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Retail Arbitrage – What Is It and How Does it Work?

Many a budding ecommerce entrepreneur has dreamed about running a super successful online business, and Amazon is one of the top ecommerce platforms chosen to fulfil those dreams. The trouble is, running a successful online business can appear straightforward on paper, but most who take this route end up throwing in the towel because they simply underestimate the amount of effort and commitment required.

Retail

There’s product research to be done, there’s sourcing, then negotiating, listings to be created, customers to take care of and of course the fulfilment process. There’s always marketing to be done too, along with the day to day running of the business.

Commonly, it’s the sourcing part of the process that sorts the wheat from the chaff! Because finding and dealing with suppliers, often internationally, can be challenging and frustrating.

This is not intended to deter you from starting an ecommerce business of any type. Not at all! Sourcing stock from wholesale suppliers at low prices and then reselling for a profit is a fantastic opportunity for you to build a really profitable online business. But, you don’t necessarily have to build that business in the traditional way.

Wouldn’t it be great if there were an easier way to buy products to resell for a profit, without the need to deal with international suppliers or negotiate rock-bottom unit prices?

Well, there is! It’s called retail arbitrage.

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What is Retail Arbitrage?

Retail arbitrage is simply the method of buying low and selling high, but with a twist! Instead of buying your stock from specific wholesalers or trade suppliers, stock is purchased from actual bricks and mortar retail stores. Stores such as, for example, Argos, Tesco or B&M, where products are on offer or at clearance prices. You then sell those goods online, typically on eBay or Amazon, at a higher price and pocket the profit!

Sounds a bit cheeky, doesn’t it?

Well, it is pretty brazen, but it’s all perfectly legal. In fact, it has been known for those in the retail arbitrage game to purchase products from retail stores at full price and then sell them for over the odds on Amazon!

But why would buyers purchase a product for more than its retail price? The main reason is that online shoppers are often impatient. They want their goods right now, and so it’s easy for them to order online and get products delivered the next day rather than having to traipse to the shops. What’s more, impatient buyers will pay extra for this convenience.

So, it’s an opportunity to make some money by reselling products that are already retailing well in stores.

Interested in this concept? If you are new to retail arbitrage, it’s best to start with Amazon as your selling platform. Later on, when you become well-practised at spotting opportunities, and your inventory grows, you can also incorporate your retail arbitrage strategy with Amazon’s fulfilment service, FBA.

How Does Retail Arbitrage Work on Amazon?

The best way to explain is with an example. Imagine you visit your local Argos store, and you see they have watches on clearance for £25. You would research that exact product to see if it’s listed on Amazon and how much it’s listed for.

So, let’s imagine the very same watch is selling for £65 on Amazon. You would purchase from Argos at £25 and then immediately list it on Amazon for £65.

Once sold, the difference (minus your selling fees) is yours. That’s your profit. So, you could quite easily make a £20 profit on your initial investment. And that’s with just one item. You could have a whole line of products in your inventory.

Discover Stephen Smotherman’s nine-step process when it comes to sourcing products for retail arbitrage on Amazon.

In a nutshell: You research and purchase discounted products from a retail store such as Argos and list them on Amazon at a higher price, pocketing the profit after your selling fees.

How Do I Know if a Retail Arbitrage Product is Profitable?

You’ll need to carefully compare prices before you purchase any product that you intend to resell using the retail arbitrage strategy. You can do this by logging in to Amazon while you are in store and comparing prices.

Alternatively, to see exactly how much profit you’ll make after shipping and selling fees, Amazon has a brilliant free app which will give you all this information. It’s called Amazon Seller and is available to download from the app store. The app lets you scan products to see prices, fees, profits and other useful information including the number of sellers selling the product, it’s best seller rank and which category it’s placed in. All of these bits of information are vital for you so that you’re not relying on guesswork and you become well-practised at retail arbitrage!

In a nutshell: Research is key. Scan the barcodes of potential products in bricks and mortar stores using the Amazon Seller App before purchasing to check sales rank and profitability.

Can I Make Money with Amazon Retail Arbitrage?

You might be thinking that this all sounds a little bit too easy and so surely everyone is at it? Actually, they are not because, like anything, it all sounds fabulous in theory, but in practice, the majority of people who want to try, don’t!

The main reason for this is that just like any online business, you will need to put in some effort travelling around to uncover the right products. You’ll need to visit stores and check prices, but don’t forget, this totally cuts out the need to deal with suppliers, something that you might be nervous or worried about.

Of course, you will also be able to start your Amazon Retail Arbitrage business with a smaller investment rather than needing hundreds of pounds to purchase wholesale quantities of products. It’s easy to test one or two products initially to get into the swing of it and expand later. The products are all out there, but the right strategy and to some extent, the right mindset is required.

In a nutshell: Retail arbitrage is a perfectly viable strategy that can make you a profit when you understand the process. Effort is required and a positive mindset, then simply research and choose your products wisely.

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Why Don’t Retail Stores Sell the Clearance Products Online Themselves?

You may be wondering why retail stores don’t sell their clearance products online rather than running the risk of retail arbitragers making money off the back of their products. Surely this is profit that the retail store could be reaping?

Yes, that’s exactly right. But the reason retail stores sell off their stock is to make room for more stock which is to be sold at full price! So, with limited space, retail stores place higher importance on getting new stock in that has the potential to make more profit than the sale of their clearance stock.

Remember, retailers would still need to store the clearance stock as well as the new stock if they decided to sell it online. Most just don’t have the room for extra inventory, nor want it hanging around. So, while it might seem to be a strange strategy for retailers as they are knowingly missing out on revenue, the fact is they will actually be making more money from their new stock.

Here’s how to get started with retail arbitrage on Amazon.

1. Register for a seller account on Amazon

This is super simple and will take you about 10 minutes to complete the basics.

2. Download the Amazon Seller App from the app store

You must have an Amazon account set up to be able to access the app, so make sure you have completed step one before moving on.

3. Make a list of potential retail stores to visit

If you spot a clearance section while you’re out and about, always head on over for a nose around as you never know what you might find. Here are five stores with the best potential products:

  • Argos: For electricals, toys and homeware
  • B&M Bargains: For beauty/hair products and accessories
  • Home Bargains: For homeware, garden products and seasonal products
  • TK Maxx: For homeware and sports accessories and additional clearances
  • Boots: For its 3 for 2 offers
  • Supermarkets: Particularly Aldi and Lidl ‘middle aisles.’ Tesco, Asda and Sainsburys for their clothing, homeware and toys departments, not forgetting the BOGOF’s!

Pro Retail Arbitrage Tip: Look for yellow stickered deals in supermarkets. These are products that might have damaged packaging or broken seals and are perfect retail arbitrage items!

4. Head over to the clearance section

This is where you should start your retail arbitrage product search. Don’t forget that some stores won’t have specific clearance sections and you may have to look a little harder for the best deals throughout the store.

Pro Retail Arbitrage Tip: Get to know the clearance routine in each store. Most stores will discount once and then cut further. Other stores will always mark their clearance products up at a particular time or on a specific day. If you learn the schedule, you will have an immediate advantage and can swoop on deals immediately.

5. Use the Amazon Seller App to scan products on offer or clearance

Use your Amazon Seller App (or equivalent) to scan any potential products. Doing this will ensure you make an informed decision, and you’ll be able to work out, in advance, what your profit will be.

All you need to do is scan the product barcode and then check two crucial details on the app.

The first is to check you are eligible to sell the product on Amazon. Very important! The second is to check the sales rank of the product as this will tell you the popularity of the item.

If the number is low, it’s a fast seller.

You must pay attention to the sales rank as this is your most significant indication as to whether a product is suitable for retail arbitrage on Amazon or not. Bear in mind that a sales rank depends on the number of products in the category overall, so if you have a category with a high number of products listed, while the sales rank may appear low, the product may still be viable.

6. Purchase products that will bring a profit of £5 or more

Check the profitability of the potential product using the Seller App. All you need to do is enter the price of the product, and a rough shipping cost and then the app will calculate the profit. Make sure the net profit shown is higher than your minimum profit threshold of £5. If you are a newbie to Amazon retail arbitrage, don’t purchase more than five of any product to start with to keep your risk low. You can buy more as you become well practised with the strategy.

7. List your products for sale on Amazon

This is the exciting part of the process! When you list your products, you’ll want to make sure they sell, so you must make sure your title contains all the relevant keywords. Bullet points within your product description are also critical so think carefully about the information you will add to your Amazon listing.

You will also need to ship the products to your customers. You can do this yourself (Merchant Fulfilled) although once you have increased your inventory, you should consider utilizing Amazon’s fulfilment service, FBA.

Final Thoughts

There is no perfect product that will work for retail arbitrage over another product. It’s critical though that you don’t limit yourself to one specific type of item or category as you never know what kinds of products may be available or become viable.