March 8, 2024

Sellers Guide to Amazon Retail Arbitrage

Amazon retail arbitrage is a cheap and easy business model you can start with. However, keep in mind that to succeed you need to plan and put in the work. Don’t forget to optimize your listing and prices to stay competitive, attract the right customers and increase Amazon sales. 
Sellers Guide to Amazon Retail Arbitrage
Sellers Guide to Amazon Retail Arbitrage

The Amazon marketplace is a lucrative ecommerce platform for any business owner. If you’re considering selling on Amazon, you may have heard of the phrase ‘retail arbitrage”. 

Well, Amazon retail arbitrage is one easy and quick way to become a third-party Amazon seller. 

But what is Amazon retail arbitrage and how does retail arbitrage work on Amazon? Is Amazon retail arbitrage worth it? 

Read on as we dive into what Amazon retail arbitrage is all about and highlight great tips to get you started. 

What is Retail Arbitrage on Amazon? 

While ‘Retail Arbitrage'' may sound complex, the concept is quite simple. Retail arbitrage on Amazon refers to the practice of buying products from retail outlets, either physical or online, at a lower price and then reselling them on Amazon for a higher price, thus generating a profit. 

For example, if your local store is selling stationery set at a discounted price of $10. You could buy the stationary set from them and sell it on Amazon for $15. Retail arbitrage can be a great way to start earning on Amazon with minimal initial investment. Many sellers begin with just $1000 or less, and some even start with as little as $500. With retail arbitrage, you can easily start selling your products without having to do any design, shipping, or manufacturing. In addition, you can get a healthy profit margin and increase company sales

Is Retail Arbitrage Legal? 

In countries like the US and UK, retail arbitrage is legal. The US Supreme Court allows someone to resell products as long as the product is acquired legally. However, if you’re planning to sell using the retail arbitrage model, it is best to stay clear of counterfeit products or branded products which require authorization. 

Is retail arbitrage legal on Amazon? Well, the answer is yes. No aspect of retail arbitrage violates any of Amazon’s retail arbitrage policies. However, it's important to navigate Amazon's rules and regulations carefully. This includes providing accurate product information, adhering to category restrictions, maintaining good customer service standards, and respecting intellectual property rights.

How to get started with retail arbitrage on Amazon

You can get started with retail arbitrage on Amazon in three simple steps:

Step 1: Create an Amazon Seller account

The first step to getting started with Amazon retail arbitrage is to create an Amazon Seller account. Amazon offers two options: the Individual seller account and the Professional seller account

The Individual seller account is free. However, you need to pay a commission of $0.99 on every sale made along with a 15% consolidated fee. With this account, you can only sell 40 units of products and below. If you won't be selling more than 40 units per month, this may be a great option for you. 

The Professional seller account requires that you pay a fixed monthly fee of $39.99 which gives you access to more sophisticated features. With a professional account, you can list and sell more than 40 products. Once you create your account, you can also sign up for Fulfillment by Amazon (FBA). With Amazon FBA, Amazon takes care of the storage, packaging, shipping, and customer service. You also have access to sell to millions of Amazon Prime members. 

Step 2: Source products to sell 

This is where all the action happens. The type of product you sell can greatly impact your Amazon business. When sourcing products to sell, you want to get products that you can sell at a good profit margin. Start by looking for inexpensive products that can be sold for a profit. Consider clearance sales and product reviews on Amazon to identify potentially profitable items. Remember to consider Amazon’s fees and shipping charges when calculating potential profits. Also, don't compromise on the quality of the product. 

We will look at some tips to help you source the right products for retail arbitrage on Amazon shortly. 

Step 3: List and sell your products 

The final step is to list your products on the Amazon marketplace and start selling! Optimizing your listing can go a long way in boosting sales. Optimize your product listings by using relevant keywords, providing complete product information, and including high-quality product images. Don't forget to optimize your prices to ensure they stay competitive. 

Step 4: Send your inventory to Amazon Warehouse 

If you choose to use FBA, you’ll need to send your inventory to an Amazon warehouse. With the  FBA program, Amazon handles storage, packing, and shipping on your behalf. This can be a significant advantage, especially if you’re looking to reduce shipping costs and improve customer service.

Step 5: Optimize and track your listings

Regularly monitor and optimize your listings based on performance data. Use tools like SellerApp to gain insights into how your listings are performing and make adjustments as needed. This could involve tweaking your product descriptions, adjusting your pricing strategy, or experimenting with different keywords to improve visibility and sales

Pros and Cons of Retail Arbitrage on Amazon 

Selling with retail arbitrage through Amazon comes with its advantages and disadvantages. 

Pros of retail arbitrage on Amazon 

  • Low startup cost: One of the best things about Amazon retail arbitrage is its low startup cost. Unlike other business models like private labeling and wholesale, you can start a retail arbitrage business with a few hundred dollars and your Amazon seller account. Also, since you won't be sourcing products in large quantities directly from the manufacturer, you won't need to invest so much.
  • Easy to start: Retail arbitrage is very easy to start, making it great for beginners. You can start on a small scale with a few products and easily build your brand. As you dedicate time to your retail arbitrage business, you can get returns much faster. 
  • Low risks and higher profit: Every business comes with a level of risk. However, if you properly source your products, the risks are reduced to zero. With retail arbitrage, you can find products that could bring you as high as 50% returns which allows you to make higher profits very quickly. 
  • No need for product development: Unlike private label selling, retail arbitrage doesn't require the development or manufacturing of unique products. You can leverage existing brands and products available in the market.
  • Diverse product selection: Retail arbitrage provides access to a wide range of products available in stores. You can capitalize on trends, seasonal items, and clearance sales to find potentially profitable products.

Cons of Retail Arbitrage on Amazon 

  • While it is easy to start an Amazon retail arbitrage business, it is not sustainable in the long run. Pricing and margins are determined by the market, not the seller, which can lead to challenges in maintaining profitability. So while it can get you earnings faster, it may not get you higher profit margins.
  • The profit margins in retail arbitrage can be slim. After factoring in the costs of purchasing, Amazon fees, and potential shipping expenses, the remaining profit may not be as substantial as with other business models.
  • With retail arbitrage, you have no control over your product supply, which can be a disadvantage if suppliers run out of stock or discontinue products.  
  • Amazon places restrictions on certain products and brands. If you sell a restricted product, Amazon can flag your listing, or worse still, your account could be taken down. 
  • Amazon charges various fees, such as referral fees, fulfillment fees, and storage fees, which can significantly reduce profit margins. It is important to account for these fees when pricing your products. 

Tips to get the right products on Retail Arbitrage on Amazon 

Finding the right product is more than just finding a cheaper product. Some products may be sold at a discounted price because they are slow-moving products. 

Some products may also come with brand restrictions making it impossible to sell them on Amazon. 

So how do you identify the right products to sell and increase Amazon sales? Here are tips to help you find the right product for retail arbitrage on Amazon: 

  1. Know Where To Shop For Products 
  2. Consider The Competition 
  3. Consider the Seasonality of Products
  4. Pay Attention To Customer Reviews
  5. Check Ratings 
  6. Check Stock Levels 
  7. Scan Products Using Scanning Apps
  8. Check Profit Potential 
  9. Check Sales Rank 
  10. Build Relationships with Retailers
  11. You May Find Restricted Products 
  12. Expect Shipping And Storage Expenses 

Know where to shop for products 

Knowing where to find the best products is the toughest part of selling with retail arbitrage. You want to ensure you find the best possible deals to increase your profit. 

Well, we have a few suggestions for you. You can go to local thrift stores that sell new or fairly used items. Secondly, you can check out department stores or places like Walmart or Target for items that are marked down. You can also check out liquidation stores and outlet malls. Some popular retail arbitrage stores include Walmart, Target, Home Depot, Lowes, etc. 

Consider the competition 

One way to succeed in the Amazon marketplace is to keep an eye on the competition. When finding the right product, check out the competition on Amazon. Chances are other Amazon sellers are offering your product. You want to analyze factors like price, customer reviews, shipping, and so on. 

It is important to analyze these factors carefully and consider if you can match up or beat other sellers on these factors. In other words, look for ways to stand out from the competition. 

Consider the seasonality of products 

Be aware of seasonal trends and fluctuations in demand. Some products may experience increased sales during specific times of the year, such as holidays or seasonal events. Adjust your sourcing strategy accordingly to capitalize on these trends

Pay attention to customer reviews 

Customer reviews can provide great insights when carrying out product research. Pay attention to your competitor's customer reviews to evaluate the quality of the product, the level of demand, complaints, and how well the product might perform in the future. 

Check ratings 

Aside from customer reviews, you also want to look out for the ratings of the product. This will let you know the quality of the product. Even if a product has good profit potential, a poor rating may indicate that the product is of low quality. This will also help you avoid many product returns. We recommend choosing products with at least a three-star rating and above.  

Check stock levels 

Next, you also want to pay attention to the stock levels of your competitors. What do we mean? If the product demand is good and your competitors are low or out of stock, you may be able to fill that gap and gain some pocket share. 

Scan products using scanning apps

You can scan products using scanning apps you can link to your Amazon seller account. Amazon has its own scanning app. However, you can also invest in other scanning apps like Scoutify. These apps show you your competitor’s pricing, search history, and gross and net profit among other information. To scan products, open your Amazon seller account. Next, click on the camera at the right top corner and a scanner should appear. Lastly, place the scanner on the barcode to see the product and its details. 

Check profit potential 

After scanning the product, you can click on the product details to look at the profit potential. The profit potential shows you how much you can expect to make after sales. 

Ideally, we recommend that your profit potential falls between a minimum of $3-$5. 

Check sales rank 

On the product details page on your Amazon Seller account, you will find the sales rank of your product at the top left corner. This metric is important when analyzing products. 

Sales rank is measured as the Best Seller Rank (BSR) and reflects the demand for a particular product compared to other products within the product category. The lower the sales rank, the better. 

Build relationships with retailers

You want to establish relationships with store managers, employees, or local distributors. They may provide insider information about upcoming sales, clearance events, or exclusive deals, giving you an advantage over your competitors.

You may find restricted products 

It is important to check if you are permitted to sell the product on Amazon. Some products are outrightly banned by Amazon and cannot be resold by the manufacturer. Some of these items include illicit drugs, weapons, alcohol, and so on. Also, you may find products that fall under Amazon’s restricted category. These products require prior approval before they can be sold on the Amazon marketplace. Some restricted categories on Amazon include the automotive category, cosmetics, skincare, animal-related products, etc. 

Expect shipping and storage expenses 

While retail arbitrage is one quick way to get profits rolling in, you want to keep shipping and storage expenses in mind as you calculate your ROI. 

Whether you are taking advantage of the Amazon FBA service or fulfilling your orders on your own, you need to keep in mind that you have to deal with storage and shipping costs. 

Keep your shipping speed in mind when selling through Amazon retail arbitrage. You want to get products to your customers in the fastest possible delivery time. In addition, familiarize yourself with Amazon's fee structure to accurately calculate your potential profits. This includes referral fees, fulfillment fees, and other additional costs.

Alternatives to Amazon retail arbitrage

We’ve identified that retail arbitrage is a quick way to make money online. It is easy to start and comes with a low startup cost. However, retail arbitrage is not scalable in the long term. 

Let’s look at other business models you can choose for your business

  • Dropshipping: With the Dropshipping business model, you take orders from your online store while your supplier handles the storage and shipping of products to the customer. In other words, you act as the middleman. What’s great about Dropshipping is that you don’t have to carry or store inventory. It is also quite scalable in the long run. 
  • Private labeling: Private labeling is a popular business model that has helped many sellers increase sales on Amazon. With private labeling, you can control the manufacturing, design, pricing, and packaging of your product. In other words, you own the brand and can control your supply chain and sales. 
  • Wholesaling: With the wholesale business model, you don’t have to shop for many new products consistently. You only need to find a good wholesale supplier, buy the products in bulk, and sell them consistently. 

Should you try Amazon retail arbitrage?  

Amazon retail arbitrage is a business model worth trying, especially as a beginner. If you have a keen eye for undervalued products and are willing to invest time in research and sourcing, Amazon retail arbitrage can be an exciting opportunity to turn your shopping skills into a profitable business venture. You can learn the ins and outs of selling on Amazon before launching a retail arbitrage business. 

Not only is it easy to start up, but you can also start making profits in a short amount of time. What’s more, you don’t need to have thousands of dollars to start. If you're looking for a flexible income stream that doesn't require a large initial investment, retail arbitrage can be worth exploring. However, it requires patience and the right expectations. 

You can also eliminate the process of importing products from China or inventing a new product. If you're already on Amazon but looking to diversify your sales methods, retail arbitrage can serve as a foundation for expanding your business model. 

Overall, Amazon retail arbitrage can be a profitable venture for those who are willing to invest time and effort in product research, pricing, and listing optimization. It's a low-risk method for those looking to start selling on Amazon without a significant upfront investment.

Final thoughts on Amazon retail arbitrage  

Amazon retail arbitrage is a cheap and easy business model you can start with. However, keep in mind that to succeed you need to plan and put in the work. Don’t forget to optimize your listing and prices to stay competitive, attract the right customers, and increase Amazon sales. 

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