Retail arbitrage is not a new concept, but it has evolved into a massive industry due to lucrative deals available on the Internet. Using retail arbitrage, you can make money selling retail items that were once limited only to large retailers and businesses.
This is a complete guide to retail arbitrage business, which contains essential tips for sellers on how to find retail items, how to sell these items, and use the Amazon seller app to fine-tune their sales.
Why Retail Arbitrage?
If you were ever involved in a retail business, you already know that doing business and selling stuff is not easy. Due to the dwindling profit margins, opening a retail store on a busy street does not guarantee success. The traditional retail model means you can sell unique items, but there isn’t much profit left at the end of the day.
Considering stores and retail businesses have to pay huge rents, salaries, and bills, the retail business model has its limitations, and opening a storefront is not practical for most of us.
Similarly, the Internet is dominated by Megastores, such as Amazon and eBay. For us, it means it’s almost impossible to run an online retail store without a clear competitive advantage or a very innovative product. It’s difficult to compete with these online retailers because these companies give their customers guarantees, refunds, and top-notch customer service.
So if you’re like most of us who want to start a retail business and don’t have cash, what can you do?
Enter the world of Retail Arbitrage …
What Is Retail Arbitrage?
Retail arbitrage is a fairly simple method of buying a product from one store at a significant discount and selling it at another store at a higher price. Some experts also call it “flipping the product for profit,” but flipping is a broad term that is not always suitable for business-minded individuals.
There are various sources and channels where you can buy products at a significant discount and then resell them on Amazon. For starters, stores like Walmart, Office Depot, and Costco are an excellent place to look for discounted items. If you don’t want to walk to a store, websites such as DealNews.com regularly post massive sales found on third-party websites.
By using these deal websites, you can potentially locate thousands of products to sell for profit on Amazon and eBay.
More experienced sellers use online and offline liquidators to buy products at massive discounts. These liquidation channels are also the secret inventory source used by eBay and Amazon power sellers. We will talk about these in a moment.
Overall, the idea behind retail arbitrage is simple. The seller needs to find a product at a discount so they can sell it for a significant profit in the market.
Can You Make Money Via Retail Arbitrage?
To answer the question, let’s review the profit margin of a typical retail business. By understanding how to make profit margins, we can quickly evaluate the potential benefits of retail arbitrage.
According to recent statistics by the Retail Owner Institute*, the average gross profit margin of a small business in the United States is typically more than 25% for most storefronts. For instance, women’s clothing and pet stores offer a gross profit margin of 46.5% and 43.6%, respectively. Similarly, bakery goods and supermarkets & grocery also enjoy hefty margins of 28.8% and 56.5%.
However, the real profits of a retail business are not as large as they seem because the actual pre-tax profits have dwindled over the years. For instance, the pre-tax profit of a women’s clothing store, pet supply shop, and a bakery are only 2.9%, 4.1%, and 7.2%, respectively. In fact, pre-tax profits of most retail businesses have steadily declined since the last few years.
These statistics tell us that it’s not easy to own a retail business because taxes, property rent, energy bills, salaries, fuel, and various fees can quickly reduce profits.
Compare it to the profit margins of retail arbitrage, where you can easily end up with profits of more than 50% after paying all the expenses. Experienced traders already know that many of the online stores and supermarkets hold clearance sales, deals, bargains, and discounted deals offering huge discounts on the inventory. Therefore, it’s possible to get huge savings on the full price of the product from one store and sell the same item at another store for quick and easy cash.
Considering you don’t have to deal with property rent, energy bills, and employee salaries, the result can be a hefty profit for the seller.
How Hard Is Retail Arbitrage?
There is no doubt that making money via retail arbitrage is perhaps one of the most straightforward business models out there. If done right, anyone can reap more profits than owning a physical store or an online store.
All you need to do is find profitable products by searching for deals on the Internet or walking over to a store to grab a clearance sale. Once done, you can quickly put the discounted item on sale on Amazon, Costco, eBay, or similar online stores. As such, potential buyers will only see you’re selling the item at a reasonable price without knowing the underlying source of your purchase.
The best thing about this business model is the lack of marketing. Just like other Internet or physical business, you don’t need to market your product. If it’s a fast-selling product, online platforms such as Amazon retail arbitrage may automatically help you expose it to thousands of potential buyers every day.
In a nutshell, your only job is to find discounted items and place them for sale on a popular online platform such as Amazon Business, Overstock, JD.com, and eBay.
Isn’t Retail Arbitrage Similar To Drop Shipping?
In the earlier days of the Internet, dropshipping became a popular model for some businesses. In this business model, a large retailer would provide sellers the opportunity to select inventory from their members-only page and send the stock to potential customers on behalf of the business.
While the business model may have worked initially, Dropshipping is quickly becoming a strain on businesses as discounts are lagging, and the available discounts seldom offer any profit at all. The only one to profit is the dropshipping company that gets regular monthly payments from the businesses in the form of membership.
Retail Arbitrage = Buying directly from the source
Dropshipping = Buying from a middle-man, often a retailer just like you.
Use These Retail Arbitrage Tips To Find Items To Sell
As you start practicing retail arbitrage, you will find multiple sources to find discounted items. Some of the most popular methods are listed below:
- Online Retailers: As a starting point, you can visit a variety of well-known online retailers such as eBay, Amazon, Walmart, Apple, Wayfair, the Home Depot, Best Buy, and Target. These retailers regularly list items on sale, which are often much less than the original selling price. Using retail arbitrage, you can buy an item at a discount to sell it on another popular platform.
- Price Comparison Websites: A secret weapon for sellers, websites such as Yahoo Shopping, NexTag, PriceGrabber, and BizRate offer everyone a chance to find deals and discounts offered by big-name retailers. In fact, you can also compare the price of a product with other retailers. Just Google “price comparison websites” to get a list of some of the best websites in this category.
- Specialty Retailers: Retailers such as Costco, Sam’s Club, and BJ’s Wholesale Club offer a variety of special offers for their members, which are not available elsewhere. Due to their unique business model, you can easily buy products at a significant discount and sell it on Amazon, eBay, and other online platforms.
- Deal Websites: Perhaps, one of the best sources for retail arbitrage is deal websites such as Slickdeals, FatWallet, and DealNews. These websites list thousands of deals offered by retailers. If you don’t want to spend time looking for exclusive deals, these websites are an excellent source to find items to sell.
- Physical Storefronts: Don’t overlook the importance of walking down to your favorite retailer and grabbing a deal. To attract customers, large retailers offer walk-in deals that you can get only by visiting the store.
- Yard and Garage Sales: These days, a lot of individuals specialize in finding little gems found in the basement, yard, and garage sales. If you have time for a treasure hunt, you will be surprised to find that there is an entire retail industry built around these sales outlets.
- Newsletters: If you’re serious about retail arbitrage, then start signing up for newsletters because most retailers regularly offer discounts and coupons that are specifically reserved for their newsletters. You can survive solely on newsletters to fund your appetite for discounted items.
Once you get hold of different sources of online arbitrage, you can then move on to liquidators. A liquidator is a source used by eBay Power Sellers, Amazon Best Seller, and Amazon Buy Box because it’s the place where you can buy inventory in bulk. Buying in bulk can provide massive discounts not available elsewhere. It’s also not uncommon for individuals and businesses to purchase a truckload of items.
If you have some cash to dispense, liquidators are the secret source people have written entire books about.
Now that the rabbit is out of the box, here are some great liquidators to get an idea of what they do and how they do it:
4. BlueLots (Formerly: Source)
As time passes, you will also find there are many local liquidators near your home. Some of these liquidators only offer inventory in pallets and truckloads, but there are many out there that sell individual items and open-boxes. By using a liquidator, it’s not difficult to find products that are 75% to 90% off the retail price.
However, it’s recommended to start with online sources and then try your hand on liquidation because liquidation is another ballgame. Without learning the ropes, many individuals have burned their hands trying to get stuff from liquidators without learning what to sell, how to sell, and where to sell.
What You Should Sell
Before selling anything, you should get an idea of what you want to sell. It’s crucial because the profit margins, ease of finding the right stuff to sell, and the time it takes to sell them can differ from product to product.
While it’s true that many people try to sell what they love, successful retail arbitrage actually is all about flexibility. If you’re in love with antiques and board games, it doesn’t mean you should start selling them without learning about their profit potential and sales statistics.
For many individuals, electronics are a great choice because electronic gadgets and accessories sell fast. If you want a quick turnover by selling smaller items for a quick profit, electronics are something to consider.
On the other hand, some individuals love selling clothing and furniture because it gives them more profit. If you have the patience to wait for the right seller, selling furniture and clothing can bring much more profit than traditional stuff.
Similarly, many individuals sell specialty products, such as healthcare items and pet supplies. The fact that these specialty items require knowledge, these categories often get much less competition allowing individuals the liberty to accumulate substantial profits.
In the end, no one can tell you what to sell; however, everyone recommends you do the proper research before diving into the profitable world of retail arbitrage.
How To Sell Effectively
Before the advent of the internet, the retail business was limited to people who knew inside information or who had the experience to run such companies. Luckily, the internet has changed the dynamics of the retail business model.
As a first step, you should focus on two important selling metrics: profit margin and inventory turnover.
Visit different online retailers and investigate how much customers are willing to pay for an item. As a strict benchmark, note down the minimum price or one near the minimum. Once you have a good idea of the amount customers may be willing to pay, find if you can get these items for less than the minimum price. As a rule of thumb, try sourcing something for 10% to 30% lower than the minimum cost.
If you know what to sell and you can find reasonable profit margins, it’s time to think about inventory turnover. Inventory turnover tells you the amount of time it takes for the inventory to sell. Newer models of electronics sold at a reasonable price sell quickly, but an older model may require more time to sell. Accordingly, office furniture usually sells more quickly than house furniture.
Tools such as CamelCamelCamel and Keepa are well-known to offer low prices, profit margins, and inventory turnover for sellers wishing to sell items on Amazon. These tools will help you answer your questions that we discussed. As a starting point, try Googling for “Amazon FBA seller tools.” You will find plenty of tools that can help you answer if a particular retail arbitrage product is the right choice to sell?
Create Trust With Your Brand
The more items you sell, the more credibility you will get as a seller. As buyers get to know you and leave positive reviews, the more buyers will follow. In addition, getting your name out in front of potential buyers is extremely important.
One great way to create additional trust for your brand is by creating an inexpensive business card. Crello is a great place to get the perfect business cards for your brand without spending an arm and a leg.
Where You Should Sell Your Items
Obviously, the two most well-known websites to sell products are Amazon and eBay. Using an Amazon seller account is extremely popular because it not only attracts thousands of visitors, but there are tons of tools to help sellers. FBA seller tools are just a few good examples that can instantly help you find the right product to sell on Amazon.
If you like Amazon, start by finding the source of your products that you will sell on Amazon. We have listed various sources in the previous section, “Where to Find Items to Sell.” Once you have the source, you can do further research via Amazon FBA seller tools to investigate if your product selection is practical to sell.
Apart from Amazon, eBay is another excellent choice. Just browse eBay to find which products sell in an auction. If you can find products that are auctioned quickly, then there is nothing better than eBay because you may not have to wait for the seller to come to you. Instead, popular products on eBay sell relatively fast within a matter of hours.
Besides Amazon and eBay, don’t forget that tons of other well-known websites have much less competition. It means that sites like Costco, Walmart, and Overstock are just as good, considering that they also get a fair amount of web traffic, and fewer sellers are competing against you. Specialty websites like Esty and Zazzle are even better at attracting sellers who sell craft, clothing, and other novelty items.
Recently, there has been a lot of talk about Amazon and Costco restricting sellers to list specific products. In reality, the restrictions are limited to a few brand name products and particular items that can’t be sold as new. Just remember, you can pretty much use any retail arbitrage products.
Wrapping It Up
Overall, if you want to really make money, retail arbitrage sourcing is an excellent business model that doesn’t require a lot of upfront cash, inventory, and business space. Hopefully, this guide will allow you to take initial steps that are important to succeed in a competitive retail world.