- What retail arbitrage actually is, explained in plain terms
- How it works on Amazon with a real dollars-and-cents example
- The honest pros and cons — including why accounts get banned
- 5 ways to make arbitrage part of a sustainable income
- Where to source products and sell them, plus the biggest myths debunked
Buying a product at a lower price and selling it at a higher price on Amazon is one of the most popular forms of online retail arbitrage. And you do not always have to buy the product first. You list and sell a hot product at the higher price on Amazon, then place the order with a different retailer of your choice — such as Walmart — at the lower price, and they ship it directly to your customer.
A second popular version is where sellers find products at a lower price on sites like Alibaba or AliExpress (sourced from China), then sell that same product at a higher price on Amazon or eBay for a profit — or at least try to. Arbitrage is fast, easy, and simple. But — and here is the catch — the arbitrage strategy is genuinely problematic for building a sustainable income if you do it wrong. I will explain why, and how to make it work for your ecommerce brand.
First, What Is Retail Arbitrage Exactly?
It is easier to understand if we break down the term:
- Retail means selling goods, products, or services directly to a customer to make a profit.
- Arbitrage is making a profit off the price difference between a product sold by two or more competing retailers or markets.
There are several retail arbitrage sub-models:
You buy the product first and ship it to an Amazon fulfillment center. When someone buys it, Amazon ships it to your customer. This is more sustainable than the other arbitrage models below.
Find used, clearance, or undervalued items from outlet stores, pawn shops, garage sales, and discount stores. Then resell those items at a higher price, usually on eBay or Amazon.
The same idea, but you source in person — visiting a Target, Walmart, or clothing outlet to buy clearance items cheap, then selling them higher at a party, boutique, online marketplace, or your own website.
Buying and selling currencies, stocks, and commodities to profit from price differences. Mentioned here only for awareness — it is a different world from product arbitrage.
Today I will focus only on online retail arbitrage — how it works, the pros and cons, and how to make money or even build a passive income with it.
How Retail Arbitrage Works on Amazon
Say you did some research and found a hot-selling wooden kitchen table that Overstock has for $279. You do not have the table in your possession — Overstock does, in their warehouse. In this case, Overstock is your product sourcing retailer.
You head over to a completely different site — Amazon — and list that same table for $379 including taxes and shipping, for a rough $100 gross profit. Amazon takes its fee of around 15%, leaving you about $85 net. You could also buy the table directly from Overstock and ship it to the customer yourself, or send it to Amazon’s fulfillment center for them to ship.
That entire process — finding hot products or clearance items on one site, raising the price, and selling on a different marketplace — can be done between any two or more retail locations online. Thousands of retail stores instantly become product sources for you. Not too shabby. But before you decide this is the best thing since sliced bread, let’s look at the real advantages and disadvantages.
Pros of Retail Arbitrage on Amazon
- No need for your own website.
- You don’t have to generate your own traffic — Amazon, eBay, and other marketplaces provide it for you.
- You can start selling almost immediately.
- Easy, fast, free access to a huge range of products to list.
- You can quickly discover and validate which hot products sell well for you.
- No fees, membership dues, or costs to access products to sell.
- You don’t always need permission to start selling.
Cons of Retail Arbitrage
- Your retail source controls the rules and inventory 100%. A hot product can be there one day and gone the next, forcing you to find another source or refund your customer. Too many refunds and Amazon or eBay can permanently ban your account — your income can vanish overnight. Your source can also stop accepting your orders or block your IP address at any time.
- Shipping times can be extremely slow. Selling on eBay from AliExpress often means 10 to 20 days for the customer to receive their product.
- Repeat sales are very hard. Once a customer realizes they could have bought the same product cheaper from the original retailer, you lose their trust and their future business.
- Scaling is nearly impossible. Because you are always hunting for bargain deals, arbitrage alone is very hard to grow into a large brand.
- Low profit margins are common. Reselling cheap, highly competitive products from China to the USA often yields just 1 to 12% margins. Research tools help you find less competitive products with higher demand and better margins. High-ticket dropship products are worth considering for stronger margins.
- Currency exchange fees. International sellers face higher exchange fees that eat into margins.
- Massive competition. Because it is so easy to start, arbitrage attracts crowds chasing the “fast and easy” route — which is the enemy of a sustainable business.
- Price wars. With such a low barrier to entry and no way to enforce minimum advertised pricing, retailers constantly undercut each other, cutting into everyone’s profits.
You can probably see that retail arbitrage has more cons than pros. So where does it fit into building a long-term, sustainable dropshipping business?
5 Ways to Use Retail Arbitrage for a Sustainable Income
If you combine one or more of these strategies with retail arbitrage, your chances of building a sustainable, profitable ecommerce business go up dramatically.
- Mix arbitrage products with private label and dropship products. Don’t sell arbitrage products exclusively.
- Get laser-focused on your target audience and serve them exceptionally well. World-class customer support is the number one path to success with any business.
- Build a reputable, trusted brand. When you make your efforts about brand building, you automatically stand out from competitors who focus only on products. See the guide on building a sustainable competitive advantage.
- Build a focused niche store rather than a mass-market one. Learn how to choose a profitable niche first.
- Leverage reward points and coupon sites to increase your margins by reducing your final product cost.
Sign up with cash-back, rewards, and coupon programs — such as cash-back portals, rewards cards, digital gift card services, and store loyalty programs like Overstock’s Club O — to earn points and access discounts on the retailers you source from. Every dollar you shave off your source cost is a dollar added to your margin. This matters even more for international sellers dealing with exchange fees. Verify each program’s current terms before relying on it, since reward programs change often.
Where to Source Products for Arbitrage
Any of these retail websites have products you can source to sell on your own site or third-party platforms like Amazon and eBay:
- Alibaba
- AliExpress
- DHgate
- Wish (now operated by Qoo10)
- Walmart
- Target
- Overstock (Bed Bath & Beyond)
Where to sell them once you’ve marked up the price:
- eBay
- Amazon Seller Central
- Your own website
Technically you can also sell Amazon products on eBay — we’ve done it and made good money. But Amazon and eBay have both cracked down hard on sellers who do arbitrage exclusively, banning accounts. Follow the sustainability tips above to keep your store off their radar.
Myths About Retail Arbitrage
Not true. You can simply list the products for sale on your website or marketplaces like Amazon, eBay, Walmart, Overstock, and Target — then order once you’ve made a sale.
It can be — as long as you combine it with building a real brand your customers love. Think first about your audience’s needs. They may want services and digital goods, not just physical products, which you can offer through affiliate marketing and premium services.
Most retail stores are middlemen just like you — they have direct connections with suppliers and approved access to lower pricing. It is better to build those supplier relationships directly yourself. You can learn how to do that here.
The Ball Is in Your Court
Retail arbitrage can be a simple, powerful way to make money quickly in the short term. Just stay aware of the pitfalls of arbitraging products on Amazon, eBay, and elsewhere. As you develop the habits of successful people and build a solid ecommerce brand, you’ll create a sustainable, profitable passive income stream that frees up your time and finances.
Remember, all worthwhile things take time and real effort. Making money online with the retail arbitrage model for dropshipping is no different.
If you could use some guidance putting this selling strategy into motion, book a free 30-minute breakthrough call with Trent here. You can talk through the questions you struggle with most and get clarity on taking your business to the next level.
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