Online selling can be quite confusing for some entrepreneurs, especially those new to the digital landscape. If you wish to start online selling, retail arbitrage is a convenient option to begin your eCommerce business journey.
You can start with retail arbitrage on Amazon with as little or as much capital as you are comfortable with. There is less pressure regarding the amount of money you will shell out to start retail arbitrage.
We have prepared a guide on retail arbitrage, which is ideal for sellers without experience or basic knowledge about Amazon arbitrage.
What is Retail Arbitrage?
Since this guide primarily benefits newbie online sellers, it is best to answer the question: what is retail arbitrage?
In its general sense, retail arbitrage means purchasing an item from one market and then reselling the purchased items for a higher price in another marketplace.
To be more specific, these items are purchased from retail stores. Hence, the name “retail arbitrage,” for buying it online, denotes online arbitrage.
To put it into perspective, the best example would be buying clearance items at a local outlet store that are sold for $10 and reselling them on other marketplaces for $25. Thus, implying that retail arbitrage is simply buying low and selling high.
What is Retail Arbitrage on Amazon?
Another term that confuses some sellers is Amazon retail arbitrage. Others might confuse such a method thinking that they will buy things from Amazon and sell it on other marketplaces for a higher price.
Amazon retail arbitrage applies the concept of retail arbitrage in its general sense. However, it has Amazon as the end marketplace of the products instead of selling them on other eCommerce sites like eBay or Shopify. With Amazon retail arbitrage, you have the option to sell your products either on Amazon.com or other Amazon Global marketplaces.
The process remains the same when it comes to retail arbitrage on Amazon. The $10 product you purchase at a retail store is sold on Amazon’s eCommerce platform instead of other platforms.
Retail Arbitrage Legal Concerns – Is Arbitrage Legal?
Now that you have understood the basic concept of retail arbitrage on Amazon, you might think such a method is illegal. Taking advantage of the price difference between online marketplaces and retail stores begs the question: is arbitrage legal?
First and foremost, retail arbitrage is an accepted industry practice. Arbitrage is not only practiced on Amazon; other sellers likewise practice retail arbitrage on other platforms such as eBay and Walmart.com.
Retail arbitrage is an acceptable method when selling on Amazon, so long as the business activities of sellers comply with the law and the guidelines set by Amazon.
In countries like the United States, a legal concept exists that makes retail arbitrage an acceptable method for selling online. This legal concept, known as the “first sale doctrine,” allows legitimate buyers of a product to resell authentic items produced by manufacturers.
The first sale doctrine is a defense against copyright infringement, especially for resellers. It allows resellers who are into retail arbitrage to resell products without the fear of trademark owners filing charges against them.
However, there are some instances where the first sale doctrine will not apply. For example, changing the serial number of the product you are reselling will render the first sale doctrine null and void. It is true even if no material change has been made to the product.
Although the first sale doctrine justifies the legality of retail arbitrage, other considerations are also taken into account, including material modification of the product being sold.
For you to avoid legal disputes, it is best to consult a legal expert when planning to introduce alterations to the products you will resell online.
Retail Arbitrage vs Other Business Models
To fully understand retail arbitrage as a business model, it is best to distinguish it from other Amazon business models. Here are some popular business models sellers use for their online ventures.
Private Label is a popular business model used by online sellers when selling on Amazon. In fact, A survey revealed that around 59% of Amazon sellers use a private label business model for their brand and products.
Sellers who are engaged in private labeling on Amazon create their own product label or brand by modifying an existing product in the market. In private labeling, Amazon sellers can control almost all aspects of the product, including but not limited to product specs, packaging, marketing, and branding.
Wholesale involves purchasing inventory items in bulk directly from the manufacturer or supplier, then reselling them on Amazon. It differs from arbitrage, for the items are purchased in large quantities, and most of these products already exist on Amazon. Sellers simply act as resellers for the purchased items.
Dropshipping on Amazon means buying items directly from manufacturers to fulfill a customer’s order. However, instead of the Amazon seller actually fulfilling the orders, the manufacturer will fulfill and ship the orders directly to shoppers.
Amazon Handmade is an avenue for artisans and crafters to sell their products. This particular marketplace is intended only to showcase handcrafted goods. Amazon Handmade rivals eCommerce sites like Etsy.
Why You Should Start Retail Arbitrage Today? | Advantages of Retail Arbitrage on Amazon
Retail arbitrage is an enticing business model for potential Amazon sellers. It has been a tested and proven approach to reselling on Amazon and online selling in general.
To give you an idea of why you should try retail arbitrage, here are some of the reasons why Amazon retail arbitrage remains popular among sellers.
Low Risk Involved
Retail arbitrage on Amazon is a straightforward business model. You simply buy low and sell high. It is a perfect model for resellers with a low-risk appetite since the business involves lower risk than other business models.
It is possible to start a retail arbitrage business for as low as $100 to $300. With such capital, you can easily obtain inventory products from retail stores.
As mentioned above, you can start retail arbitrage for as low as $100. Since you are not required to purchase items in bulk or strictly follow a minimum order quantity (MOQ), you can purchase multiple products for inventory variations at a relatively low price.
Furthermore, with Amazon arbitrage, you have the option to choose the fulfillment method that fits your budget. You can choose either Amazon FBA or FBM.
With retail arbitrage, you can either choose to make it a full-time gig or a side hustle. You can decide when and where to look for inventory items. Some retail arbitrageurs even combine their weekly shopping and other errands with their retail arbitrage sourcing activities.
Unlike other Amazon business models, retail arbitrage is simple and easy to do. You do not need any specialized knowledge or connection with manufacturers or distributors to start this business.
You simply find a product in retail stores which has resale value. Thus, making it faster for you to launch your business with Amazon arbitrage.
Good Starting Point
Retail arbitrage is a newbie-friendly business model that can serve as a springboard toward other business models on Amazon. It requires low investment and is quite simple to manage, making it a good starting point for newbie entrepreneurs.
Retail arbitrage on Amazon can be a perfect training ground for online sellers who wish to test the waters and develop their online selling skills before pouring in more capital to the business.
How to Start Retail Arbitrage on Amazon? | What Newbie Sellers Should Do
Amazon retail arbitrage has gained traction over the past decade because of the simplicity of the business model, and the benefits sellers get from it. If you wish to start your own retail arbitrage business today, here are some essential steps and tips that can help you successfully launch your Amazon business.
Step 1: Create an Amazon Seller Account
The first requirement to start Amazon retail arbitrage is to have a verified seller account. You must sign up online for an Amazon seller account. To create a seller account on Amazon, you can use either of the following links:
To become an Amazon seller, you can choose from the two popular Amazon seller plans: Individual or Professional Selling Plan.
The Individual Selling Plan will not require you to have a monthly recurring fee. However, you will incur $0.99 for every item sold under this selling plan.
Alternatively, sellers also have the option to maximize Amazon services with the Professional Selling Plan. This plan comes with a monthly flat fee of $39.99.
To set up your Amazon seller account, whether Professional or Individual, you will need to have this information or requirements ready:
- Email Address
- Tax ID
- State Tax ID
- Business Information
- Contact Number
- Internationally Chargeable Credit Card
If you wish to learn more about becoming an Amazon seller, you may read this guide in a separate article we have created.
Step 2: Searching for Inventory Items
After creating an Amazon seller account and deciding whether to become an Amazon FBA or FBM seller, you will need to find products to sell on Amazon.
The product sourcing method makes retail arbitrage on Amazon advantageous for newbie sellers. Shopping for products to list on your Amazon store can be done through retail stores.
You simply search for discounted items with resale value in outlet stores, thrift stores, department stores, and other brick-and-mortar stores. Buy the items low and resell them on Amazon for a profitable price. That is the basic tenet of retail arbitrage.
However, emphasis should be given to resale value and profitability. Although the retail store product is discounted, it might not be able to generate a good profit, considering the Amazon fees involved.
You can use an Amazon seller scanner app to help identify items that can yield better profit for your retail arbitrage business. This app can help assess a product’s profitability.
In terms of a shopping destination, some of the popular go-places for retail arbitrage include the following retail stores and outlet shops:
- Home Depot
- Bed Bath and Beyond
- Publix Super Markets
- Dollar Tree (or other dollar stores)
Step 3: Product Listing
Once you have found a product with a promising profit margin, you can start listing the products on Amazon. You can start listing your product via Amazon Dashboard.
The most uncomplicated process of listing a product on Amazon is to copy the ASIN of an existing listing. Make sure that such a listing represents or is identical to the product you are selling.
When it comes to Amazon product listing, there are essential aspects to optimize. These include the following:
- Bullet Points
- Product Description
- Back End Keywords
- Product Images
- Price Point
Amazon Seller University shares a video presentation below about adding products and creating listings on Amazon. It can help you understand better the steps involved in the Amazon product listing process.
Step 4: Manage Shipping
Identifying the necessary preparation required to ship the product safely is the sellers’ responsibility, especially when it is yet to be delivered to the Amazon fulfillment centers. For Amazon to receive your products in their warehouse, you should follow the FBA product preparation requirements.
For merchant fulfilled shipping (MFN) or Amazon FBM, sellers will also have to observe shipping guidelines and manage delivery time for fast delivery. Amazon has provided sellers with a guide on managing and modifying delivery time.
Make sure that your products are properly packaged and appropriately labeled. If you are handling product shipping, instead of Amazon doing it for you, ensure that your logistics and shipping partner are reliable to avoid delays.
Amazon Restricted Products – What to Do When a Product Is Restricted
Amazon has a stringent rule when it comes to product restrictions. Sellers participating must adhere to these policies.
Some of these policies include prohibiting the sale of unsafe and illegal products. In particular, Amazon has highlighted the following products and categories with accompanying restrictions:
- Art – Fine Art
- Art – Home Decor
- Export Controls
- Food & Beverage
- Gambling & Lottery
- Recalled products
- Laser products
- Drugs & drug paraphernalia
- Hazardous and prohibited items
- Human Parts & Burial Artifacts
- Jewelry & Precious Gems
- Lock Picking & Theft Devices
- Medical devices and accessories
- Other restricted products
- Pesticides and pesticide devices
- Plant and Seed Products
- Postage meters and stamps
- Recycling electronics
- Explosives, weapons, and related items
- Offensive and Controversial Materials
- Tobacco & Tobacco-Related Products
- Animals & Animal-Related Products
- CPAP Cleaning and Disinfecting Devices
- Currency, Coins, Cash Equivalents, and Gift Cards
- Refrigerants: Ozone-Depleting Substances and Substitutes
- Warranties, Service Plans, Contracts, and Guarantees
- Upholstered Furniture, Bedding, & Other Quilted Products
- Federal Emissions – Products requiring EPA Certificate of Conformity
Although some of the products mentioned above are generally accepted by Amazon, such as electronics, food & beverages, and lighting, specific guidelines are set for the aforementioned products.
If you violate these guidelines and other product restrictions, Amazon’s payment to sellers may be forfeited or withheld. Aside from forfeiture of payment, selling restricted products on Amazon can also lead to legal actions, including civil and criminal penalties.
What To Do About Amazon Product Restrictions?
In general, restricted products are items Amazon does not allow on its platform. It applies to products with legal restrictions and safety requirements.
However, this does not mean that if your product is initially restricted, it will automatically be banned by Amazon. Amazon only wants to be on the safe side of things, be it in law or user safety.
To avoid product restriction issues, it is best first to know the rules and regulations highlighted by Amazon in relation to your prospective inventory item. Check any specific legal requirements of a particular product.
Additionally, you can also employ the help of legal experts who specialize in Amazon seller account services. If you have products that are deemed legal to be sold online, you can request approval from Amazon. Follow these steps below:
Step 1: Log in to your Amazon Seller Central account. Go to the “Inventory” menu and select “Add a Product.”
Step 2: Search for the item you want to sell, and check if it is restricted.
Step 3: If restricted, click “Listing Limitations Apply” and then click the “Request Approval” button.
If you are not immediately approved, chances are Amazon will require you to present more information about the product and your business, including wholesale invoices and pertinent business information.
Must Have Amazon Seller Tools for Retail Arbitrage on Amazon
Similar to other Amazon business models, you should also consider using Amazon seller tools. Here are some of the vital Amazon seller tools that can help you with retail arbitrage.
Amazon Seller Scanner App
As previously discussed, Amazon sellers must have an Amazon scanner app for a successful retail arbitrage model. This Amazon seller tool will not only display the potential profit for selling the item but will also showcase essential data such as sales history, number of competitors, and product restriction alerts.
The repricing software can help you obtain a competitive advantage over competitors. It can help increase your Buy Box win rate and avoid Amazon price wars that are detrimental to your profit margin.
Product Research Software
If you wish to avoid the headache of dealing with product restrictions, you can also improve your product sourcing activity with the help of an Amazon product research tool.
This type of tool will provide you with product restriction alerts and give you data concerning sales volume, project trends and sales, insight into competitor activities, data tracking, historical prices, and more.
Listing Optimization Tool
A listing optimization tool can help improve your listings for better organic search results and customer engagement. Some of these advanced tools offer more than just keywords, but also provide backend search terms and even photography input to improve your listing images further.
To reach more people, you will also need to market your product with the help of Amazon advertising tools. Advertising tools can help increase your products’ visibility and your store’s customer engagement. When it comes to advertising tools, you can use third-party software or Amazon’s very own advertising tools, such as Sponsored Products.
Achieving Amazon Retail Arbitrage Success
Getting started with Amazon arbitrage can be a daunting task for sellers, especially those new to the eCommerce industry. However, you can create a successful retail arbitrage business with proper knowledge, expert guidance, and reliable software tools.
Sellers must never forget the basic principle of retail arbitrage, “buy low and sell high.” Always check the profitability of your item along with possible restrictions.
Furthermore, it is worth noting that sellers are not only confined to retail arbitrage. Online sellers can also combine retail arbitrage with other Amazon business models.