If you’re planning on selling items via Amazon, you might want to check out retail arbitrage. It’s been one of the fastest-growing ways of succeeding in eCommerce in recent years, IO Scout will be taking a look at what it is and how it all works.
With sites like Amazon, eBay, and selling products every day to customers across the US and around the world, it’s no surprise seeing sellers pop up all over the place. If you want to make some money selling items on Amazon that you can easily procure yourself, then keep reading. Now, let’s get to the meat and potatoes of it by explaining what retail arbitrage is.
What is Retail Arbitrage?
To give you a simple explanation, retail arbitrage is where you purchase an item from one retailer and sell it on another for a profit. Acquiring these products you want to sell on Amazon is actually easier than ever. It doesn’t require any kind of contact with suppliers overseas like you would on sites like Alibaba.
Typically, the items you purchase will be found on clearance racks. Of course, clearance items are deeply discounted compared to items on sale at their regular tag price. The object of how this works is that you purchase items that are lower in price and then turn around and sell it at a higher price point.
In short, you make a profit if you successfully sell an item at a price higher than what you paid at Walmart, Target, etc. One of the most common Internet marketplaces to sell these items is Amazon. Not everyone will come across an item they are looking for on clearance, so finding it on Amazon for a good price will be the closest they can get.
How Retail Arbitrage on Amazon Works?
Here’s how retail arbitrage on Amazon works: as mentioned earlier, you find products that are priced at a deep discount. You will more than likely find these in clearance sections at stores like Walmart, Target, and other stores. You purchase the item at a lower price (kind of like a wholesale price with Alibaba and other suppliers).
But before you go about purchasing the item itself, it’s important to do some of your research to ensure that it has the potential to become a profitable item. A smart Amazon seller will use tools like a product scanner to make sure that if the item they would purchase at clearance prices, it can determine whether or not it will give them a profit once they sell it on Amazon. Consider using scanner tools like Profit Bandit so you can be able to check the sales rank and whether or not it's a competitive item.
Sometimes, the scanner app that you use won’t give you a lot of the specific data that you need. Next, you can check the item with more in-depth information using Keepa. Keepa can reveal some information like pricing history, so you can have a less difficult time pricing the item.
Your research will continue by looking at reviews. If there are more positive reviews than negative reviews, then chances are an item that you want to sell may get more visibility. But the competition can be fierce depending on the item you’re trying to sell.
Is Retail Arbitrage Legal?
The short answer: yes. Retail arbitrage is legal in countries like the United States and the United Kingdom. In fact, retail arbitrage was the subject of a US Supreme Court case in recent years. The Supreme Court ruled that as long as the products have been acquired through legal means (like purchasing it at a retail store), there is nothing illegal about reselling it on marketplaces like Amazon.
However, there are some things that you want to keep in mind in order to sell items on Amazon legally. You cannot sell counterfeit items on Amazon. You also cannot sell branded or licensed items (unless you are an authorized seller).
Retail arbitrage is legal. But as long as you do it right, you shouldn’t find yourself in a lot of deep trouble. Just play it safe and follow the rules.
Amazon Retail Arbitrage: Pros and Cons
Amazon Retail Arbitrage has its share of advantages. Let’s not forget that it also has its share of disadvantages as well. So we’ll be digging deep and identifying those pros and cons. Don’t let the shortcomings of retail arbitrage stop you from making money on Amazon.
Let’s start with the “pros”:
Low Entry Cost
Yes, you’ll need to put in the money in order to succeed on Amazon. Especially when it comes to retail arbitrage. The good news is that you don’t need a lot of money in order to pull this off.
Most of those starting out with retail arbitrage will have about $100 to $200 of cash on hand to start. That’s a good amount to have even for a complete newbie. However, starting off small is a good thing rather than spend a lot of money on items that may never sell.
You Can Earn Money Quickly
With the small number of items you’re starting off with, you can be able to sell these items fairly quickly. Here’s the best part about retail arbitrage: you don’t need to build a relationship with suppliers like you would on Amazon as a dropshipper. Plus, you’re not trying to build a brand.
Amazon Retail Arbitrage is the best way to make money and fast.
Those are two of the best pros of retail arbitrage. But let’s get down to the disadvantages. Keep in mind that these are common among Amazon sellers who go the arbitrage route.
Don’t let that discourage you from doing anything on Amazon. With that said, here’s what they are:
Strict Regulations Regarding Brands
Selling items on Amazon by way of arbitrage is not always this easy. You may be finding yourself tip-toeing over legal regulations regarding brands. You must have approval from Amazon before selling branded products.
If you are selling branded items on Amazon without approval from the platform, your item will get flagged. And you may face legal trouble if you keep doing it. Not to mention, you’ll likely get banned from selling on Amazon.
Before you choose an item you plan on selling, you may need to check Amazon’s brand registry protection in order to make sure whether or not it’s an item worth selling. If you are an authorized dealer (like a brand), you can be cleared to sell that item on Amazon. So you may want to stick with generic brand names if you plan on selling specific items.
Reselling a product and earning money is a nice accomplishment. But the problem is the margins tend to be a bit low. One of the reasons why is that you are procuring the item yourself, unlike items that you receive from a supplier (via overseas or the United States).
If you are serious about making better margins on Amazon, you may want to consider procuring your items that you want to sell on the platform via a supplier.
How Does Retail Arbitrage Earn You a Profit?
The way you earn profit through retail arbitrage is simple. You purchase the item at reduced prices. From there, you can be able to sell the item in question at a higher price point.
Remember, there are fees that you may be subjected to (like marketplace fees or shipping fees). Let’s take a look at an example of how you can earn a profit through retail arbitrage:
- You go to Walmart and spot an item on the clearance rack that is priced at $5. However, you see the same item going for triple the price on Amazon ($15). After the fees and shipping are taken out, Amazon pays you approximately $10 to $12. So you make about $5 to $7 in profit on a $5 investment.
As you can see, you’ll be able to gain a good profit (but not a gigantic profit). But it can be worth the investment. Just remember to use the scanning tool you prefer so you can get a good idea of how much you can earn in profit for the items you want to sell.
Does Arbitrage Actually Work in 2020?
The short answer: yes. Even today, you can be able to make money by way of Amazon Arbitrage. Many sellers have made ridiculous amounts of money selling items on Amazon. However, it all depends on their success and how much money they’ve put into it.
The more money you’ve invested in, the better your success. However, not every item is guaranteed to be a winner. It’s important to know what the market wants so you can sell them the right product. Don’t blindly find a product and try to sell it because “that’s where the money is”.
If you want to make more than $1000 a month selling on Amazon (using the arbitrage route), it will be difficult at first. But it is doable. It will even take time. In short, you need to put in the time, money, and effort.
How to Get Started With Retail Arbitrage Sourcing
If you have an Amazon item that you want to sell quickly using retail arbitrage, then the set up is easier than you think. This section will serve as a brief guide on how you can get started with retail arbitrage. Follow these instructions carefully and don’t skip any steps.
Let’s jump right in:
Register an Amazon account
Of course, if you are selling items on Amazon then you’ll need to register for an account on the platform. Since you’ll have your own account, you’ll also have some tools to work with. You can be able to see stats like how many items you’ve sold, how much profit you’ve made, and so on.
You can start by signing up for a seller’s account. The professional sellers account is $39.99 a month. If you have money in your seller’s account, that monthly fee will be automatically deducted.
If there is no money in the Amazon account, your debit or credit card that is linked to the account. While making money on Amazon right at the jump is tough to do, be sure to link your card as a backup. Regardless of how much you sell, you get charged $39.99 every month.
If you don’t want to spend that much money on a professional account, there’s an individual seller’s account you can sign up for. The individual seller’s account will cost you absolutely nothing. However, you will need to pay a fee of $0.99 each time you sell an item.
At the start, those who have a professional seller’s account will have a slight advantage over those with individual seller accounts in some ways. For example, professional sellers will have a better chance at winning the buy box as opposed to individual sellers. Another advantage professional sellers have is that they can apply for selling items that are actually restricted to individual seller accounts.
So the professional account is worth the money if you want the extra perks that the individual seller’s account doesn’t have. It might be highly recommended to start with a professional account (assuming you have the money). But if you want to start out really small, sign up for an individual seller’s account.
Eventually, you might make enough money consistently to where a professional account will be affordable. Regardless, signing up for an account takes no more than 10 minutes. Just fill out the forms and you’re good to go.
Download the Seller App
Next, you’ll need to download the Amazon Seller App. The app is free to use and download. There are plenty of compatible apps out there that sellers can use to their advantage.
Some of these apps will help you find the right items you need in order to get a good profit. However, the Seller App is among one of the most reliable of them all. If you are a beginner, the Seller App is your best option since it gives you plenty of tools to work with.
One of the best features of the Seller App is the scanning tool. You can use it when you come across the items you’re thinking of selling. You can scan the item and get some vital information that will help you make the decision to sell that item or not.
From there, you’ll be able to know whether or not the item can be sold on Amazon at a higher price. Especially at a price higher than what you’d pay for at Walmart. If the item has profit potential, then you can purchase it and sell it at the price point you think is necessary.
Go to your local retail store
Now comes the fun part. You can make trips to your local retail store. Among those successful with arbitrage, Walmart and Target are two great places where they can get the items they want to sell. Yes, there are more than enough retail stores aside from these two where you can find items that can have profit potential.
It all depends on the kind of items you want to sell. If you are planning on selling children’s toys, you can consider large chain toy stores like “Toys R Us” or the like. Walmart and Target will also be your better bets for most items. If you are planning on selling items related to home improvement, Lowes or Home Depot will always be your go-to places.
You can even search for products using IO Scout. While it may not give you a specific location on where you can find the items, it can give you ideas on which items are selling on Amazon for a good price. If you are able to get them on clearance from any retail store, you can manage to get the same stats on IO Scout with the help of the product search tool.
Scan clearance and on sale products on the Seller App
There’s always a good chance that you’ll come across items that are on clearance or have an “on sale” price as part of some special promotion. Items that are “on sale” will be sold at lower than usual prices. Either way, this is where the scanner feature comes in handy.
You can scan the item you have interest in and be able to determine whether or not if it’s worth buying for resale. Scan the item and you’ll get the stats you need right in front of you. It will tell you the exact fees for shipping, fulfillment, and anything additional.
You don’t have to do all the calculating yourself. All that is done with this one app. All the quick calculating will quickly give you the opportunity to make a decision. Sell it or move onto another item.
To scan the item, you’ll need to allow the Seller App to use the camera on your phone. That will allow them to scan and process the data of the item you have your eye on. It’s easy to use and will quickly pull the stats you need.
If the item is $3 in profit or 50% ROI, get it
If you scan an item and the stats point to either $3 or more in profit or a 50% ROI after fees, then that is a good item to snag for resale. Is it a guaranteed seller? Not always.
But what this tells you is that it is an item that has profitable potential. Once again, the Seller App will do the heavy lifting and calculating. All you need to do is crunch a few numbers and then go from there.
Other than profit and ROI, you want the item to have a seller ranking of 250,000 or less. You also need to make sure the item doesn’t fall under the brand protection regulations. If it’s not a licensed or branded product, you should be good to go.
Create the item listing on Amazon
Now that you have the items you want to sell, that’s when you need to create the listing. If you decide to use the FBA route, you’ll need to send the item to an Amazon fulfillment center. This will be a lot easier for you if you don’t want to keep the inventory in your home (or don’t have the space for it).
Amazon will be able to deliver the items to a customer on your behalf. But you’ll need to be aware of the fees that you’ll need to pay for doing so. If you want to fulfill the order yourself, you are allowed to do that.
Choose the fulfillment options that work easier for you. Some will prefer the FBA option and others will fulfill it themselves.
How Much Money Can You Make With Retail Arbitrage for Amazon FBA?
It’s possible to make money with retail arbitrage if you go the Amazon FBA route. The question is how much money can you make? The short answer: it depends on the factors.
You could have $1000 on hand to start and have a better advantage over someone who is starting out with $100 to $200. With more money, you can purchase more items to sell. And that of course can also mean more profit.
Keep in mind that it doesn’t matter how much money you start with, sellers will always have “hits and misses”. The ability to invest in more inventory will place you at a better advantage compared to a different seller. You can start with as little capital as possible and build up over time.
Some people can make thousands of dollars in their first few months. That’s because they are able to invest more products that are profitable. They implemented a strategy that allowed them to find items that gave them better profit and ROI potential.
Others have made hundreds of dollars starting out using the same strategy. So it depends on how much you are willing to invest. As a newbie, you should start out small since it’s more low risk (as tempting as starting out with a lot of money can be).
If you have a profit goal in mind, it’s possible to reach it even if you start out with a small amount of money. Don’t feel pressured to save up more money because someone “recommended” it.
Is it possible to be a successful Amazon Arbitrage seller? Yes. And you can make plenty of money doing it.
Just follow the steps above and don’t skip any of them. Also, you might want to consider putting together a strategy that tailors to your income goals and personal preferences in terms of which items you like to sell. It takes time, money, and effort to build up as much money you want to make money selling items on Amazon.
Whether it’s one of your side incomes or if you’re doing it as a business, Amazon Arbitrage is one of the exciting ways to sell items on the most popular platform in the world when you want to succeed at eCommerce.
The following is a list of frequently asked questions that will help you get a better understanding of Amazon Arbitrage. Use this section as one of your guides to maximize your success with selling items on Amazon. Here are the following questions:
Aren’t there too many people already performing RA?
Contrary to popular belief, not everyone is doing retail arbitrage. There are a lot of people that won’t be able to handle all the moving parts that make it all work. Yes, a lot of people are doing it. But that doesn’t mean it’s completely saturated.
Some will try their hand at it and then quickly give up because they expect to give them money quickly. Those who are performing retail arbitrage have a different mindset compared to those who expect quick riches with RA. They’re in it for the long haul. They know what the failures that lie ahead.
Some items may be considered “saturated” because most people are selling them assuming “that’s where the money is”.
How can you compete with a big RA operation?
Here’s the thing: there really is no guarantee that you will take on a big RA operation. Most of the time, you won’t be going head to head with anyone in your area that will be doing arbitrage at a very large scale. If you reside in a much larger city, you may be competing with larger arbitrage sellers.
Just because they have the larger warehouses and the money, doesn’t mean they are impossible to edge out. Get to the store earlier than them, know the markdown schedules, and be able to think two steps ahead of them are the better ways to get ahead of them. These competitors may be bigger than you, but it’s easier to be ahead of the curve if you have the right strategy in place.
Do you have to be a large RA operation to succeed?
No. You can still be small scale and still make large amounts of money.
Not to mention, you can re-invest and use your profits to invest in fulfillment space if you feel that it’s necessary. It’s all about how you want to scale your business. Don’t worry about growing bigger so you can outmuscle the competition.