Nowadays, eCommerce is booming. Retail arbitrage is just an aspect of the same. It involves a methodology where the seller buys products from suppliers at a lower price and then sells them online for a high price. This naturally means a profit for him.
But is retail arbitrage as simple as it sounds? No, because it involves many extra costs in the form of time, effort, and the resources required. On top of that, the transport logistics and listing problems. You can easily buy items from small stores for reasonable prices. Later they can be sold on online platforms like Amazon, Etsy, Craigslist, Facebook marketplace, etc.
This sounds exciting, right? So, let us read more about retail arbitrage and all its aspects. After reading this guide, you should be able to pursue it seriously.
Table of Contents
What is retail arbitrage?
Before anything, it is vital that we understand what retail arbitrage exactly is. Apart from that, you must know all its nuances. Retail arbitrage is a process that involves buying a simple product from a retail store and then putting the same product for selling at an online store for a higher price. The difference in the costs multiplied by the number of products sold is the total profit.
Though there are many online stores that you may use for selling, Amazon by far is the best choice. The reason for the same is quite simple. Amazon allows the facility of “Fulfilled by Amazon.” This means that Amazon will tackle the balance completion of the order. You are just supposed to send the product to Amazon. They will tackle the emails, calls, and returns that are involved.
It is easy to consider retail arbitrage the same as online retailing, but there is a minute difference. In regular retailing, the seller buys the products from wholesalers. On the other hand, retail arbitrage involves purchasing products from other retail stores.
How does retail arbitrage operate?
We will now explain the working of retail arbitrage through an example:
You go to Walmart one day and notice that Men’s belts are being sold at a discount. The same belt which used to sell at $30 is now available at $15. If you pick up 20 counts of the same and sell it online for $30, you earn a profit of 20*15$= 300$.
You could also sell it online for a slightly lower price than the MRP. Suppose you sell it for $27 and list 20 counts of the product, then you earn a profit of 20*12= 240$. This is a decent amount considering the fact that you do not have to deal with transport and other logistic costs.
Now we will study the concept of retail arbitrage through another example:
Suppose you buy an item at a price of $6, and at Amazon, it is selling for $20. When a customer buys the product, Amazon will pay you $15 after deducting shipping and other costs. Now you are making a profit of $20-$6=$14 per item sold.
Why is retail arbitrage still workable?
Maybe you are wondering how retail arbitrage is still working. There are a lot of factors behind it. Have a look at some of them:
- Products are not priced the same– A product may be priced at $15 in one location while $45 at another. Also, the demand for the product may vary from one place to another. One product that is popular in location X may not be selling at location Y. It totally depends on the market dynamics for that product.
- Convenience– A lot of customers are willing to pay extra as long as its delivery is convenient for them. Moreover, many of them do not have the time and patience to go to a store, look for a product and stand in queues. For such people paying a premium for your product is not a problem.
- Supply and demand– The supply and demand parameters of a market keep changing. For example, during the COVID-19 outbreak, sanitizers and masks were in huge demand. People were willing to buy them at an extra price. During this time, people were selling such products on Amazon at a 100% markup, and still, others were buying.
Pros and cons of retail arbitrage
We will now talk about the benefits and disadvantages of retail arbitrage. Before you take a leap into its systems, have a look at those.
Pros:
1. Low cost to enter-While the other forms of selling require a substantial initial investment, the same is not true for arbitrage. Here you can start your business with as low as $100. Since you buy your products at a lower price, even if you do not immediately sell them off, you won’t lose much. You will also keep the product count low, thus reducing your losses.
2. Quick earnings- Instead of waiting many months, retail arbitrage allows quick earnings. You are not on the marketplace to build your brand. Your aim is to sell the products, and that is what happens. In the end, you make your profit and get away with it. There is no compulsion to maintain a seller relationship or anything else.
3. Authority of the best eCommerce sites- When you work in association with Amazon, you get its authority as well. When you sell with them, Amazon deducts a portion of that profit. That means you have become a profit-making entity for them. To ensure you stay on their platform Amazon offers a slew of benefits.
4. Private labeling- By selling on Amazon, you can avail of its FBA assurance. It is easy to use and lends a sense of credibility to any new product. In fact, at any time, you can create your own private label and sell the products.
Cons:
1. Brand registry protection- One problem that could arise while using retail arbitrage is the brand registry protection involved. Amazon may ‘brand gate’ some of the products. Brand gating is when Amazon provides the brands more power over the listings made.
So if you are selling a brand-restricted product, you may have to request some permissions. If you list your products without taking consent, you might be penalized. To save yourself, check if the product is in the brand registry before you decide to sell it.
2. Low margins- The products you are selling are not yours. Hence there are limits placed on you, and that affects your margins of profit. If you are buying in bulk, you might have to pay the retailers higher margins. You could ask someone to buy the products for you. But that may not be feasible every time. Moreover, you might have to give them a cut.
3. Low customer retention- Obviously, you cannot keep getting the same products at a discount. This implies that every time you might have to sell a different product. The customers you sold to earlier may not be your target audience now. Plus, the product will bear its actual brand name. So, if the product is good, they will get accolades. But, if the product is faulty, your seller’s reputation is damaged.
4. Time spent in finding products- This is probably the biggest disadvantage of retail arbitrage. You have to spend a lot of time looking for products. That is because it is not always you will get a discounted deal. So you end up wasting your time looking for the best deals. Plus, you must sell your products relatively soon, or you will have to pay storage costs.
Is there a lot of competition in retail arbitrage?
Many people who are thinking about how to do retail arbitrage would restrict from opting for retail arbitrage because they believe the market is overfull already. This misconception arises because people see a lot of people posting videos of their success online. They assume that a lot of players are using retail arbitrage to earn money.
The truth is the exact opposite of this. There are not many players in this segment. Only a tiny percentage thinks about attempting to use retail arbitrage. Ones who try usually leave after a week or two as they cannot find new products.
The process of retail arbitrage is not challenging, but it takes time. In the beginning, you might not find the products. But if you are focused enough, you will understand the basic strategies you must adopt. There is enough room for new people to enter, provided you know how to tap products.
How to get started with retail arbitrage on Amazon
After all the essential work, we will talk about how you should start with retail arbitrage on Amazon. This is a multi-step process. Following are the steps that you would have to take.
1. Register for an Amazon seller account
First of all, you will have to set an Amazon seller account. That is the basic step in the retail arbitrage system. After you create an account, you can sell your products. To start with, you will have to visit the webpage “services.amazon.com.” You will see a “Start Selling” button there. Click on the same to open a professional seller account with Amazon.
This account costs $39.99 per month, irrespective of hum much you sell. You could also scroll down the page and set up an individual account. This account is free, but you will pay $.99 for every item that you sell. Eventually, you will need a professional account as it offers more benefits. Plus, the professional account proves helpful once you start making a profit.
The professional account entitles you to purchase the buy box. It will also allow you to sell your product in restricted categories as well. So you get to sell a wide variety of products as time passes. You could start with an Individual account and progress to a Professional account once you start reaping profits.
2. Download the Amazon Seller App
Now that you have signed up for the account, you can get access to a free app. You will find many retail arbitrage scanning apps online. But by far, the Amazon app is the best choice for any beginner. It has all the details that you require, and it is free as well.
This app will allow you to use the camera feature and ’scan” barcodes of each product. Post this; you can now see the selling price on Amazon, fees for selling, and other details. With that information in hand, you can calculate your profits in advance.
3. Visit the local stores
Obviously, now your next step is to visit the local stores and figure out products. There are many options, to begin with. But mainly you should start with a store close to your home. Some of the best retail arbitrage stores for buying products for retail arbitrage are:
- Walmart
- Shopko
- Kmart
- Target
- Home Depot
- Lowes
- Walgreens
- CVS
- Big Lots
- Rite Aid
- Toys r Us
- Office Depot
- Staples
- Bed Bath and Beyond
4. Scan the clearance products
It is better to find products that would sell fast. There is no hard and fast rule as to what will click with the buyers. Whichever product you pick, you will have to scan the same on the Amazon seller app. Doing that will show you the taxes you will have to pay. With the final figure in hand, you can calculate your profits.
When you scan the product, there are a few things you should note. Go to the product details, and you will see its eligibility information. If a green arrow marks this section, it means you can sell it. The product listing will show you the sales rank as well. The lower the sales rank, the higher are the chances of your product selling quickly.
You should try and look for items with sales ranks less like 250,000. If your item says it is eligible to be sold and its sales rank is less than 250,000, you should proceed ahead.
5. Retail arbitrage what to buy and how much
The decision of how many units you must buy is dependent on how much risk you can tolerate. You will have to find out how many sellers are selling the product and the sales they are getting. For example, if the sales are 5000 per month and 20 sellers are selling it. To find out how many units you should sell, you have to divide 5000 by 20. This is equal to 250 units per month.
This implies you have the chance to sell around 250 units of the product per month. But this number may vary depending on factors like the entry of new sellers, drop in sales rank, and increase in the price of the buy box. But in the beginning, it is sensible to start with fewer units and increase as you move ahead. *Tip – Look out for red stickered clearance items at the time of big sale in Walmart.
The following criterion should be applied when you are deciding what to buy:
- Min. Profit of $3 per unit
- Max. rank of 200,000 (You will get this data on Amazon seller app)
- Min. 3 Star Ratings
- Atleast 30% ROI
6. Check the ROI and Profit
You must now check the Return on investment and profit you will get after selling the product. Click on the right side of your product listing screen. It will give you a detailed calculation of all the costs involved and the final profit on each product.
Go down and check what the final profit figure looks like. Ideally, do not sell a product where you are making less than $3 profit. You can maintain your own minimum profit threshold as well. But do not go below $3. If you go below that, any potential upside could erase any profits you have made till now.
Now calculate the return on investment or ROI. To do that, you will have to divide the profit by the cost of the item. In the beginning, look for products that offer you an ROI of more than 50%. Buy at least o counts minimum of the product. You could buy more depending on how much you are willing to invest in retail arbitrage.
After some time you could buy more units, especially when the demand for that product is high. Do not assume over the saleability of a product. Go through the latest trends to avoid buying something which the customers may never buy. Scan as many items as you can to figure out what will click with the users.
7. List the products for sale
Once you have decided on the products, you will have to list them on Amazon. It is always better to use the FBA facility while doing so. This allows you to ship items in bulk quantities while they handle the shipping to one customer.
You can sometimes fulfill the orders yourself. For example, in Q4, when you are running short of time. Such orders are mentioned as “Fulfilled by the seller” in the account. However, in most other situations, you should use the FBA assurance.
Tips to make your retail arbitrage process easy
To help you use retail arbitrage in the best way possible, we will now share some tips. Follow them in order to proceed smoothly with the entire process.
1. Understand the numbers
When you scan the products, you get complete detail of all the numbers. This includes the profit, return on investment, etc. Some people may get hassled by Amazon shipping fees. But if you consider the kind of convenience it offers, you will overlook that. Always pick up products which are popular and offer high profits.
2. Avoid making assumptions
When starting with retail arbitrage, avoid making any assumptions. Don’t imagine the saleability of any particular product. Sometimes a product you may think is not worth selling might be hugely popular in the Amazon arena. Similarly, a product you may assume will sell well may not be considered by Amazon as popular. Go by what Amazon mentions to avoid any confusion.
3. Learn the store discount schedules
Some stores have a particular time when they put their products on discount. A few of them offer discounts when their products are sitting on the shelves for long. Understand how the store operates. It will be helpful as you will know when to expect bulk product availability and discount percentage,
For example, certain stores start by reducing the price by 15%. Even then, if the product does not fly off the shelves, they keep increasing the discount. Pretty soon, the discount percentage changes to 30%, 50%, and 70%. Wait for them to do so, and then make your purchase.
4. Patiently learn the process
It will take you some time to understand the entire process thoroughly. Which products are profitable and which not is something that you will not know over a day. Hence being patient is key here. As you buy products and see the economics of each of them, you will start making a decent profit. This understanding of choosing your products may take a few months or more. But, once you are able to make a dent in the process, you will see profit soon.
5. Take sufficient time at each store
Make sure to spend enough time at each store to understand how things work. Go through all the clearance racks. At times the entire processing of the store may be over in 30 minutes. However, on other occasions, you will have to spend hours at one store only. Do not consider this as a waste of time as you can use the knowledge gained for future prospects.
6. See the trends and sell seasonal products
You may go into the store and find products that would sell. On the flip side, you can also anticipate seasonal sales and buy that product in advance. For example, there is a jump in the sales of toys during the holiday season. You could research like which toys are extremely popular. Purchase them when the market is down, and you are getting a huge discount,
During the COVID season, products like hand sanitizer and masks were popular. But the demand for video games etc. also showed a sharp rise. Since people were confined to their homes, they spent it playing video games. Products like sidewalk chalk were popular as kids were now staying at home. Also, with rising in work from home, the demand for printers and webcams showed a hike as well.
7. Sell discontinued products to get maximum profit
Sometimes a company stops producing a product range even though there is still sufficient demand for it. You might think about how to lay your hands on discontinued products. Go around the retail stores, and you will find some of these products on shop shelves. There are, however, some tips that you could use to find them:
- Shop in local stores around you. Big box retailers like Walmart may not have what you are looking for. Such discontinued items will be stored in close-by stores with niche customer bases.
- Look for items that look old. When you are browsing the shelves, go for things that are dusty or have faded labels. This means that the products are mostly discontinued, and no one is noticing them here.
- Find items that have ‘refills’ labeled on them. Some of the cleaning products have refills associated with them. These products are discontinued, but people still like using the refills for their cleaning. If you find refills for such products, you could store them.
- Look for discontinued products on eBay. This is one website where you can easily find such products. Go and search for ‘discontinued’ and then filter by the ‘sold’ listings. This will then show all the products that are now not made.
8. Remember prices can change instantly
In case another seller decides to “tank the price,” the pricing may take a severe cut. That means the product which was profitable till now is not so anymore. Keep checking the price history so that the situation remains in your control. If you see any price fluctuations, modulate your price so that the product sells quickly.
9. Be friendly with the managers
Being friendly to the store managers can prove helpful when you talk of future prospects. You can always tell them what you do. If there are any new products that they are going to mark down, they might just call you to have a look. This situation is profitable for them as the inventory flies off the shelves earlier than they planned.
Get your business card made and hand it over to the managers. Let them know that this is where they can reach you in case they want to offload any products. Over a period of time, you will build a solid connection base. Your majority of sales would then come from these devoted connections that you made.
10. Opt for store cards
Every store offers membership cards which provide an additional bonus. For example, Target has a Red card which provides a 5% extra discount. By signing up for the card, you ensure that the price at which you buy the product gets reduced further.
11. Keep your receipts
If You are buying high-value items, make sure you keep their store receipts. Sometimes you are asked about these receipts to see if the product is genuine. This usually happens when you sell large quantities of a high-priced item.
12. Read the sales tax rules
Every state has different state rules. It is better to get an idea of the same before moving further. If you follow the process correctly, you may be exempted from paying the sales tax when you are sourcing the products. Fortunately, doing that is 100% legal, and it increases your ROI and purchasing power.
How you can create your Fulfillment by Amazon (FBA) shipment
The last step for you to start selling is to learn how to create your FBA shipment. Follow the below-mentioned steps to do so:
1. Find the product in Manage inventory
On your right, you will see the “Edit” and a drop-down menu. Click on the menu and go to “Send/Replenish Inventory.
2. Choose the inventory you wish to send
Here you will have to edit the packing template. It consists of the template name, number of units per box, dimensions of the box, weight, etc. Now mention how many units you are going to send. You may decide based on the amount of loss you can tolerate.
3. Confirm the shipping
Here you will have to set the shipping date, shipping mode and then confirm the shipping price. You have already added the other details before. So now you do not have much to do. If you decide to use Amazon’s shipping partner, i.e., UPS, the shipping costs take a sharp cut. Even a heavy package could be shipped at a moderate price. Once you agree to these terms, you should click “Accept charges and confirm shipping.”
4. Print the FBA labels
Your shipment is confirmed now. All that is left is printing the FBA labels. You will find two barcodes on these labels. Ensure that all the labels are visible on the front of the box. The first label is the UPS label. On the other hand, the second label is how Amazon identifies who has sent the product.
Monitoring the sales
By now, you would have got a fair idea of what the retail arbitrage process is like. However, you will have to monitor the sales to understand your failings constantly. The Amazon seller app allows you to find your sales, manage the orders and modify the price as per your requirements. If you notice that the product sales are high, you would have to stock more inventory.
On the other hand, if the sales are not picking up, you could reduce the price. You might have to keep making such adjustments until you understand the nuances of selling on Amazon. The key to success is to always be on the lookout for new items to sell. Once you get a fair idea of what clicks with the customer, there is no stopping you.
Conclusion
Retail arbitrage selling is not complicated as such. But it definitely takes time to monitor how it works. A product that you may consider popular may not be liked by Amazon customers. Though this may hamper your prospects, you should not stop yourself. Keep looking out for the right products until you find one that works best.
Always remember that the products have to be delivered in perfect condition. If the package is damaged in transit, it will no longer be useful for anyone. Also, if it is in damaged condition from your side Amazon is never going to accept it. With everything in place, you can start your retail arbitrage journey and achieve great success.