What Is Retail Arbitrage?
Arbitrage basically means, “buy low, sell high.” More specifically, it is the practice of making a profit by taking advantage of a price difference between two different marketplaces. In retail arbitrage, you find local sources for bargain-priced items, and resell them online in a venue where you can get a higher price.
Is this just a fancy way of saying, “Sell stuff on eBay”? Yes and no. Retail arbitrage is a particular niche in online selling. Many people on eBay, Amazon and other online marketplaces are doing retail arbitrage, but not everyone. And eBay is not the only, or even the best, place to do this these days, depending on what you are selling.
How Does Retail Arbitrage Work?
So here is how you do retail arbitrage. You go to a discount store, say, Big Lots or TJ Maxx. You bring some money and your smartphone with a price scanner app. You dig through the discounted, sale, and clearance items and scan them with your phone, checking the price at the store against typical selling prices at your online marketplace of choice.
For example, suppose there is a popular brand of toy like Monster High dolls, Littlest Pet Shop or LaLaLoopsy. These product lines have dozens and dozens of items, some of which go in and out of stock pretty quickly — and there are also kids and collectors out there who simply have to have every one of them. You find a Monster High toy on sale, and check the selling prices on Amazon. The sale price where you are is $7.99, but the lowest selling price on Amazon is $19.99. If you buy it here, and sell it through Amazon’s Marketplace, you can potentially make almost $10.00 profit after expenses and fees! Based on how much you think you can sell it for, how quickly it will sell, and how easy or difficult it will be to ship, you decide that you will buy this toy and re-sell it, and into your cart it goes.
If you love shopping, this is the fun part, also know as “sourcing” or “scouting.” Once you have made your purchases, you move on to selling your items, and making your money.
Where and How Do I Sell?
One of the easiest ways to do retail arbitrage is through Amazon’s “Fulfillment by Amazon” (FBA) program. You set up a seller account through Amazon, enter the product codes for the items you are selling, and Amazon gives you a label to attach to each item and a shipping address to send it to. You pack up the items in a box and send them to the fulfillment center. Amazon takes it from there. Your products are stored in Amazon’s warehouses under your name until someone purchases them, then Amazon packs them, ships them, and deposits the money in your seller account. Amazon subtracts their fees and transfers the rest of your seller account money to your personal bank account every other week.
You do not have to store your stock or a ton of shipping supplies at your home. You don’t have to pack individual items and rush off with them to the Post Office or UPS. Best of all, your merchandise is covered by the same satisfaction and delivery guarantees that Amazon offers for their own products, including free two-day shipping for Amazon Prime members!
Amazon FBA is a convenient and popular way to sell new, unopened items or certain types of used items like books, DVDs, and other media. Don’t forget: before you go on a buying spree for food and beauty products make sure you have been approved by Amazon to sell in these categories!
Other used and collectible items can find a better home on Ebay or specialty marketplaces. And for really big items, like cars (yes, people do this with used cars!), your best bet is to sell locally through Craigslist or other venues that reach nearby buyers.
Is Retail Arbitrage Legal?
Absolutely! You are taking advantage of market differences, in the best capitalist tradition. Consider how many people live far from specialty stores like Pottery Barn, Restoration Hardware, or IKEA, but love their products. Or who may live near those stores and other bargain outlets, but would prefer the convenience of shopping online. These are the people who buy your items.
There is one area where the practice of buying for resale can run afoul of manufacturers’ proprietary agreements, and this is in high-end designer merchandise. To keep the demand (and prices) up for their products, companies like Gucci or Louis Vuitton deliberately make them scarce by making exclusive distribution agreements with retailers in an area. If a manufacturer finds out that you are reselling their items, they can ban you from buying their products, and demand that the online selling venue remove your listings! Because of the prevalence of counterfeits at this level, many online selling locations will not even let you list such items. For this reason, most online sellers steer clear of high-end designer stuff.
How Much Money Can I Make With Retail Arbitrage?
This is not a get-rich-quick scheme by any means. It is a type of hobby income, since you have to really enjoy shopping and digging for bargains. The pace of sourcing and selling can vary considerably throughout the year as well, so the income is not always steady. That said, with good knowledge and good local sources, you can make hundreds and even thousands of dollars a month. There are some people who do this well enough to make a full time living at it, but the majority of sellers do this as a part-time gig.
If you are going to try retail arbitrage, you need to do your research beforehand, and start small. There are plenty of websites, e-books, and YouTube videos out there that explain the process in detail, including all the ins and outs of using Amazon’s fulfillment program. There are even fee-based subscription services that provide daily updates on items going on sale at Wal-Mart, Target, and other big box and online retailers.
The best way to do this is to pick a niche where you already know something about the brands available, and what typical selling prices are. Your niche can be books and media, toys, cooking equipment, or pretty much anything you know about and enjoy shopping for. Some sellers specialize in medical supplies, fishing equipment, or even closeout beauty products — it is amazing what devotees of a particular type of lotion or makeup will pay to get the last of a discontinued item! Many sellers start out in one niche and add new ones or drop old ones as they expand their knowledge of what sells well and what is easy to source in their local area.
You will make some mistakes. Many items are languishing in clearance aisles and bargain outlets because no one wants them, or because they are low quality and cheap. It takes research to separate the garbage from the arbitrage. There is a learning curve, but if you get a thrill from the quest for items to sell, and turning your bargains into profits, the learning process is a fun challenge and not a depressing chore.
By far the best season for selling your arbitraged items is the year-end holiday season. There are more people buying and more demand for scarcer items, so prices are higher. If you want to be ready to make some real money in November and December, start building your arbitrage business in the spring and summer so you have things down to a routine by fall. This also will give you a chance to build a track record and gather favorable feedback in your chosen selling venues.
Finally, be flexible and keep learning about various niche markets. Sources can dry up, and profitable items can become unprofitable if the market becomes flooded with them and prices drop. However, there will ALWAYS be items out there that online buyers will pay a premium price for, and there are ALWAYS sellers, be they retail stores, thrift stores, or your neighbor having a yard sale, who want to simply rid themselves of merchandise and don’t care about seeking the highest profit for it.