Your Ultimate Guide to Retail Arbitrage
Retail arbitrage is the act of buying a product from one place and then selling it, usually at a higher price, somewhere else. It’s an old-fashioned way to make money, though one that has gotten an update in the digital age.
In this article we’ll explain retail arbitrage, the difference between traditional retail arbitrage and online arbitrage, and look at the legality of the practice. From there we’ll offer advice on how to build a successful business model, and look at some popular platforms for retail arbitrage online.
Lastly, we’ll dive into some frequently asked questions about retail arbitrage, and how to make money doing it.
What Is Retail Arbitrage?
Retail arbitrage is a somewhat fancy name for a pretty simple concept: It’s buying products from one place and then selling those products at a higher price somewhere else. If you’ve ever found an incredibly good deal on an item you didn’t really need, then sold it or traded it to someone for a profit, you’ve participated in retail arbitrage.
This isn’t a new concept by any means. People who scour thrift stores for treasures they can sell at a profit is an example of retail arbitrage. Likewise, businesses that buy in bulk from wholesalers and then sell at a profit can also be considered a form of retail arbitrage.
Online Arbitrage vs. Retail Arbitrage
Retail arbitrage isn’t new, but it has gotten a makeover in the digital age.
While the basic concept is the same — sourcing products with the goal of selling them in a different marketplace for a profit — the act itself has changed, and gotten a lot faster.
What was once a physical act — heading to a department store to check out the clearance section — became a virtual action that could be done in seconds with a simple search on eBay or Amazon. With the introduction of online marketplaces, crafty shoppers could find an item at a discount and then sell it at full price in mere seconds, sometimes without even acquiring the original item.
Is Retail Arbitrage Legal?
Retail arbitrage is legal, and some might argue is the base of our economic system. You buy things from one place and then sell them somewhere else for a profit.
That being said, the legality of retail arbitrage is all dependent on one thing: where you’re sourcing products.
If you find a designer shirt in a discount store’s clearance section, and then sell it on eBay or Craigslist for close to its retail price, that’s technically retail arbitrage, and there’s nothing wrong with that. Plenty of people spend lots of time exploring thrift stores and chains like Target or Big Lots scouring for deals.
Now, if you go into retail stores and source items that are clearly labeled “not for individual resale,” or buy from brands which have strict rules that only allow their products to be sold through authorized resellers, you might be in some trouble.
While legal prosecution in these cases is rare, you can be banned from online selling platforms for the unauthorized reselling of items. If you want to learn more, check out this primer on online arbitrage.
Finding a Retail Arbitrage Business Model
It’s tempting to dive headfirst into the retail arbitrage world, and start buying clearance items from one website and trying to sell them on another platform for full price.
But making retail arbitrage work for you is about more than just taking advantage of low prices and trying to make a spare dollar here or there. To earn a healthy profit margin and make it worth your while, you need to:
- Understand platform selling fees
- Calculate and factor in shipping costs
- Ensure that your product listings will find customers
- Be able to handle inventory
A recent article on the The Arbing Blog suggested that the best way to make money is to buy products at less than half the price they’re listed on Amazon in order to make sure you have a decent margin. Fees, shipping, handling, your time … these are all costs that will go into successfully completing a sale. If the margin can’t cover those costs, you won’t be running an arbitrage business for very long.
The blog also suggested finding products that have plenty of reviews on Amazon and a high sales rank, so that you know there’s interest for the items and can move them quickly. Otherwise you’ll quickly find your house filling up with items you can’t sell.
The Amazon-to-eBay Model
The Amazon-to-eBay model is a popular one for people running an online arbitrage operation, but there are risks you should understand before you dive in.
What’s nice about the Amazon-to-eBay model for online arbitrage is that the seller never has to handle any inventory. The basic way of doing business is: You put up ads on eBay for items that you’ve seen on Amazon, and do so at a higher cost than their listed price on Amazon.
When the item sells, you simply purchase the item on Amazon, and have Amazon ship it directly to the person.
Is Amazon-to-eBay Arbitrage Legal?
There is no law preventing you from buying an item on Amazon and shipping it directly to someone who purchased it from you on eBay. That said, there are risks.
The biggest risk? You are responsible for the consumer on eBay. Amazon has no relationship with that person, other than they shipped them the item. If your customer on eBay has a problem with the item, or wants to return it, or realizes that you simply shipped them something from Amazon and charged them more for it … you have to deal with that.
Some people will simply list “No Returns” on their eBay page, but they run the risk of getting bad seller reviews and jeopardizing their eBay status.
Using Fulfillment by Amazon (FBA)
Fulfillment by Amazon, or Amazon FBA, lets you use the Amazon platform to sell items while having Amazon handle all the logistics of running the online business.
Amazon FBA lets you:
- Offer free, two-day shipping to Amazon Prime members
- Store items and have them shipped directly from an Amazon Fulfillment Center
- List and sell items from your iPhone with their seller app
- A better chance of getting in the “Buy Box” — one of the top listings in Amazon searches
Opening an Amazon business is as easy as creating an Amazon seller account, linking your bank account, and then listing items in their “Seller Central” hub.
That being said, Amazon FBA comes with fees, and understanding and navigating those fees will make the difference between a successful arbitrage business and an unsuccessful one.
While Amazon will take care of shipping and storage for your items — and let you reach a wide seller base with their platform — you’ll still need to factor in those fees when crafting your business plan and find items you can sell at a healthy profit margin.
To learn more about Amazon FBA fees, read our guide to selling books on Amazon.
Frequently Asked Questions
We’ve covered retail arbitrage and online arbitrage and the difference between the two. We’ve looked at different ways to buy or sell with Amazon, and how to build a successful online arbitrage business model. Let’s get to some frequently asked questions.
1. Can I make retail arbitrage work as a full-time job?
Yes, but it’s a lot of work. Shoppers tend to be hard to find, and margins tend to be thin. People need to hustle consistently to make money, and the time it takes to list and sell items can add up. Online arbitrage can absolutely be a way of making money, but it is typically a side hustle.
2. What are good items to sell via retail arbitrage?
One set of products we’ve seen recommended time and time again is toys. Children’s toys tend to have prices that vary seasonally, with demand ramping up during the holidays.
Likewise, any seasonal item can be effective to purchase now and then sell later, especially if you have the space to store them. Winter coats can be had for major discounts in August, and then be sold come wintertime for a healthy profit.
3. What is private labeling?
Private labeling is a step up from retail arbitrage, and has sellers work directly with manufacturers to buy items and then market and sell them on a private label. There’s a higher up-front cost, but you have more control over your product, and can often secure inventory with the manufacturer. Learn more about private labeling.
Making Money Online With Retail Arbitrage
Retail arbitrage is not a new concept, but it is one that has changed drastically in the digital age. By understanding how to build a successful business model — and understanding the rules and regulations about selling on certain platforms — you can bring in extra money by taking part. Be smart, know your margins, provide good customer service, and online arbitrage might be a great side hustle for you.