Knowing you can buy a product at a lower price and sell it at a higher price on Amazon is a popular type of online retail arbitrage. And you don’t always have to buy the product first! You just list & sell a hot product first at the higher price on Amazon and then place the order with a different retailer of your choice (such as Walmart) at the lower price who will then ship the product out to your customer for you.
A 2nd popular online retail arbitrage examples today in 2018, and I’m sure will remain popular in 2019, is where people find products at a lower price on retail sites such as Alibaba.com or Aliexpress.com (products sourced from China). From there online retailers sell that same product at a higher price on Amazon or eBay.com for a profit, or at least try to.
Arbitraging products is fast, easy, simple, and here comes the but…but the arbitrage selling strategy is quite problematic when it comes to creating a sustainable income online if you do it wrong. I’ll explain why later and how you can make online retail arbitrage a success for your ecommerce brand.
First, What is Retail Arbitrage Exactly?
It’s easier to understand if we break down the term first:
Retail simply means you are selling goods, products or services directly to a customer to make a profit.
Arbitrage is the process of making a profit off of the price difference between a product or service being sold from two or more competing retailers or markets.
There are all types of retail arbitrage sub-models such as:
- Amazon FBA (Fulfillment by Amazon) arbitrage. You buy the product first, ship it to one of Amazon’s fulfillment centers. Someone then buys the product on Amazon. And then Amazon ships that product to your customer. Sourcing products and retailing them this way is much more sustainable than other retail arbitrage models that follow.
- Thrifting store sourcing: This is where you find used products, clearance items, undervalued products or new items from off-line outlet stores, pawn shops, garage sales, local discount stores etc. And then again you can retail those discounted products for a higher price usually on eBay and Amazon to make a potential profit.
- Offline retail arbitrage: This model consists of the same concepts above but the product sourcing occurs at off-site locations. You could go in person to visit a Target store, Walmart, or discount clothing outlet and buy clearance items at a low price then sell those products at a higher price at a hosted party, boutique or at online marketplaces like Amazon and even your own website etc.
- Financial investment arbitrage: This arbitrage strategy occurs all the time, every second and minute that passes. Just think about the buying and selling of currencies in the Forex markets, Stock exchanges and so forth. There are all types of buying low selling high activity in various securities, currencies, commodities, markets, etc. I won’t discuss much else about this but did want to make you aware of this for educational purposes.
Today however I will only focus on teaching you about online retail arbitrage. I’ll explain how it works, the pros & cons, and how you can make money online or even create a passive income.
Let’s get started…
How Retail Arbitrage Works on Amazon
Let’s say you did some research and discovered that there’s a hot selling wooden kitchen table that Overstock.com has on their website for $279. In this situation you don’t have the wooden kitchen table in your possession. Overstock does however have the wooden kitchen table in their warehouse. Overstock.com in this case is your product sourcing retailer.
From there you head on over to a completely different retail site at Amazon and list that wooden kitchen table for sale at a price of $379 including taxes & shipping resulting in a rough $100 gross profit. Amazon will of course take their fee which is around 15% leaving you about $85 net profit. And keep in mind also that you could also buy that wooden kitchen table directly from Overstock.com and then ship it out to the customer yourself or ship it to Amazon’s fulfillment center for Amazon to ship out for you.
That entire process of finding hot selling products or clearance items from one retail site, increasing the price and selling them on a different marketplace or store can literally be done between any two or more retail locations online. There are thousands of retail stores that suddenly become products sources for you in an instant when doing retail arbitrage.
Not to shabby!
Now, before you start thinking that selling products on Amazon via this retail model is the best thing since sliced cheese let’s discuss the advantages and disadvantages of online retail arbitrage:
Pros (Advantages) of Retail Arbitrage on Amazon
- No need for a website.
- You don’t have to get your own traffic. Amazon, eBay, and other retail marketplaces provide the bulk of traffic for you.
- You can immediately start selling products online.
- Easy, fast and free access to a wide range of products to list for sale on retail marketplaces such as Amazon.
- You can quickly discover and validate what hot products sell well for you.
- There are no fees or membership dues or costs to pay to access hot products to sale.
- You do not always need permission to start selling products.
Cons (Disadvantages) of Retail Arbitrage
- Your retail source controls the rules & inventory 100%
- It’s very common to sell an amazing hot product one day and the next it is gone forcing you to find another retail supplier with that same money making product or be faced to refund your customer. If your refund rate goes to high retail platforms or market places such as Amazon and eBay can permanently ban your account. And that’s when…your income can go poof in an instant, over night.
- Additionally, your sourcing retailer can change the rules of even accepting your order at any time. They can accept an order you place in your customer’s behalf one day and the next no longer allow it or even permanently block your IP address. eBay and Amazon is known for blocking retailer IP addresses from retail arbitrage sellers because there are so many issues with refunds and late shipments that make customers unhappy.
- Shipping times can be extremely slow making it a pain in the butt to deal with.
- Retailing products on eBay for example from Aliexpress many times takes 10 to 20 days for the customer to receive their product!
- Generating repeat customer sales is very difficult.
- Once your customer knows they could have bought that same product directly from the same retailer at a cheaper price you will lose their trust and therefore their future purchases.
- Scaling your business is near impossible.
- Because you must always be on the hunt for bargain deals to post for sale online retail arbitrage alone is an extremely difficult model to follow to take your brand to larger audiences.
- Low profit margins are quite common if you’re retailing low priced products that are highly competitive from China to USA retail markets online.
- It’s typical to only make 1 to 12% profit margins off of retailed products from one China retailer to a USA consumer because of the ease of entry into this arbitrage model breeding massive levels of competition. It’s better of course to use research tools to identify less competitive products with high demand and better profit margins. High ticket dropship products are a great thing to consider to establish higher profit margins.
- International online dropship retailers have to deal with higher currency exchange fees that cut into profit margins.
- Sales Tip: if you live overseas from the USA it’s even more important to look into solutions to increase your profit margins. One profit margin boosting tip is to set up accounts with coupon sites and reward programs to access payment cards or promo codes you can use to reduce the final product price you order to ship to your customer.
- There is a TON of competition because it is so freaking easy to get started with this model.
- Remember, if it’s simple and easy then it’s going to attract the masses of people who also want the “fast and easy” route. This “fast and easy” route to making money is the enemy of building a sustainable & profitable business.
- Pricing competition battles are common. Because the barrier of entry to the online retail arbitrage market is so easy and product sourcing retailers don’t have any way to enforce minimum advertising pricing (MAP) policies among their retailers, there’s no way to avoid retailers undercutting each other on price all the time. This cuts into your profits in a major way and creates a fiercely competitive online marketing environment.
You can probably observe from the list above of advantages and disadvantages that retail arbitrage has more cons than pros. So where exactly does retail arbitrage come into play with creating a long-term sustainable drop shipping business?
5 Ways Retail Arbitrage Can Be Use To Create a Sustainable Income
If you implement one or all of the following strategies in conjunction with retail arbitrage your chances of building a sustainable, long-term, profitable ecommerce business is much higher.
- Add a mix of arbitrage products among private label and dropship products on your site. Don’t just strictly sell arbitrage products.
- Make your store extremely focused on your target audience groups, their needs and serve them amazingly well. Growing and maintaining a world-class customer support service is the #1 path to achieving any success level with any business.
- Build a reputable, trusted brand. When you make your ecommerce and dropship building efforts about brand building you’ll automatically differentiate yourself and your business among the pack of other competitors who are only making their business about the products only.
- Focus on building a niche ecommerce store instead of a mass-market online store.
- Leverage the power of reward points and coupon sites to increase your profit margins. You can go to any of the following reward centers and sign up to build up points, access coupons, discounts to specific retail stores for retail sourcing which overall reduces your final product cost:
6 Great Promo & Discount Coupon Code Sources
- Discover Rewards and Miles Card
- Gift Certificates
- Cash Back Programs
- Digital Gift Cards
- Online Coupon Website – Promo & Discount Codes
- Overstock Club O Rewards Program
If online dropship retail arbitrage is something you want to try moving forward now, here are some retailer sources that you can leverage to start your adventure in finding products to try to make a great profit after retailing them.
List of 8 Product Sourcing Retailers
Any of these retail websites have products you can source to sell on your own website or other 3rd party sites or platforms such as Amazon and ebay:
And to recap, once you find products you want to increase the price of and want to retail on your store and/or on other market places or selling platforms here are some of those sites you can begin using to get your products in front of people who can buy your products:
Online Selling Platforms For Arbitrage Products
- Amazon Seller Central
- Your own website
And technically speaking you can also sell products from Amazon on eBay. We’ve done this and made great money. However as of this year we’ve seen Amazon and eBay crack down on retail arbitrage sellers in banning accounts among those who only do arbitrage exclusively. So be sure to follow the tips earlier in this article to help keep your retail store and account out of the banning team radar of eBay and Amazon.
Now to provide some more clarity about the arbitraging method we’re discussing today review these top myths debunked about online retail arbitrage on Amazon and elsewhere:
Myths About Retail Arbitrage
Myth 1: You have to buy the products first before retailing them at a higher price.
The truth is you do not have to buy the product first before you retail them elsewhere. All that needs to be done is simply start selling or listing the products for purchase on your website or other market places such as Amazon, eBay, Walmart, Overstock, Target, etc.
Myth 2: Retail arbitrage cannot be sustainable
The truth here is that retail arbitrage can be sustainable as long as you combine the model with building a legitimate brand your customers can grow to love. For example, while you retail products on your site at a higher price consider first and foremost the needs of your target audiences. What can you do to help your niche target audience get what they really want? Your niche target audiences might want to buy things other than tangible products. In that case you can sell them services and digital goods through other marketing models such as affiliate marketing and white glove services.
Myth 3: Retail websites are dropship suppliers.
In reality most retail stores online or offline are middle men just like you selling products directly to customers. These product retailers are simply retail sources that have direct connections with suppliers and/or manufacturers. They have received official approval to access products at lower pricing that the general public does not have access to. Overall it is better to take the same approach by establish solid retail relationships with suppliers directly. You can learn how to do that here.
The Ball is In Your Court Now
Retail arbitrage can be a simple and powerful way in the short term to make money quickly. Just be aware of the pitfalls of arbitraging products on Amazon, ebay and elsewhere. As you develop millionaire habits while building a solid ecommerce brand you’ll create a sustainable & profitable passive income stream to liberate your time and finances.
Remember, all worthwhile things in life take time and solid effort. Making money online and/or creating a residual income stream leveraging the retail arbitrage model for dropshipping is no different.
If you could use some guidance on putting today’s selling strategy into motion book a free 30 minute breakthrough phone call with Trent here. You can speak with him about the questions you struggle most with and gain clarity into your life and how to take your life and business to the next level of success!