The majority of Amazon FBA sellers rely on reputable third-party product sources to fill their inventory. Quickly jumping into the Amazon landscape with random products and unscrutinized sources can be detrimental to your business.
One of the highly utilized methods in acquiring inventory items is retail arbitrage. The low risk and low capital requirements of retail arbitrage on Amazon make it an enticing business model for online sellers.
If you are new to Amazon or eCommerce in general, check out these helpful insights and frequently asked questions to get you acquainted with Amazon retail arbitrage.
What is Retail Arbitrage?
Retail arbitrage or RA is among the widely practiced business models in eCommerce to date. This method takes advantage of heavily discounted items and their potential markup value.
By definition, RA is the process of purchasing discounted items from one marketplace with the intention of reselling the items on another marketplace for a higher price.
How Does Retail Arbitrage on Amazon Work?
Amazon retail arbitrage is simply the application of the process highlighted in the preceding paragraph. You purchase an item from a retail outlet and resell it for profit on Amazon.
To illustrate, you purchase Product X from Market A at a discounted price of $5, knowing that its current price point in Market B is around $13 to $15. Reselling it on Market B even at $13 can still result in profit.
What makes retail arbitrage on Amazon distinct is that you need to observe some of the guidelines set by Amazon, including product and category restrictions. Some of the presently gated Amazon categories include the following:
- Fine Art
- Gift Cards
- Collectible Coins
- Major Appliances
- Video, DVD, & Blu-ray
- Streaming Media Players
- Automotive & Powersports
Does Retail Arbitrage on Amazon Still Work Today?
Presently, retail arbitrage is still a viable method. A significant number of Amazon sellers rely on RA for their inventory.
Indeed, consumers can easily walk into a nearby brick-and-mortar store and purchase an item at a lesser price than the one listed online. Shoppers can potentially buy Item A for $2 at a convenience store instead of paying $4 online.
However, there are two prevailing reasons why retail arbitrage still works today. The number one reason concerns simple economics.
Items are priced differently from one area to another. A product that is in demand in a particular locality could be a slow-moving item in another place.
Item A priced at $2 in your neighborhood could be priced at $8 or even higher in some areas due to high demand. Hence, making the $4 Amazon listing price a more reasonable purchase.
Aside from economics, convenience is also a factor why consumers would choose to shop online. It is more convenient to shop on Amazon instead of going outside and purchasing an item from a retail outlet or shopping mall.
From a simple economics and convenience standpoint, you can take advantage of the price difference and profit from it. You can purchase items in retail stores and list them as part of your Amazon FBA inventory.
Why Start With Retail Arbitrage on Amazon?
Retail arbitrage is one of the methods that most entrepreneurs choose during their fledgling years as Amazon sellers. The approach is easy to comprehend and involves less complicated tasks – buy and sell.
The simplicity of Amazon retail arbitrage is what attracts sellers to this method. It is crucial to remember that buying low and selling high is a must for you to profit in retail arbitrage.
Speaking of profit, some Amazon sellers make around $300 to $2,000+ per month with Amazon retail arbitrage. It is viewed as one of the fastest ways to make money online.
Is Retail Arbitrage Legal?
Amazon retail arbitrage is an accepted industry practice. So long as your business activities are within the bounds of law and comply with Amazon guidelines, you are safe.
In the United States, a legal concept known as the first-sale doctrine allows legitimate purchasers of an item to resell genuine products produced by a manufacturer. However, you should take note that although you have immunity from trademark infringement claims from reselling authentic items, you are not allowed to materially alter the product from its original state.
It would be best to consult a trademark attorney for specific questions about potential product modifications before reselling it. This can help you evade legal issues later in your business.
What are the Steps for Amazon Retail Arbitrage?
Assuming you already have an Amazon seller account and simply wish to diversify your product sourcing strategy, here are the conventional processes involved in Amazon retail arbitrage.
Step 1: Search for Retail Stores Within Your Vicinity
To begin your arbitrage journey, you need to locate brick-and-mortar stores in your area. If you are still starting out, there is no need for you to go outside the city to explore other retail stores. Check the stores within your neighborhood.
The typical go-to destination for Amazon retail arbitrage includes dollar stores, thrift stores, choice shops, outlet malls, and liquidation shops. You should also check some notable retailers such as Best Buy, Walmart, Bed Bath & Beyond, and Target.
Step 2: Go to Retail Stores and Start Scanning Products
Once you have identified nearby retail stores, go to one of these stores and start scanning products. For this task, you will need a seller scanner app or Amazon barcode scanner.
If you do not wish to spend money on a third-party seller scanner app, you can use the free Amazon Seller App available for Android and iOS.
When checking for items in any retail store, always prioritize their clearance aisle or liquidation section. Discounted items should be a priority when scanning items since they can give you a higher profit margin. Some ideal product categories to check for retail arbitrage on Amazon include electronics, groceries, party supplies, toys, and stationary.
Step 3: Check and Evaluate Amazon Scanner App Results
The Amazon Scanner App displays product information, including the product category, Amazon Best Seller Rank, Buy Box price, and other important data to help you evaluate the product’s profit potential.
From the given information, determine whether the item is worth adding to your inventory. Most importantly, always check whether the item is prohibited or restricted. Selling restricted items may lead to suspension or termination of your Amazon seller account. Although some products are not restricted, they may require approval before you can list them online. Some of the product categories requiring approval include:
- Sports Collectibles
- Automotive & Powersports
- Entertainment Collectibles
For an overview of product categories and subcategories requiring approval, you may click here.
Step 4: Determine the Quantity to Purchase
After evaluating the item’s profitability and competitors, you should then decide how many items to purchase. There is really no exact guideline for this, for it likely depends on your risk tolerance and budget.
Suppose you are still a newcomer to retail arbitrage or online selling in general; it is highly suggested that you start with a small quantity to validate the product’s actual marketability.
Step 5: List and Price Your Products
Once you have decided on the item, evaluated its profitability, and finally purchased it, what is left to do is to list the product. When listing a product, always follow Amazon product listing guidelines to avoid penalties.
When it comes to pricing and winning the Buy Box, it would help to use an Amazon repricer. The majority of Amazon sellers use an Amazon repricer for product pricing.
An AI repricing software, for example, will set the listing price depending on the marketplace scenario and competitor’s behavior. An AI repricer can also be used with pre-defined pricing conditions to help you meet your specific business goals. Since the process is automated, you can spend more time with other important tasks of your Amazon business.
What are the Benefits of Amazon Retail Arbitrage?
- Low Starting Capital
Unlike ordering items overseas, retail arbitrage on Amazon will only require going to your nearest retail store like Target or Walmart to purchase discounted or clearance items. This means that Amazon retail arbitrage will not require large capital investment. You do not have to deal with any fees relating to product shipping, insurance, or the required minimum orders from manufacturers. All you have to do is secure a low-priced item you can flip on Amazon.
- Low-Risk Option
As a business model and sourcing strategy, retail arbitrage is a low-risk option for Amazon sellers. Compared to private label, you will be selling products of established and known brands in retail arbitrage on Amazon.
- Easy Marketing
As mentioned above, you will be dealing with known products when it comes to Amazon retail arbitrage. This means that you do not have to put as much money into convincing potential customers to purchase your product.
Selling a reputable brand is much easier than having to deal with private label items. There is no need for tedious product modification and rebranding to make your item marketable.
What are the Disadvantages of Amazon Retail Arbitrage?
- Highly Competitive
Since retail arbitrage on Amazon is a less complicated business model, many online sellers choose this path for their Amazon business. Competition can be tough with Amazon retail arbitrage unless you can position yourself in a particular niche ahead of other sellers.
- Time Consuming
Amazon retail arbitrage will require you to check physical stores within and sometimes outside your neighborhood, making it time-consuming.
- Physically Demanding
Physically rummaging through stocks in a liquidation warehouse can be laborious. Constant travel can be draining, especially if you have some health issues. Amidst the pandemic where social distancing is encouraged, Amazon retail arbitrage can be more difficult.
Amazon Retail Arbitrage and Other Business Models
To better understand retail arbitrage on Amazon, here are other business models on Amazon that you can compare with retail arbitrage.
- Private Label
In contrast to Amazon retail arbitrage, private label means creating your own brand by improving or modifying generic items. The usual source for non-branded items is manufacturers or suppliers typically based overseas.
The wholesale method is somewhat similar to Amazon retail arbitrage. However, the wholesale approach involves purchasing in bulk directly from suppliers or brand owners instead of buying items from retail stores.
Amazon Handmade is another income-generating opportunity on Amazon that involves creating or crafting your own product. Instead of buying from retail stores, you produce handmade items such as necklaces, earrings, bracelets, pins, and brooches.
- Online Arbitrage
Online arbitrage is an upgrade to retail arbitrage. You purchase inventory items from online retailers. Hence, the name online arbitrage.
The good thing about Amazon is that you can combine business models and strategies to achieve a successful Amazon business. Success is not limited to a single option when it comes to Amazon. You can combine online arbitrage, private label, Amazon retail arbitrage, and other business models on Amazon to achieve profitability.