If you want to be a third-party seller on Amazon, you’ll have to choose between online arbitrage (OA) and retail arbitrage (RA). Arbitrage simply means that a seller knows the price of a product and capitalizes on its differences in various markets. Rather than working with a few suppliers, he/she works with different sources. Then they will pay for the product up front, and the sale can take days or a few weeks instead of months.
Amazon arbitrage is a reselling type that continues to grow as the number of sellers continues to increase on this platform. Sellers will find items in retail or online stores that are being sold at a cheaper price and they buy and re-sell them on amazon to make profits.
Whether you are considering OA or RA, you should know their differences and similarities to maximize your gains. That is why we’ve written this guide. Read on to learn more about these types of arbitrage.
Different Sellers on Amazon
Sellers on Amazon use several different ways to get and sell products to make profits. Amazon classifies these items depending on the market it was purchased and its production method. Sellers on Amazon are;
Amazon themselves– who can fall into various categories.
Designers– those who create t-shirts and other artisans then sell them via Amazon print using the Merch by Amazon program.
Brand builders/authors/businesses and creatives– are those designing, making, and selling their own products on Amazon.
Wholesale Resellers– these buy products in bulk and resell them on Amazon. They set up accounts with brands that are established. Their prices are controlled depending on the rules of the brand.
Generic Private Labelers– they buy products from manufacturers, brand them with their logo and packaging then sell them on Amazon.
Liquidators/Overstockers– they buy liquidation and stock many products then list them for sale on Amazon.
Online Arbitragers– buy items online from retail sites and sell them on Amazon.
Retail arbitragers– purchase items from retail physical stores then list them for sale on Amazon.
Understanding Retail Arbitrage
Retail arbitrage is where one buys products at a cheaper price from brick and mortar stores like Target and Walmart then resells them at a higher price.
While the above types of selling can make a profit for sellers, retail arbitrage is the most recommended for those who are starting their business or those who want to make some extra cash. It requires minimal investment and is an easy program to join on Amazon.
Individuals can purchase inventory at any time and in any quantity. Plus, you can list or start selling your item even before it gets shipped to an Amazon FBA warehouse. These advantages make retail arbitrage popular among sellers who want to create a side hustle or a growth opportunity for their business. If you want to start with RA we highly recommend a tool like Tactical Arbitrage.
Once most people are successful in retail arbitrage, they usually advance into other selling ventures as per their financial growth. The largest sellers on Amazon are mostly wholesalers, private labelers, standalone brands, or a blend of these, including online arbitrage.
But, if you are starting your business, many don’t take huge risks or make large investments that are needed for building a brand, in wholesale accounts, and private label products. These types of selling require huge capital that most beginners do not have at the start of their business. It’s why retail arbitrage was introduced. Here are the benefits of this type of selling;
- It’s a good way of making some extra income.
- Sellers do not worry about product production, website traffic, or creating new listings on Amazon. Retail arbitrage allows individuals to sell products that are already branded. Plus, it features a minimal overhead on listings as they are already created and have a high rank in sales velocity.
- One can buy as little as they want. However, this isn’t guaranteed due to the stock limit.
- There’s a chance to scale as you can hire other people to scan shelves and prep products for you.
- It’s a less risky business as one doesn’t invest huge capital in purchasing products in bulk from manufacturers or wholesalers.
- Individuals can sell different products as such, can invest in diverse markets. Therefore, it makes this a safe option for new sellers as they won’t miss a sale in their diverse product lines.
- One can buy, prep, and ship their products to Amazon warehouses on the same day.
- You can buy and sell different products, which makes it a safe option for those starting. Various products in fewer amounts are safer than the same products in a high quantity.
Drawbacks of Retail Arbitrage
RA is similar to brick and mortar business. Therefore, it is tedious, needs effort and because it has a few moving parts, it’s difficult to scale and automate it. So, even though it is doable, you’ll have to be ready to research, visit different stores, and have a vehicle to carry your stock.
While Amazon offers an incredible FBA opportunity to handle how your orders are fulfilled, RA isn’t a business that makes you money while you sleep.
It is like a hunting game where you have to hunt for products, which sometimes you may or may not find, and then sell them. It, therefore, is time-consuming and needs a lot of commitment. But, you can expect some decent income for buying and reselling products using this program.
How Does Retail Arbitrage Eat Time?
- You’ll start by searching for coupons and promo codes on websites, newspapers, and sales ads.
- After, you’ll need to scan barcodes on products in retail stores that have many shoppers. Note that you may or may not find good leads.
- If you do, you’ll then put your products in the cart and proceed to the checkout register. If the line is long, you’ll be forced to wait for quite some time until it’s your turn.
- When you get home, you’ll have to sort the products you’ve bought, remove the barcodes, prices, and tags.
- Then pack them into poly bags or bubble wraps, as per Amazon’s requirements on packing.
- The next step is to create listings to be shipped and print labels then placing the labels on the products.
- Then pack them into boxes and poly bags. And drop them at UPS, if you’ve not arranged for a pickup.
- After, wait for them to reach Amazon warehouses and be listed for sale on the platform.
Retail arbitrage isn’t that difficult when you are starting since you’ll have few items to pack and ship for resale. And it can be exciting to handle a product that can soon make you some money. Plus, when you make a sale, you’ll be proud of all your efforts that made it happen.
However, RA can feel draining for those with many items to sell. Think about the effort it’ll take to drive in various stores, scan barcodes, wait at the checkout line, get your products home, prepare and ship them. It can feel frustrating.
But, wait until your payment is credited then you’ll be more motivated to go searching for items.
Although individuals can make a decent income from retail arbitrage, many people are still unsure whether the process is sustainable. The answer is yes. But you’ll have to be committed to executing all the processes that make it a success.
Retail arbitrage is tedious and frustrating. While it gives you a feel of the way the reseller system works, it’s not an easy selling method in the long term.
Retail Arbitrage Scalability Problem
Automating different segments of your business is essential to boost your revenue and profits on Amazon FBA business. Automation will free up your schedule, so you’ll have time to do other activities like marketing your business or growing new streams of revenue.
However, automation requires that you outsource your tasks to tools, services, or other people. Now, even if you are very determined and hardworking, you’ll still spend hours searching and driving to stores and packing your products. As such, you’ll realize that scaling RA isn’t that easy.
Sure, you can hire people to help you search, prep, and ship products. This will simplify your work and earn you more revenue. However, you also have to think about employment requirements in your state. In the US for example, individuals are required to pay the actual employee and taxes and set up an unemployment insurance account. Not to mention your employee is also human. And can only scan, pack, and ship as many products as they can.
Retail arbitrage, although a decent way of making some extra income, has scalability limitations. It features many moving parts and requires a great system to handle all these paths. As such, scaling your revenue can be a bit tricky.
So does that mean you cannot transition your RA business into a large-scale one that makes more profit? Of course, you can, and the solution to this is Online Arbitrage.
What Is Online Arbitrage?
If you’re finding retail arbitrage challenging, or you don’t have much capital to start a private label or build a brand, you may find online arbitrage an excellent solution for you. With this program, you simply purchase products from retailer websites online and not in a brick-and-mortar store. Then you can have them ship the products to you or third-party companies to prepare them for sales on Amazon FBA.
We should mention that because online arbitrage results from retail arbitrage, the two share most advantages, although some retail arbitrage pros can be slightly modified in OA. But when using OA, you get several added benefits. Here are the benefits of online arbitrage.
- It’s an excellent method for a starting business since it has high scalability, meaning you can use it to earn a full-time income.
- Hire virtual assistants who are cheaper than physical employees. Therefore, you can have many assistants for the same amount that you’d have paid with retail arbitrage.
- One can use their existing company to venture into other markets and segments online. For instance, you can create your products and even expand into wholesale reselling later on.
- Like in RA, sellers don’t need to drive traffic, create new amazon listings or products. You can sell already produced items without worrying about overhead on listings.
- Can buy the quantity of stock that you want since stock quantities are higher in online stores than in retail ones.
- You can work at any time from anywhere so long as there’s an internet connection.
- Various online tools to help you determine the websites to check unlike in RA where you have to drive to the store to scan shelves physically.
- Being online and virtual allows sellers to optimize the foundation of their business to transition well into its future demands.
- Individuals can buy fewer products from manufacturers and wholesalers to reduce the risk.
- Allows diversity in product lines, thus making it a safe option for those who are starting their business.
- Many online stores are present where you can source brand name leads, unlike in retail arbitrage where you can only shop in physical stores around your location.
- Those using click-through and cashback websites can make an extra coin as these sites are specifically for online shopping.
- Airline and other rewards are offered to those who buy inventory using their credit cards.
- It’s totally virtual, meaning you can outsource and delegate all tasks, which ultimately scale your business.
- You don’t pay any tax on your purchases as prep companies offer sales-tax free in some states.
- Sellers can take advantage of websites that ship products fast, allowing your items to be shipped to Amazon warehouses quickly and put on sale.
- Have time to expand your revenue streams since prep companies can prepare and ship your products to Amazon warehouses.
While the choice for RA or OA is yours, we think that online arbitrage is better as it has more advantages. However, no matter which type you choose, make sure that you consider the fee Amazon will charge when calculating your profit.
Sellers can also be asked to provide invoices if their item will be listed as “new.” You should also know that Amazon can stop selling some items if confronted by trademark owners. Lastly, use chrome browser extensions, if you can, to be updated about a product’s price and its ranks to help you capitalize as much as possible. Avoid items that have abnormal or quick rises in price as they may not be as profitable on Amazon.