Retail Arbitrage: Definition, How It Works, Risks & Benefits

admin_fortress | Feb 10, 2022

Published in The Marketplace Playbook

Have you ever purchased a product from a brand on Amazon but noticed that the seller of that item is from a local retail store? This is something known as retail arbitrage, and it can have both risks and benefits for sellers. In this article, we’ll dive deeper into what retail arbitrage actually is, how to get started, and talk through some of the risks involved.

What is retail arbitrage?

You might have never heard the term retail arbitrage before, but chances are that you have experienced it as a consumer or a brand owner, especially if you are a frequent Amazon user. Retail arbitrage is when a seller buys a product from a retail store and then sells those products on online marketplaces, often at a higher price point and for a profit. For example, if you were to buy something at Home Depot for $10, then list that product for sale on Amazon and sell it for $15, that would be retail arbitration.

Making money with retail arbitrage

Amazon retail arbitrage is pretty common, but how does a seller actually make money? The best places to start are discount stores or clearance racks at retail stores, as these have discounted items for sale. You can then see what the item is going for on the online marketplace and sell it for a higher price than you originally paid. As long as the product’s condition is unchanged from when you bought it, you can sell that item as new condition. Once sold, you will earn a profit after shipping costs and other fees.

Selling one item won’t be enough to make any real money with retail arbitration on Amazon. If a seller is really looking to make money with retail arbitrage, they will need to take initiative and actually spend some time sourcing items that are in sellable condition. Sourcing products is a time consuming process, but if done right, there is potential for sellers to generate a decent profit.

How to get started

It’s quite easy to begin sourcing products for retail arbitration on Amazon. See below on how to get started.

1. You will need to register for an Amazon Seller account.

Every seller needs to be registered in order to use Amazon for selling their products. You can either sign up for a Professional account for a monthly fee or an Individual account for a cost on each of your items sold. The account you choose depends on the number of items you plan to sell. If you are planning on selling a lot of items, a Professional account might be the best and most cost-efficient option for you.

2. Download the Amazon Seller app in your mobile app store.

The Amazon Seller app helps you manage your Amazon business on the go. With this free tool, you are able to find products to sell. Additionally, once you start selling products, you are also able to analyze your sales, fulfill orders, manage offers, inventory and returns, and respond to any customer inquiries. You can even create listings right from your phone.

For retail arbitration purposes, using Amazon Seller allows you to scan barcodes of any product to determine what the selling value is on Amazon. This will help your overall retail arbitrage, as you will actually know which products are worth buying and reselling. For any item you’re looking to sell, you should be scanning the barcode to see what its value is. Some products are a better investment than others, so doing your research will always benefit you.

3. Visit retail stores near you to scope out items to sell.

There are probably a ton of local retailer stores located near you. Visiting these stores will let you see what inventory is available and which items stores are trying to get rid of by heavily discounting them. If you’re unsure of where to start, some of the best retail stores to start looking for products for retail arbitrage are Target, Walmart, Home Depot, Big Lots, Lowes, Walgreens, CVS, Bed Bath & Beyond and the list goes on.

4. Select products to sell that will actually generate a return on investment after all fees and shipping costs are applied.

When scanning items on the Amazon Seller app, you can enter the selling price, shipping estimates, and the original cost of the item to do a real analysis of the profitability of the product you’re planning to buy and sell. Ideally, you want your net profit to be positive, and an amount that you are comfortable with for the time, money and resources you are using to sell the item. If you find a product with good profitability and there are multiple, it is typically a good idea to purchase multiples of the product at the original price.

6. List your items for sale on the Amazon marketplace.

You’ve purchased the products you want to sell — now it’s time to create your first Amazon product listing. Include all information about the products you’re selling in the product descriptions. If applicable, you should include any ingredients your product may have, instructions, sizes, colors, testimonials if possible, and multiple photos of the products.

Next, decide whether you will be using Fulfillment by Amazon (FBA) or fulfilling orders yourself. With FBA, often the popular choice, Amazon is the one who manages the stock of your product. You send your inventory to Amazon, and Amazon’s team handles most of your operations and logistics for you, from storing your products in their warehouses to packing, shipping and delivering your items to your customers. With fulfillment by merchant (that’s you), you’ll handle all the shipping and storage logistics for your products and sales yourself.

Risks of retail arbitrage

Of course, the biggest risk with pursuing retail arbitration is losing money. It takes time, money and resources to research and source the right products for you to sell, and that doesn’t always mean that sales will generate. If your profitability isn’t sustainable, retail arbitrage might not be the best option.

Another downside of selling this way on Amazon is the amount of competition on the online marketplace. There are thousands of sellers on Amazon and most of them will be selling the same items as you. It can be difficult to stand out from competitors if you don’t have a niche category, highly optimized listings, good customer reviews, and even a marketing strategy in place.

Lastly, by reselling items on Amazon that you’ve purchased at discount stores or retailers, you’re essentially limited to whatever those stores are selling. You aren’t in control of the supply of the items and this could create some potential issues with your inventory if you cannot restock items or source new ones.

At Fortress Brand, we represent highly acclaimed brands on the Amazon marketplace and provide a full suite of in-house services, including performance marketing, brand management, reseller control, inventory management, international expansion and more.

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