most popular approach to retail arbitrage today is using Amazon FBA.
The best thing about retail arbitrage on Amazon is how easy it is to get started. Firstly, the Amazon seller account is very intuitive and user-friendly and taps into the massive reach and power of the Amazon marketplace.
It also removes the shipping hassle from the seller, meaning that you can stop shipments until multiple items are being sent to the same location, thereby cutting down on your shipping costs. Even though an individual person owns the stock with Amazon FBA, Amazon fulfills the order.
Product research is also easy to do. Capitalize retailer promotions to purchase products at lower prices and resell them after the promotion ends. Lower costs also ensure that you won’t have too much money tied up in inventory if the products don’t sell immediately.
Retail arbitrage also doesn’t need any type of specialization. There’s no need to pick a specific niche, because your main goal is to look for products that sell well and fast.
Many have witnessed how successful this business model can be. And although it is a legal way to run your online business, sellers should always abide by policies and practice ethical business conduct to maintain their reputation and avoid potential issues.
Firstly, you need to make sure that the products you buy meet quality and safety standards. Avoid shops that could be selling counterfeit or prohibited items.
Respecting intellectual property rights will help avoid legal complications. Before listing a product on Amazon, it’s crucial to research thoroughly to ensure you’re not violating any trademarks or copyrights. Invest time to understand these aspects so you’ll be better equipped to build a sustainable and ethical retail arbitrage business.
A couple of public school teachers started investing in an inventory that only cost them a hundred bucks. Now, they’ve reached $1M worth of sales on the eCommerce giant.
The couple advises people to begin their Amazon FBA journey by selling clothes.
Nate and Alysha have focused on sourcing the majority of their clothing inventory from Kohl’s. At first glance, Kohl’s might seem pricey to outsiders, but as they explain, there are plenty of opportunities to stack discounts when purchasing in bulk.
They’re active members of Facebook groups that share Kohl’s coupons and discount codes. They also regularly monitor Kohl’s website for sales and have become experts at predicting when discounts will be offered.
Everything used to be done during the weekend or in their spare time. After a year, their business grew and earned more than $180K.
They hired extra help to increase their stock and mentored those people to have their own retail arbitrage business at the same time.
As a general guideline, Nate recommends aiming for a 100% return on investment (doubling your cost of goods sold) and keeping in mind the “30% rule,” which breaks down as follows:
According to Alysha, part of mitigating risks is avoiding the purchase of large quantities of a single product. She recalled that when they first tested oil diffusers, the items sold out quickly. Encouraged by the success, they decided to buy more, only to be disappointed when the producer began selling the diffusers on Amazon for half the price they had listed.
Nate also adds that part of their success is that they live in a shopping destination, so he believes they won’t run out of stock.
In 2018, Peterson embarked on his first retail arbitrage venture with $500 he had saved. Armed with the Amazon Seller app, he and his brother visited an overstocked goods store, scanning products to compare prices on Amazon. They stumbled upon a bronzer selling for $2 in the store, while it was listed for $21-$24 on Amazon. He purchased ten units, and after selling them within a week, made a $140 profit. This success motivated him to continue, gradually increasing the number of units he bought and sold. Over a few months, he bought and sold 606 units of the bronzer, building both confidence and profit.
Peterson expanded his strategy to include various products on sale, from toys to sporting goods, always aiming for a profit margin of at least 50%. However, he quickly realized that not all items with higher prices would sell quickly. He made mistakes by investing in products that lacked demand, resulting in months of breaking even. He also found that he wasn’t accounting for the time spent sourcing products.
To refine his approach, Peterson began using Amazon’s Best Sellers Rank (BSR) to gauge product popularity. He learned that a lower rank indicated better sales potential, especially in categories like toys, where a sales rank below 100,000 usually meant quick sales. Additionally, he uses Keepa, a tool that tracks historical sales data, to avoid seasonal pitfalls. He also made sure to scan products in-store to check for any selling restrictions before purchasing.
Sellers have a few different options in the event that their items don’t sell within a certain time period. A fee can be paid for the items to be shipped back to you, or storage fees can be paid to Amazon.
Your entire stock might not sell every single time, so it is well worth thinking about the potential fees and downsides well in advance before committing to retail arbitrage as your primary earning strategy.
Emerging technologies are reshaping retail arbitrage. Automation tools like AI-powered pricing algorithms, inventory management systems, and chatbots streamline operations, enhancing efficiency. Advanced data analytics provide insights into market trends and pricing strategies, enabling data-driven decisions. AR and VR technologies boost customer engagement by allowing product visualization before purchase.
Market shifts present new opportunities. The growth of e-commerce platforms offers arbitrageurs access to a global audience, while consumers’ focus on sustainability and ethical sourcing opens doors for those who prioritize eco-friendly products. Niche markets also offer a chance to stand out as competition in mainstream categories intensifies.
Looking ahead, increased competition will require arbitrageurs to differentiate through unique strategies. Personalized shopping experiences and sustainability initiatives, such as eco-friendly packaging and ethical sourcing, will play crucial roles. By staying informed and adaptable, retail arbitrageurs can leverage these trends to succeed in an evolving market.
To summarize what we’ve covered about retail arbitrage, these are some of the best tips we can give:
If you want to get started with retail arbitrage, Website Closers can help. Through our brokerage, you can look at various Amazon businesses that are already selling well, so you don’t have to start everything from scratch.
Schedule a consultation with our knowledgeable business brokers who are experienced in the field of retail arbitrage business.
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