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Retail Arbitrage: Benefits, Challenges, and Tips to Make it Work for You

Are you a newbie and don’t know how to get started to sell your products on Amazon? One of the most effective methods is through retail arbitrage on Amazon. Mainly, it is up to you how much money to invest in starting amazon retail arbitrage. If you are willing to do some hard work, you can have a decent source of income. One of the positive points that encourage you to do this business is the remarkable growth of Amazon in the field of online business from the last few years. To guide you, the complete process of retail arbitrage is the purpose of this article.

What is retail arbitrage?

Arbitrage is the practice of taking advantage of a price difference between two or more markets, or in other words, reselling.

In this case, retail arbitrage is the process of buying discounted products through retailers (including online retailers) to sell on Amazon.

An example of this would be finding a product at Walmart that sells for $5, purchasing that product, and then reselling it on Amazon for $20. Pretty cool, right?

Some sellers also buy products they find online, which is known as online arbitrage, and the process is the same: buy low, sell high (on Amazon).

You may be asking yourself, “is retail arbitrage legal?” Fortunately, it is. According to the first-sale doctrine, once you purchase a product legally, you then have the right to resell that product, as long as it is sold in an unchanged condition. So if you buy it and sell it as new, the product must be in new condition.

How does retail arbitrage compare to other business models on Amazon?

  • Private label is when you create your own product label/brand, generally by modifying an existing product in the market. For example, you can create a higher quality garlic press than one already selling on Amazon, reproduce it from a manufacturer, and add your logo to it. It’s the most common method of selling on Amazon and can be incredibly profitable, but most sellers need some capital to get started.
  • Wholesale is when you buy products in bulk directly from a brand or from distributors with extra stock in order to sell on Amazon, and this also requires start-up money. This does not involve ordering products from retail stores. Wholesale is a more sustainable business model as you can replace orders every month and you are an authorized reseller, meaning you don’t have to worry so much about inauthentic claims.
  • Dropshipping is when you buy products directly from a manufacturer who fulfills the order and ships directly to the customer.
  • Handmade is the process in which you create or craft your own products to sell on Amazon.

Why would you choose arbitrage over other models of selling on Amazon?

  • Lower cost to start: According to Jungle Scout’s study of more than 1,000 Amazon sellers, 33% of those doing arbitrage were able to launch Amazon businesses with less than $500, and about 49% did so for less than $1,000. By contrast, 75% of private label sellers spent $1,000 or more to launch.
  • Faster to start: Two in five (41%) retail arbitrate sellers said they were able to launch Amazon businesses in fewer than 6 weeks. Only a quarter (25%) of private label sellers said the same.
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Essentially, if you don’t already have a product to sell or have money to buy products at scale, arbitrage is a great, low-risk method of selling on Amazon.

On the other hand, if you start selling arbitrage, you can expand your strategy to other sales methods:

  • 38% of retail arbitrage sellers also run a wholesale business
  • 30% also sell private label
  • 11% also have a dropshipping business
  • 6% also sell handmade products

 

The Benefits of Retail Arbitrage

In general, retail arbitrage offers a quicker, simpler, and lower-risk option for setting up your third-party seller business on Amazon, compared to launching your business with a private label product. Because you are selling products from established and known brands, you don’t have to put as much time and money into convincing potential customers that they want what you are selling. It can also be much quicker to get your business up and running, since as soon as you purchase inventory you can send it in to Amazon and start selling it. Compare this with the much longer ramp-up times that come with selling a private label product. Almost every initial step with establishing a private label product can take a good deal of time to complete, from product research, to finding a manufacturer, to logo and packaging design, to product manufacturing, and then shipping from wherever the factory is located. Even with the best case scenario and quickest possible turnaround, selling a private label product means you won’t start making money nearly as quickly as you could with retail arbitrage. So while a private label product typically has much greater profit potential, retail arbitrage can be a good way to learn the Amazon platform and start making money right away.

Another perk of retail arbitrage is that you can establish your business on almost any budget. While having larger inventory volumes with Amazon can give you advantages in winning the buy box, as long as the products you purchase to resell have significant profit margin potential you can get your business going, even with minimal upfront investments.

The Risks of Retail Arbitrage

Any third-party seller who uses retail arbitrage knows that there are some risks and challenges that come along with the business model. The biggest overall risk is that your business can only be as successful as your ability to acquire inventory to resell. You are always limited by whatever inventory and deals are available to you for initial purchase.

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Amazon is also making it harder to find products that qualify for resale on their platform. Many brands are now “gated,” meaning that a third-party seller must obtain approval and/or pay a fee to sell a product from that brand. Also, large retailers are placing limits on the number of units a single customer can purchase, making it much harder to acquire the kind of quantity that you would need to make it worthwhile to resell on Amazon.

There is also a pretty significant time investment that comes along with retail arbitrage, since it can take some serious hunting to track down great deals. Either you are visiting tons of local stores in your area, or you are scouring the internet for deals, but either way you go about it, time is a big factor.

Arbitrage tips:

Follow trends and sell seasonal products

While you could go into a store or look around online for products that might be profitable to resell on Amazon, you could also do some research and think ahead for certain types of products you’d like to find.

One thing to consider is seasonality. Try to figure out what products are currently or soon-to-be trending or products that sell more during a certain time of year.

For example, toys during the holiday season or inflatable pools or floats during the summer are extremely popular (and profitable). Since the demand is so high during those times, supply tends to diminish very quickly in retail stores, which translates into an increased selling price online.

Last season, you could purchase an inflatable pool at Walmart for $20 and resell it on Amazon for $80. And yes, customers will purchase a product at that much-higher price point if they cannot find it in-store and really want the item.

As an example, take a look at what consumers are purchasing in a post-pandemic world. 45% of consumers are interested in interior design and home decor products as 60% plan to spend more time at home in 2022.

If you stay on top of trends and current events like these, you will be on your way to having a profitable Amazon reselling business.

Sell discontinued products for massive profits

Has there ever been a product that you absolutely loved but then for whatever reason, the brand decided to discontinue it? We’ve all been there, and we know we’d pay a premium to get those products back. Some consumers are willing to pay extraordinary amounts of money for products that are seemingly impossible to find.

You may be thinking, if a product is discontinued, then how can I still find it in-store? Some discontinued products are still circulating in the market and will randomly pop up in retail stores, discount stores, grocery stores, etc. It is just up to you to be in the right place at the right time.

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Tips on finding discounted products:

  • Shop in stores that are unique to your local neighborhood, not a big box retailer such as Walmart. A “mom-and-pop” shop is more likely to carry these random, discontinued items.
  • Looks for items that just look old. I know that sounds odd, but you may spot some products with labels that look outdated, faded, or even dusty.
  • Look for items labeled “refills.” There are lots of products in the cleaning category that require refill packs to continue using the product. For whatever reason, lots of the refills become discontinued, but people still really love using them.
  • Go on eBay and search for “discontinued.” Then filter by sold listings only. This will show you all of the products labeled “discontinued” that have recently sold on eBay.

BONUS: Here is a small list of discontinued items to look for (and where you may find them):

  1. SC Johnson One Step No Buff Wax Fine Wood Floor Care 22 Fl Oz
    • Find it at hardware stores, mom-and-pop grocery stores, and garage sales.
  2. Off! Repellent Mosquito Lamp Refills
    • Find it at hardware stores, grocery stores, discount stores, and liquidation stores.
  3. McCormick Total Seasoning for Chicken and Fish
    • Find it at large and mom-and-pop grocery stores.

Some additional tips and strategies when doing arbitrage:

  • Be patient. Going into retail stores and scanning item after item can become very exhausting. It also becomes frustrating when you aren’t finding any profitable products. Just keep going! Eventually, you will find products that will make you money on Amazon.
  • Base your buying decisions on the data you see in the Amazon seller app and the Jungle Scout Extension. You don’t want to buy something that you won’t be able to sell.
  • Prices can change in an instant if another seller “tanks the price.” Meaning the product you purchase may not be profitable anymore. This is why you need to check price history as well.
  • Start small to get used to the process. Before going all-in and spending tons of money on products to resell on Amazon, start with a small quantity so you can get a better understanding of sourcing, listing, shipping, pricing, and more.
  • Unlike private label where you will be the only seller of your product, if you are reselling products on Amazon, you will end up sharing the buy box with multiple sellers. If you find a product that sells roughly 300x a month, know that you will not receive all 300 of those sales if there are other sellers on the listing.

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