What is retail arbitrage? In its simplest form, retail arbitrage is the process of buying a product at a discount from one channel, and re-selling it at a markup on a site like Amazon.
Retail arbitrage is a relatively low-cost, low-risk way that some sellers first get experience in the Amazon ecosystem.
Rather than creating your own private label products from scratch, with retail arbitrage, you can master Amazon without needing to sink a lot of upfront capital into it.
How does retail arbitrage work?
Retail arbitrage tends to start with a discount. Savvy re-sellers find products that are being sold at heavy discounts at one retailer, snap them up, and then resell them at a mark-up on Amazon.
These re-sellers often focus on in-store deals. For what it’s worth, there are many resources that track in-store discounts, like Brickseek. These sites are incredibly useful to sellers who are getting started with retail arbitrage.
The key to retail arbitrage is ensuring that you sell through your products quickly. You want to keep the cost of shipping and warehousing low enough that they don’t cut into your profit margin.
Is retail arbitrage legal?
Retail arbitrage is perfectly legal. Any legitimate buyer of a product is allowed to resell it, per a legal concept called the first sale doctrine.
But there are some limitations to the legality of retail arbitrage: For example, you can’t change the serial number of a product you’re reselling.
How is retail arbitrage different from dropshipping?
The more you learn about retail arbitrage, the more it might begin to sound like another popular sales strategy on Amazon: dropshipping.
Retail arbitrage and dropshipping are distinctive sales strategies, however.
Dropshippers have direct relationships with manufacturers, and the dropshippers never actually handle the product themselves. A dropshipper sells a product on Amazon, and then the manufacturer will fulfill it to customers directly.
With retail arbitrage, by contrast, the re-seller handles the warehousing and fulfillment on their own. Because you directly buy the product that you re-sell, you’re in charge of sending it off to customers.
Can you resell absolutely any product on Amazon?
While arbitrage is legal, that doesn’t mean every brand is going to permit you to resell their products.
Often, you’ll need approval to resell a particular product. Many brands have gated their product pages, so that only approved resellers are allowed to list products for sale.
It’s not easy to work around: Amazon has rolled out a growing slate of new tools, like the Amazon Transparency program, to further crack down on unauthorized reselling.
If you want to resell a product that’s gated, you’ll need to receive express written permission from the manufacturer.
A lot of times, receiving permission to resell involves submitting at least three recent invoices proving that you legitimately purchased the brand’s product. You also may be asked to pay a one-time fee of $1,500.
How do I win Amazon’s Buy Box?
Winning Amazon’s Buy Box means becoming the default product that shoppers see when they go to make a purchase. For re-sellers, winning the Buy Box can make or break their business. After all, if you don’t win the Buy Box, your product becomes pretty much invisible.
Chances are, you’re going to be competing with many other re-sellers to win the Buy Box. So how do you win it? The key to the Buy Box is some combination of favorable reviews, speedy shipping times, healthy inventory numbers, and customer query response time.
Price is also a big factor in winning the Buy Box. That’s the one downside: Because retail arbitrage is a margin game, that means you often need to sacrifice your expected profit margins in order to win the Buy Box.
What are the downsides of retail arbitrage?
While retail arbitrage offers a way for new sellers to get a taste of the ins and outs of Amazon, it comes with a number of important limitations.
Inventory. The first downside is that your inventory levels are at the mercy of the retailers you buy from. Because you don’t manufacture your own products, you can’t prepare for a spike in sales by producing more inventory in advance.
If you run out of stock, you won’t be able to replenish your supply until the next time you find an in-store discount on that particular product.
Tight margins. Because retail arbitrage necessarily involves strategic re-selling, your margins are going to be tight. Therefore, you won’t have the extra earnings to invest back in ads or in other table-stakes forms of marketing.
Future growth. More broadly, another big downside of retail arbitrage is that you can’t build customer loyalty. Because you aren’t selling your own products, you can’t convert the goodwill you receive from shoppers into long-term loyalty.
That’s why many re-sellers eventually make the switch into selling their own private-label products. Selling private label might cost more upfront, but it makes up for those costs elsewhere.
Successful sellers will find that it gives them more control over their products and inventory, more chances at driving customer loyalty, and a clearer path to long-term profitability on Amazon.
