What is retail arbitrage? This is probably the most asked question these days, especially from the e-commerce marketers. To help you understand better, we are presenting you with an in-depth article that will explain what retail arbitrage business model actually is along with listing some incredible online arbitrage tips for you to follow.
Over the last couple of years, retail arbitrage sourcing on Amazon has become a popular business methodology followed by the sellers looking to make quick money online.
However, it doesn’t come as a surprise given that Amazon essentially owns the e-commerce world.
If you want to learn how to make money on Amazon via retail arbitrage, here is our ultimate guide that you might want to follow.
Retail Arbitrage – explained
Retail arbitrage refers to the act of getting the products to flip. Simply putting, it is buying products from several places at a lower price and selling them through online marketplaces for a profit. There are numerous places from where you can avail products at lower cost, and the most reliable sources include large retailers like Walmart, Target, Home Depot, Craigslist, local yard sales, thrift stores, department store clearance racks, and store moving or closing sales among others.
Moreover, you can also purchase the items from online marketplaces as well like from eBay among others to sell on Amazon. Items bought in this manner are usually acquired on sale, offering substantial discounts compared to the retail price.
Can You Really Make Money with Retail Arbitrage on Amazon?
It depends on what you are selling and what Amazon is charging you for selling the products on its platform.
For example, if you buy a shoe from a clearance sale for $2 and sell it to someone you know say, your neighbor for $10, you will end up with a profit of $8. However, if you are selling the shoe on Amazon at $10, you will be profited somewhere around $2.
This drastic decrease in the profit is because Amazon deducts fees from the selling price of the products you sell. This is why you are advised to avail the benefits of Amazon FBA. There are a lot of advantages of being an FBA seller. For starters:
- You get access to a massive audience and eager buyers Amazon already has
- You can sell products while being on a vacation
- Amazon will handle the customer service in case if buyers have any issue with your product
- Amazon will manage the cost relating to preparing, packaging, and shipping the products
- As an FBA seller, you get to send products all at once at discounted rates
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How is Retail Arbitrage Profitable?
Retail arbitrage earns you profit when you buy products at a significantly lower cost compared to the cost you sell them for on Amazon. However, you need to account for shipping costs and marketplace fees.
While other sourcing models like private labeling and wholesale have their advantages, retail arbitrage offers significantly low-risk option to consistently make a profit from the very beginning of your Amazon seller journey.
Getting Started with Retail Arbitrage Sourcing
First things first, you need to set up an Amazon Seller Account. Without the seller account, you cannot sell a thing on Amazon. When setting up, we recommend you go with an ‘individual’ seller account.
Individual seller account is perfect for new sellers, as this account type has no monthly charges. Your new seller account will provide you with information on product eligibility, allowing you to determine what to buy and sell.
Finding Cheap Products for your Retail Arbitrage Endeavor
As said, your profit will depend on finding products that have enough discounts to make them profitable. You should know that Amazon takes a 30% cut of the sale price. Hence, you need to buy your products at a significant discount to make profits.
Although finding cheap products to sell on Amazon is pretty straightforward, it is time-consuming. The best thing you can do is look up every product on the marketplace and do the calculations using the Fulfillment by Amazon Revenue Calculator.
While this method is free, it requires a significant time investment. The alternative to this method is availing the services of arbitrage software. There are plenty of apps available that are easy to use and do all the calculations for you behind the scenes. They can help you provide a straightforward way to determine your potential profit on each product.
Amazon arbitrage is a numbers game. You just need to get to scanning. The more you scan, the more likely you will find a profitable product.
Stick with what you are doing
You will find sellers on Amazon making six-figure incomes exclusively from retail arbitrage. If you ask them how, they will tell that their success comes in two phases – sticking with what they are doing and slowly scaling up the operation.
When you start, it is difficult to find good deals that are profitable. You are advised never to get discouraged. It is all about persistence. With time, you will learn what products and discounts are profitable. You have to trust your instincts. It will guide you to valuable products, and you will start finding deals that are more profitable.
The second key aspect of retail arbitrage is building a relationship with retail stores in order to scale up your operation. If you want to get away from scanning products, you need to build relationships with people who source your products.
It will help you get early alerts when the items are going to be discounted. Making friends with store workers and managers is not hard on the condition that you are willing to ask.
Buy in Bulk (if possible)
The main reason why products are put on discount is that either they are slow movers that are set on sale to sell faster or they are going to stop being sold in the store.
Slow-moving products take up the valuable shelf space. Hence, they are replaced with faster moving products to make a profit. The key is to build good relationships with the store managers and stockers to that you can get easy notifications about the upcoming store clearance sales
In most cases, there are pallets of overstocked products that the store requires to move out. And if you are able to take everything at once, the store will be pretty much happy with you.
That is, instead of waiting for the items to be sold one at a time, unloading the entire pallet to just one person is efficient and easier for the staff.
This ensures that they will call you when there is another clearance sale on the verge. Buying in bulk also ensures that you never run out of inventory when your sales are on a roll. It gives you time to refill your inventory.
Know where to look for clearance
Every store in your locality or online has clearance items. All you have to do is look at the right place.
- Stores like Tuesday Morning use color-coded stickers to label their clearance items
- Some retail stores mark the clearance items with special tags or price stickers; however, they are stored in the regular shelves
- Some stores dedicate an entire aisle to clearance items. They are placed at the very end
- In high traffic areas, stores don’t give clearance items a shelf space. Therefore, you may want to search out new locations where stores are offering clearance items
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Don’t make any assumptions
When you are sourcing clearance products, you probably have had thoughts like “who is going to buy that piece of junk?”, “It is priced higher, I will not make any profits after selling a bunch of those,” “I don’t see any potential in this item,” and more like that.
The thing is, we all make assumptions before buying a product; after all, we are putting our hard-earned money on it. However, such assumptions may cause you to miss some great FBA profits. Remember, it doesn’t matter if you don’t like that product; it is not you who is going to buy it from Amazon.
There is an audience for every sellable product out there. You need to find your audience. Look what people are buying the most in your niche and target them. This is very important. When you have negative thoughts about the products, scan them anyway. Just because you think that this particular product isn’t worthy of the price tag, it doesn’t mean no one is willing to pay that price. It is all about taste, and you could easily make high profits selling those clearance products on Amazon.
Make sure that the clearance products are in the right condition
In most cases, why these stores put on clearance items for sale is because either their quality is degraded or the manufacturers have stopped manufacturing them. The best possible scenario is the products getting degraded in their quality. Clearance products are usually older items that go unsold. So the store, in order to clear the stock, put such products on clearance. When you are buying the clearance items in bulk, ensure that each and every product is in the right condition, including the packaging. You may find certain boxes opened or the items damaged, or even return products from the customers. You need to screen every product before billing. They have to be in pristine, gift-quality condition.
Look out for the competition
There are a lot of Amazon sellers availing the benefits of retail arbitrage. So the competition is always high. You may even find yourself battling with other sellers to avail the clearance products from the store. Hence, you need a robust strategy when you are deciding a product to sell on Amazon. There is a possibility that you may not find enough units to fill in your inventory because of the competition. The best practice to do in this situation is to contact different storefronts in your region to find out whether they are offering the same products at the clearance price. In most cases, the clearance price offered by one store may differ from the clearance price offered by another store.
This is the reason you need to make good relationships with the potential store managers and stockers so that you can get notified when the products of your interest go on clearance sale.
Selling the products after buying them
Once you get your hands on the inventory, you need to inform Amazon that you will begin to sell on the platform soon. Amazon will ask you about the number of units you have including full product detail among other information.
Amazon then will check your product whether it falls under the restricted product category or not. Once Amazon approves your product, they will design customized labels that will help them easily recognize when they are stored in the fulfillment centers. Either you can avail Amazon’s label service or have the labels printed by yourself.
After your product is approved by Amazon, they will notify you about the number of units you need to ship to their warehouse. The moment the shipment arrives at the Amazon FBA warehouse, they will scan the products and start selling them.
However, you will need to create a robust Amazon product listing to attract customers. This includes using proper keyword insertion, in-depth product description, easy-to-understand title, and bulleted list.
We recommend you use the Fulfillment by Amazon program to list your items for sale. As mentioned, there are plenty of benefits including handling the shipping.
If you are starting on Amazon, retail arbitrage is the best way to start, as it will not require you to contact manufacturers in China for sourcing the product. You will easily get clearance items from the shelves at the lowest rates possible. However, before you fill in your inventory, it is essential to scan every product to ensure that the specific products are in demand amongst your target audience and fits in Amazon’s sellable product category.