E-commerce is growing rapidly and changes daily – so is our selling and buying behavior. More and more businesses are entering the industry and sellers adapt their practices to remain competitive. One great way to boost your sales is taking on the practice of retail arbitrage. This post will help you do just that.
What is retail arbitrage?
It's a fairly simple concept. Have you ever heard about any of the legendary eBay millionaires who bought cheap items and sold them for a higher price? What they were doing was basically turning junk into cash. But the tables are turning and Amazon is the new eBay, especially because it is filled with greater opportunities to make profit than it was in the early years of eBay.
“I have been selling on Amazon since 2006. I also sell on eBay. Back in those days, eBay was responsible for about 80% of my sales with only 20% selling on Amazon.
We were merchant fulfilling (MF) which means every time something sold, we had to ship it to our Amazon customer. In 2010 we converted to FBA. FBA is a service Amazon provides whereby you send your merchandise into Amazon, and when an item sells, Amazon collects the money from the customer (and takes the credit card risk), and ships the item to the customer. They also handle any returns and customer service issues.
Once we converted to FBA, within about four months our Amazon sales increased by almost 800%. Today we are now 80% Amazon and only 20% eBay.”
Skip McGrath, successful Amazon seller and owner of SkipMcGrath.com
According to WWD, Amazon is the world’s biggest e-commerce juggernaut, with Amazon.com having an e-commerce share of total sales of 74.1%. Amazon is taking over the world, people just go straight to Amazon, search for what they want and buy it, without bothering to look somewhere else. Even if products can be found cheaper elsewhere, people will still head to Amazon, since it’s convenient, easy, and time saving.
One important thing to keep in mind is, since Amazon is pretty much lacking competition, some items can be bought a lot cheaper elsewhere. Be it, for example, any local store, or classified ads. And those items are sometimes so much cheaper that you can simply buy them somewhere else and relist them on Amazon, hence making a profit (even after the deduction of all fees).
So, simply said, retail arbitrage is the process of buying low and selling high.
Where to get started?
Let’s skip the obvious of registering yourself as an Amazon seller. Once you’ve got that sorted out, you start by understanding the basics:
Starting arbitrage requires some capital, so be prepared to invest some money. Start low, grow big.
Know the rules
Knowing Amazon’s policies is a necessity if you want to start selling on Amazon. The rules are not meant to scare you off, but you should know them by heart to avoid any miss-stepping.
Download the Amazon Seller App
Amazon’s seller App is a must-have if you start selling. It is free to download, you only need a smartphone, and you’re good to go. It’s your default app for scanning items you want to sell.
Find places for arbitrage
It’s probably the most important step, and the most difficult one. The best places to find items are discount stores, thrift stores, liquidation stores, and estate/garage sales.
Buy at the right time
Also keep in mind seasonal factors. For example, it is advisable buying discounted products on Black Friday to sell during pre-Christmas season when most of the year’s purchases are made. Seasonality is actually key with Amazon.
Once you’ve gathered all the information you need, it’s time to take action. Go out there and scan the items in your preferred retail stores. Some good categories for items to sell on Amazon are toys, office supplies and electronics. There’s always a market for this.
5 easy ways to win with retail arbitrage
We’ve covered the basics, let’s get straight to the point to turn your arbitrage into success.
1. Spot the inefficiencies in the market – Item prices vs. location
You might ask yourself “Why would anyone pay such a higher price?”. And this is what a market inefficiency is all about. The item prices vary by location. If a product is on sale right now in your local discount store, and is sold on Amazon for a much higher price, people will still buy it on Amazon as well. Why is that? Because it depends on the location. Amazon is a worldwide retailer, so people will buy your product nevertheless if they don’t live next to your discount store, where you got your items from.
2. Convenience is the key
Let’s face it: People love Amazon. It is incredible fast, user-friendly, and convenient. It is the default option to buy products online, with its stock growing each minute. Who would have guessed in 2006 that you are now able to buy almost everything on Amazon today? As a buyer, Amazon offers almost everything you want and need without driving across the town, standing in line in a supermarket or wasting time, money and energy to find a product they want to buy.
3. Product availability
Keep in mind that not all products are available everywhere. If you go on a holiday, you will notice that each country has different stores, brands, and items. The selection of products varies regionally, meaning that someone who would love to buy a product that is solely sold in the U.S. might not be available for Europe. That’s where Amazon comes into play, and you should take advantage of it. You can sell locally acquired products via Amazon that might not be available in other countries, but which are still high in demand.
4. FBA – Don’t skip it, use it to your advantage!
FBA is an acronym standing for “Fulfilled by Amazon”. That means, if you sell your products on Amazon, you send your items straight to Amazon’s fulfillment center, where it will be stored and shipped to customers as soon as they buy it. You don’t necessarily need FBA to sell on Amazon, but it has great advantages.
Source: Amazon FBA Infographics
The biggest advantage of selling FBA is that the shipment of your products is free for Amazon Prime members. This is a HUGE advantage.
Other benefits are that it is cost saving, especially if you have a large amount of products you want to sell. Instead of, let’s say, using 10 items, and for each of those you’d need packaging, printing labels and time and money involved, you tell Amazon how much you want to sell and want to ship. Those products can be directly picked up from your home, and are shipped to Amazon’s fulfillment center. And as soon as a product sells, you’ll get notified.
So by selling FBA, you can sell more, make more profit, and don’t have to worry about any customer service, since Amazon will handle your customers after each and every sale.
5. Minimize any risk of monetary loss
Keep in mind that, although it sounds sweet and easy, you can still lose money using arbitrage. Like in anything you do, there is always a risk involved. The risk, however, is heavily reduced by selling on Amazon instead of your own website, since you don’t have to worry to drive traffic to your website, advertise it, and get customers to pay for your products. Selling on Amazon is a solid method to make profit without huge effort involved, however, you can reduce the risk to go bankrupt by:
- Avoiding overly competitive, big, or heavy products
- Have the confidence to go big on certain items – if you find great, discounted products, it’s a no brainer to stock up on them and sell them. Let’s say you find Lego for a very cheap price that is still 30 – 50 % cheaper than on Amazon. If you keep your starting budget in mind, and don’t overspent on that Lego, it’s worth buying a bunch of them and sell them for a much higher price on Amazon.
- Bundle your items – instead of selling one of each kind, bundle them, look out for competitors and sell 6 of your items instead of just 1 for a discounted price on Amazon (where you still make profit, but create the illusion of saving money for the buyer)
It is clear that there is a lot of potential to scale and make a decent income from Amazon FBA retail arbitrage. Some are even so successful with it that they make a six figures a year from it. Selling on Amazon has its huge advantage and once you’ve mastered it, it’s pretty straightforward and simple. It requires less effort, less time, and less investment. Plus, it’s a pretty good starter side-business if you want to earn income quickly.