Retail arbitrage is one of the easiest ways to start an Amazon business, and many online retailers start with it before becoming private-label sellers.
You can, too, if you know what you’re doing. Yes, even in 2023!
This guide reveals everything there is to know about this business, including what retail arbitrage is, what you need to start doing it, and a step-by-step approach that’ll get you selling as quickly as possible.
- What Is Retail Arbitrage?
- What You Need to Start a Retail Arbitrage Business
- Is Retail Arbitrage Still Viable in 2023?
- Benefits of Retail Arbitrage
- Disadvantages of Retail Arbitrage
- Places Where You Can Do Retail Arbitrage
- Retail Stores Where You Can Source Retail Arbitrage Products
- Types of Products to Sell and Avoid
- How Much Should You Spend son Retail Arbitrage?
- Pricing Your Retail Arbitrage Products
- Getting Started With Retail Arbitrage
- Step 1 – Register an Amazon Seller Account
- Step 2 – Download a Retail Arbitrage App
- Step 3 – Visit Your Local Department Store
- Step 4 – Scan Products With Your Retail Arbitrage App
- Step 4.5 – Check for Amazon Listing Restrictions
- Step 5 – Check the Product’s Sales Velocity
- Step 6 – Calculate Potential Profits
- Step 7 – Purchase the Products
- Step 8 – List Your Products on Amazon
- Step 9 – Fulfill Your Orders or Send Your Products to Amazon (FBA)
- Tips for Successful Retail Arbitrage
- Frequently Asked Questions About Retail Arbitrage
- Wrapping Up
What Is Retail Arbitrage?
Retail arbitrage involves buying a product from a retail store at a low price and selling it at a higher price online to make a profit.
This ecommerce business model takes advantage of the huge discounts you can get from brick-and-mortar stores when you purchase clearance and sales products in bulk.
You might meet retail arbitrage sellers who distinguish retail arbitrage from online arbitrage.
According to these entrepreneurs, the difference lies in where you sell your products, i.e., while you do retail arbitrage on Amazon, you do online arbitrage on other online marketplaces.
Whether this distinction holds water or not, your aim during the retail arbitrage sourcing process remains the same: to “buy low and sell high.”
How It Works
So how does retail arbitrage work? The best way to illustrate this business is with an example:
Let’s pretend that while on a trip to Walmart, you notice that a pack of men’s underwear with a recommended retail price of $30 is on sale for $10.
If you decided to buy 30 units and sell each one for $25 on Amazon, the math would look something like this:
- Original Cost – $30
- Discount Price – $10
- Number of Units Purchased – 30
- Total Purchase Cost – $300 (30 units x $10)
- Your Amazon Selling Price Per Unit – $25
- Total Expected Revenue (i.e., your selling price x the total units) – $750
- Revenue Per Unit (i.e., your selling price – the $10 cost paid per unit) – $15
- Amazon Seller Fee – $0.99
- Profit on Each Unit Sold – $14.01
When you multiply your profit on each unit by the total number of units sold, you’ll make $420.3 in total profit.
What You Need to Start a Retail Arbitrage Business
Before you launch your business, you’ll need the following assets:
1. A Laptop and Internet Connection
Retail arbitrage is an online business, so you’ll need a laptop and an internet connection.
Software programs like Microsoft’s Excel will help you stay organized when selling multiple product categories, while your internet connection lets you upload your product listings and check on customer purchases.
You’ll need capital to get this business off the ground. Among other expenses, you’re going to spend the money on inventory, shipping fees, and packaging.
3. An Online Marketplace
Although you don’t need to open your own online store when starting out, you’ll still need some sort of digital storefront.
Your best bet as a beginner is to open a seller account on an online marketplace so you can sell online.
Luckily, you have many options, which we discuss in a subsequent section.
4. A Vehicle
Retail arbitrage involves a lot of moving around. You’ll be visiting different stores in search of sales items you can resell for profit.
Also, if you have sufficient capital, you’ll likely make bulk purchases of discounted products. Therefore, you’ll need a car to travel and transport your haul.
5. Storage Space
When you begin to buy in bulk, you’ll need an organized space to store your goods. If you don’t have a spare room, you could make space in your garage.
If that doesn’t work, you might have to rent storage space, a cost you’ll factor into your product’s price.
6. Mode of Delivery
Amazon sellers who take advantage of its Fulfilled By Amazon service may not need to worry about order fulfillment.
However, if you decide to sell on other platforms, you’ll need to arrange for a way to get your customers’ orders to their doorstep.
That entails either delivering the items yourself or using a courier service.
Free and paid software tools like Jungle Scout and the Amazon Seller app will aid your buying decisions, so make sure you download them.
It’s likely you have many of the items listed above. However, don’t worry if you don’t. The beauty of this business is you can start small and gradually grow your business.
So if you have an internet connection, a laptop, and a small amount of capital, it shouldn’t matter too much if you don’t have adequate storage space or a mode of delivery.
You can reinvest your profits into the business to make up for the assets you lack.
Is Retail Arbitrage Still Viable in 2023?
Yes. Retail arbitrage remains a viable business that can be incredibly profitable. If you’re successful at this business, you can make as much as $100,000 a year.
There are several reasons behind this business’s enduring power, including:
- Convenience: Not every consumer wants to drive to their local department store to get supplies. Some people prefer the convenience that online marketplaces like Amazon and eBay provide in the form of delivery.
- Geography: Prices and demand differ from region to region. For example, leather jackets could be more popular among the denizens of the North-Eastern states than in the Midwest.
- Economics: The laws of demand and supply are absolute. If a product is in high demand but in low supply, a seller can make a killing by marking it up.
Some sellers have used the above factors to their advantage to make seven-figure profits selling online.
Benefits of Retail Arbitrage
Retail arbitrage offers the following benefits:
1. Low Barrier to Entry
Retail arbitrage is easy to get into. You don’t need huge amounts of capital to start, nor do you need to hold a large inventory.
It doesn’t cost the Earth to list your products on online marketplaces as an individual seller. And product sourcing can be straightforward when you know what to look for.
2. Low-Risk Business
The retail arbitrage model is relatively low-risk. Since you buy your inventory inexpensively and you don’t buy a lot of it in the beginning, you don’t have to worry if your products don’t sell.
This quality makes it easy for a retail arbitrage seller to test out products and markets.
3. Quicker Returns
Retail arbitrage doesn’t require too much preparation. You’re not going to spend time building a brand or nurturing relationships with your suppliers.
This business quirk means you spend more time and energy on what matters most: turning a profit.
As such, you can earn money faster compared to other online business models.
4. Ready-Made Market
Retail arbitrage involves selling on well-known online marketplaces like Amazon and eBay.
These platforms enjoy huge amounts of traffic from online shoppers, meaning creating an account on one of them puts your products in front of millions of eyes.
5. High Flexibility
You’re not limited to sourcing products from the same retail stores or selling the same products for the duration of your retail arbitrage business.
You can easily switch from one product to the next when you find a product you thought would be a hot seller turned out to be a dud.
6. Excellent Learning Experience
Retail arbitrage can be an excellent learning experience depending on the platform you use to launch your business.
For example, your Amazon retail arbitrage business can help you learn the ropes of Amazon’s platform. In time, you can graduate from retail arbitrage to a private label business.
With that said, this business doesn’t only have upsides. We discuss retail arbitrage cons in the next section.
Disadvantages of Retail Arbitrage
Retail arbitrage has the following downsides:
- You’re Not Fully in Control of Your Business: If you build a retail arbitrage business on a platform like Amazon, you won’t be in control of your business. Your operations will be susceptible to the platform’s algorithm updates. Also, you can get banned for violating a policy you didn’t know existed.
- Your Goods Are Homogeneous: There’s little opportunity for branding in retail arbitrage. As such, you’ll be selling goods that are identical to what your competitors offer. This factor makes it difficult to stand out. In some cases, you may have to undercut your competitors’ prices, which can eat into your profits.
- This Business Isn’t Scalable: Compared to other online businesses (like dropshipping), retail arbitrage isn’t scalable. It can be time-consuming and you’ll have to trade the time spent searching for products, replenishing stock, and so on for money.
- Zero Opportunities for Repeat Business: Because this business entails selling random homogenous products online, you have no opportunity to build a brand. Therefore, you can’t grow and cultivate a following through email and social media marketing and convert them to loyal fans and repeat customers.
- Hidden Costs: Although the costs associated with this business seem straightforward at first glance, there are several costs you may fail to factor in when setting your prices and calculating your profits. Gas costs and storage fees are two such hidden costs since you’ll spend plenty of time moving around and need a place to store your merchandise.
It’s worth noting that the above downsides aren’t meant to discourage you from entering this business. All business models have their pros and cons and retail arbitrage isn’t any different in that regard.
Places Where You Can Do Retail Arbitrage
If you decide to take the plunge, there are many places where you can set up your retail arbitrage enterprise, including:
Amazon is one of the largest retailers on the planet and is viewed as being synonymous with the retail arbitrage model.
Thousands of US sellers own Amazon retail arbitrage businesses, making it a highly competitive platform to build a business on.
Although most people think of used items when they hear about eBay, the platform has a huge number of retail arbitrage businesses.
Some sellers even take advantage of eBay’s auction model when selling their products.
The Facebook Marketplace is another excellent platform you can use to build a retail arbitrage business.
Facebook’s user base is huge and millions of Americans have a Facebook account. You can take advantage of its precise targeting capabilities when setting up your listings.
Craigslist is worth incorporating into your retail arbitrage strategy if you plan to sell products to people in your area.
This platform is great for sellers that prefer to keep their businesses informal when starting out.
Founded as a direct competitor to Craigslist, OfferUp is another excellent platform for doing retail arbitrage locally.
You can quickly set up an online store and use its associated mobile app to stay on top of orders while you’re on the move.
Retail Stores Where You Can Source Retail Arbitrage Products
You can hunt for products to sell at the following local retail stores:
- Home Depot
- K Mart
- Sam’s Club
- Toys R Us
- Bed Bath & Beyond
The above list represents only a handful of the stores you can visit to find profitable products for your business.
It isn’t necessary to visit every one of them. You can start with one or two or let a store’s proximity to your home determine where you do your shopping.
Also, the products you decide to stock will determine the stores you visit.
For example, it makes sense to shop for toys at Toys R Us, whereas you’d be better off stopping at your local Walmart for general household items and appliances.
Types of Products to Sell and Avoid
There are hundreds of products to sell. Some notable mentions include (by category):
- Games and Toys: Products belonging to this category sell well throughout the year and you can move plenty of items during the Christmas season. Also, there aren’t too many platform restrictions governing their sale, so you can begin making money as quickly as possible. Plushies are an excellent item to sell in this category.
- Sporting Goods: Sports-related paraphernalia like baseball gloves moves well during the sports season. However, if you’re looking for evergreen products to sell, you can niche down to fitness equipment and apparel like leggings.
- Clothing and Accessories: People stay fashion-conscious no matter the time of year, so you can sell clothes and accessories. The caveat to choosing this category to sell in is that it’s gated on platforms like Amazon. That means you’ll have to have been selling on the platform for a while before you can sell clothes.
- Bath Products: Items people can use in the bath (like electric toothbrushes or bath bombs) sell well as retail arbitrage merchandise. The former product is a necessity, while the latter is a luxury for customers that want to treat themselves.
- Outdoor Gear: You can try selling hunting gear during the hunting season, camping gear, apparel, etc. Make sure you choose items that are small and easy to ship to keep your shipping costs low.
Like most ecommerce business models, products to avoid when doing retail arbitrage include:
- Bulky Items: As far as retail arbitrage strategies are concerned, purchasing large items like standing fans, furniture, car parts, and so on is a huge no-no. An item’s weight can determine how much you need to pay for shipping. The heavier the item, the higher its shipping cost. The more you pay in shipping costs, the less your profit margin.
- Fragile Items: Fragile items are a nightmare and you should avoid buying them even if they’re selling for much lower than their normal retail price. They can break during transit, increasing the likelihood of you incurring losses due to returned items. Two examples of fragile items you should avoid are coffee mugs and china.
- Electronic Goods: Unless you’re purchasing a brand that’s known for its quality products, it’s best to avoid any electronic goods you see in the clearance sales aisle. Like fragile goods, these products are susceptible to being returned, as there’s no way to test them to see if they work without opening the packaging.
- Books: Selling books isn’t the best idea because you can only mark up their price to a certain extent. As such, you can’t expect to make a healthy profit margin.
When choosing items to sell on platforms like Amazon and eBay, ensure you read the platform’s Terms of Service to learn about any restrictions it may have.
Selling a restricted item can get you banned, cutting short your retail arbitrage aspirations before they get going.
Retail Arbitrage Apps
You can use retail arbitrage apps to identify products worth selling. Let’s check out a few of the best ones.
Amazon Seller App
When you register as an Amazon Seller, you get access to a free tool called the Amazon Seller App.
This software lets you examine Amazon products, providing data that includes the following:
- Bestseller Rank
- Sales Rank
- Total Sellers
- Profits (as an approximation)
- Price, and so on
Amazon’s Seller App is an excellent tool to use for product research, especially if you want to do it cheaply.
Profit Bandit is a paid Amazon product research tool that provides real-time data on Amazon listings. Existing sellers who struggle to move units on the platform will appreciate this tool.
It gives insightful and actionable data that can turn a seller’s fortunes around, like:
- Restricted item warnings that tell you whether or not you can sell an item on Amazon
- A product’s sales rank
- Highlighted Amazon offers (which tell you whether a product you want to sell will be competing directly with Amazon)
- Calculated products that are based on a product’s weight, cost, shipping rates, and more
It’s compatible with Android and iOS devices.
Scoutly is an excellent app for retail arbitrage. You can calculate taxes to get a more accurate selling price and it has tools for sourcing bookkeeping and reporting.
Still, you’re better off using this app when you advance in your selling endeavors (i.e., when you start making a profit) because it can be quite expensive.
How Much Should You Spend son Retail Arbitrage?
In the beginning, don’t spend too much money. Your aim at this stage should be to test to see what works.
So you can start with a small order valued under $100 or even less, depending on the product category you’re selling in.
Another reason you need to be frugal when you start is the additional costs you have to worry about.
Aside from the cost of the item you plan to sell online, you need to account for costs like shipping and marketplace transaction fees. Otherwise, you risk eroding your margin.
You can also let research guide your spending decisions.
Do a quick search on the marketplace you want to sell on and check your competitor’s listings.
What you’ll be looking for is the sales history (i.e., how frequently they’ve sold) of the different products you intend to flog and their prices. Take note of what you find.
This pricing and sales data will help you determine profitability, as when you find a similar item on sale at your local store, you can compare the difference to determine profit potential.
So if you find a winner, you can decide whether or not to grab a huge amount.
Lastly, the types of products you purchase can also determine how much you spend. Some products will be more expensive than others even when on sale, warranting you spend more money.
Others will be so cheap that it’ll be wise (after doing your research) to buy in bulk so you can make sales over a longer period.
Pricing Your Retail Arbitrage Products
Striking a balance between making a profit and setting a reasonable price is the most challenging aspect of this business.
You don’t want to underprice your products at the expense of your profits, nor do you want to overprice them and end up with no sales.
You can make the process easier for yourself by listing your costs before setting your prices.
The commonest costs you incur when running your retail arbitrage operation include:
- The unit cost of each product
- The money spent on gas when moving from one store to the next
- Packaging costs
- Shipping costs (not applicable to FBA sellers)
- The cost of storage space (if you don’t house your goods at home)
- Marketplace fees
- Internet subscription fees
Once you compile the above costs, you can add a price markup that’ll serve as your profit margin.
Still, adding any old amount as your markup won’t solve the issue of overpricing or underpricing your goods.
A more effective way to ensure you’ll make a profit is to do some market research. After all, you need a point of comparison to determine whether your proposed price will make you a profit while being acceptable to your potential customers.
Your chosen marketplace will tell you everything you need to know. Visit the site you plan to sell on and check out the prices for listings of similar items.
Compare them to your proposed prices. Take note of whether the items have sold and at what volume. The data you uncover will guide your prices.
Getting Started With Retail Arbitrage
Launching a retail arbitrage store is incredibly straightforward.
Since Amazon is the most popular platform to do retail arbitrage on, we’ll describe the process with that platform in mind.
Step 1 – Register an Amazon Seller Account
The first step is to sign up for an account on your chosen platform. In this case, you’d sign up for a free Amazon Seller account.
Amazon takes 15% of the proceeds for each item you sell on its platform and an Amazon Seller account attracts an additional $0.99 fee.
When you manage to sell 40 items on Amazon, consider upgrading to a professional account. At the time of writing, it costs $39.99 per month, but it’s worth it.
Not only does the account waive the $0.99 fee, but it also provides access to advanced tools to help you sell more.
Step 2 – Download a Retail Arbitrage App
After registering for a seller account, download a retail arbitrage app. You’ll need one to help you choose products when you reach the shopping stage of your retail arbitrage journey.
Amazon’s proprietary app is a good choice. You can use it to scan product barcodes when you visit stores.
The app brings up information like the product’s price on Amazon and the fees it’s likely to attract when listed.
Using the app will save you plenty of time and energy, so this isn’t an optional step.
Step 3 – Visit Your Local Department Store
With your Amazon seller account and barcode-scanning app acquired, step three involves driving down to your local department store and searching for products.
Visit one of the stores discussed earlier. If you’re selling clothing, keep in mind that many stores put items on sale at the end of each season.
Otherwise, head over to the sales aisle, pull out your phone, and move on to step four.
Step 4 – Scan Products With Your Retail Arbitrage App
Look around for products while taking care to avoid the ones you shouldn’t sell (i.e., fragile, bulky, etc.).
When you find something you think has profit potential, scan it with your Amazon app to learn its price. Make a note and move on to another item.
Your goal during this step is to come up with a list of potential items you can sell (aim for at least ten). Therefore, keep an open mind.
The last thing you want is to become attached to the idea of selling a particular product only to find out you might not be eligible to sell it after taking step five.
Step 4.5 – Check for Amazon Listing Restrictions
While making your list, pay attention to whether or not a product has selling restrictions on Amazon. If they do, move on and don’t include it on your list.
You can tell whether an item is restricted by paying attention to the “Selling Eligibility” section of their product page. If it isn’t restricted, you’ll see a green tick that indicates you’re all clear to list it.
Step 5 – Check the Product’s Sales Velocity
Your work isn’t done once you find items that you’re eligible to sell on Amazon. Even if you find a great deal, you still need to make sure the product will move on Amazon before parting with your cash. You can determine a product’s sales velocity by using a tool like Jungle Scout.
The free Google Chrome extension Jungle Scout makes researching a product’s revenue numbers possible.
It shows you the product’s historical sales data. As such, you can learn whether a product is seasonal or moves volume all year. Aim for products that move at least 2-3000 units a month.
Step 6 – Calculate Potential Profits
Still using the Jungle Scout browser extension, calculate the profit potential for each item on your list. Compare the product’s selling price to the department store’s sale price. Then, look at the product’s sales data on Amazon.
If the product’s Amazon price is at least three times the amount it’s going for on sale, and it has a decent monthly sales volume, you’re on to a winner. Reach for your wallet and move on to the next step.
Step 7 – Purchase the Products
Choose two items from your list that meet the sales volume and selling price criteria discussed in step six.
If this is your first time doing retail arbitrage, don’t go overboard with the number of units purchased.
Stick to your budget, no matter how meager. The aim is to learn and scale up gradually.
Also, don’t forget to keep track of the items you’ve purchased and the ones you’ve yet to buy but which have profit potential.
Staying organized will prevent future spending mishaps.
Step 8 – List Your Products on Amazon
Now that you have inventory, it’s time to create an Amazon listing. That involves writing a listing and product description and taking and uploading product photos to Amazon.
No matter the item you’re selling, provide detailed information about it to answer any questions your customers may have.
Also, do some keyword research and use the keywords you find in your listing. You can research keywords by looking at your competitors’ listings to see the words they use to describe their products.
In addition, the Amazon search bar’s autocomplete feature reveals the exact keywords Amazon customers use when searching for your product.
Step 9 – Fulfill Your Orders or Send Your Products to Amazon (FBA)
Once you’ve listed your items, you should eventually make a sale. You have two options for when that happens: fulfill the order yourself or use the Fulfilled By Amazon service (FBA). Option one is straightforward enough: pack it, ship it, and you’re done.
If you’re starting this business with a modest budget, the FBA service may be out of your reach. However, as you make profits and your business grows, consider using it.
Not only does it allow you to avoid fulfillment, but it lets you use Amazon’s Prime service to provide your customers with free shipping, an incentive that can drive more sales.
Rinse and repeat from step three downwards for every new product you sell. As you get more proficient, you’ll be doing them for multiple products simultaneously.
Tips for Successful Retail Arbitrage
Here are a few tips to help you position your retail arbitrage enterprise for success:
- Use Data: You can’t use your gut when making buying decisions in this business. Also, choosing products based on what you like or what you think your customers would like is a recipe for disaster. Instead, let available commercial data guide your decisions.You can find the data you need by using platform-specific apps like the Amazon Seller App. Additionally, platforms like Amazon and eBay show you sales data (the number of reviews, the product’s Bestseller Rank, etc.), which act as an indicator of a product’s popularity.
- Start Small: In the beginning, start with one or two clearance and sale products. One of the keys to success when you get started with retail arbitrage is product testing. In all likelihood, the first two to three products won’t be runaway successes and make you more money than you earn from a day job. Therefore, you have to constantly test.Since you’re testing to see what works, it stands to reason that you shouldn’t spend a ton of money right away. Test small batches first. When you see some success, you can double down and increase your spending as much as your budget allows.
- Don’t Forget SEO: Conducting SEO is essential no matter the online business. It has two components: keyword research and search engine optimization. Using the same keywords your customers enter into an online marketplace’s search bar will help your listing show up. This is how you optimize your listing.However, before you optimize, you need to know the words customers use to search for products like yours. That’s where keyword research comes in. Together, SEO and keyword research will ensure your listings don’t get lost in the digital ether.
- Avoid Ads (for now): Even if your budget allows it, avoid taking out ads on Amazon. Advertising your products on the platform can be expensive and, in some cases, run into thousands of Dollars. Ad spend represents an additional cost that can quickly erode your profit margin.
- Keep an Eye Out for Coupons: Many retailers (like Bed Bath & Beyond) offer coupons you can redeem even when buying their products at a discount. Thus, you can maximize your returns when obtaining coupons by joining the retailers’ mailing lists and visiting deal sites like RetailMeNot.
- Have an Exit Plan: In the world of online commerce, branding is key to reaping the long-term profits a sustainable business model provides. Therefore, it’s best to enter retail arbitrage with a view to learning the ropes and moving on. On platforms like Amazon, creating a private label brand will likely increase your business’s longevity. So, once you start seeing retail arbitrage profits, look into building your own brand.
One last tip: it can be a slog going from one department store to the next and coming up empty each time. Persevere. Nothing good comes easy, but when you find a winning product, the profits you could potentially make will be worth your effort.
Frequently Asked Questions About Retail Arbitrage
Is Retail Arbitrage Legal?
Yes. Retail arbitrage is a 100% legal business. There’s no law preventing consumers from reselling merchandise they legally purchased.
Therefore, you can resell the products of name brands like Nintendo and the NBA without needing prior permission or a license.
Is Retail Arbitrage a Saturated Side Hustle?
Yes, it is. Like most online businesses, it has a low barrier to entry, meaning it’s a competitive space.
With that said, the fact that it’s saturated doesn’t mean you won’t see success.
There are thousands of niches and products you can tap into when starting your business, meaning there’s plenty of room for new sellers to make their mark.
Why Would a Retail Store Offer Discounts on the Products It Sells?
The most common reason stores offer their products at discounted prices is to make space on their shelves for newer merchandise.
It makes sense when you consider that retailers are willing to take the loss because they believe the newer items might be more profitable.
With this guide, you now know how retail arbitrage works. In particular, you’ve learned what it is, the assets you need to start the business, its pros and cons, the platforms you can launch a business on, and where to find products to sell.
Also, the step-by-step process revealed in the article covers product research and similar considerations.
Thus, when you follow it, you’ll fast-track your retail arbitrage journey and get a step closer to earning your first profit.