Is Retail or Online Arbitrage Profitable?
Retail and online arbitrage are relatively easy ways to make money from Amazon, ebay and Facebook Marketplace.
If you could take one simple strategy, do very little work, start on a shoestring, yet make £500+ each month, would you feel it is worth at least thinking about it?
If you could learn from this page the exact steps to get you started, isn’t that worth reading on, at least a little bit further?
We think so, so Let us Go Learn!
What is Retail Arbitrage?
Retail arbitrage is one form of ecommerce. But unlike many other types of online selling, it is one of the easiest to get started with.
While there are many similarities between Online Arbitrage and Retail Arbitrage, the main activity for Retail Arbitrage is to buy bargain-priced products from High Street stores, then sell them again at bigger prices on sites such as Amazon, ebay and Facebook Marketplace.
Is Retail Arbitrage Legal?
Retail and online arbitrage are not in themselves illegal, but there are aspects of arbitrage trading that can be illegal or unethical.
All forms of arbitrage can skirt a little close to legal or ethical behaviour at times, especially when trademarked brands are re-sold however, if you apply the basic rules we outline in little while, there is no doubt that many people are comfortably adding to their monthly income with this worry free strategy.
Still interested in retail arbitrage. Let’s dig in and figure this out.
What are the Basic steps to Retail Arbitrage Success?
- Find discounted products to buy in stores near to you.
- Buy only enough for a quick sale.
- List them on your preferred marketplace.
Where Can Retail Arbitrage Opportunities be Found?
Retail arbitrage opportunities (or deals) can be found in several ways:
- By searching through nearby shops, local markets, or freecycle-type sites.
- By looking online at known discount and multi-product vendor sites.
- By Using third-party services or apps and online tools.
Objections and Arguments
So far, so good, but before we get deeper into breaking down the steps above, let’s fight off a few questions and concerns.
Q: If anyone could walk into Store X and buy Product Y at the lower price, why would anyone pay more on Amazon or ebay?
A: The reason people will pay a higher price on Amazon and ebay is that firstly, they might not have Store X near to them.
Then, even if they did have Store X next to their home or office, they might not choose to go in there, or have the time, or a million other reasons.
People buy off Amazon and ebay for many reasons, and surprisingly getting lower prices is not at the top of their thinking.
It is more about perceived value, trust, convenience and reliability.
How easy is it to browse through amazon of an evening for Product Y, buy it, and have it conveniently waiting on the doorstep for your return from work the very next day.
Q: I just saw a garden tool at a crazy low price in a nearby store. My ecommerce store is all about kitchenware. Should I buy the garden tool?
A: Yes! Most marketplaces don’t present you as a store of many things. Most buyers will only ever see the one thing they are looking for. So, if someone is searching for that garden tool, they most probably won’t ever know that every other thing you sell is kitchenware. It really doesn’t work that way. So don’t ever argue yourself out of an arbitrage deal on your own preconceptions, as they are probably wrong.
What Is Needed to Make Retail Arbitrage Work?
We have covered off some simplistic ideas, and dismissed the thinking that people buy on price alone.
So now let’s cover off some of the things you will need to really give this a shot of making money for you.
The Must-haves are:
- An Amazon, ebay or other marketplace account.
- A stash of stock investment capital.
- An idea of which products you might target first.
The should-haves are:
- Thermal label printer.
- Packaging materials.
- Software to make deal-discovery a breeze.
Does that sound like an investment you could stretch to? If so, you really could be on your way with £500, and that could include the printer costs too.
How to Set Up an Amazon Seller Account
When you are ready to start selling on Amazon, you will need to set up an Amazon Seller account. In this section, we will walk you through the steps of creating an account and getting started with retail arbitrage!
The first step when creating an account is to provide your name, email address and other personal details. Bear in mind that Amazon will validate most of this data, so it is best to use factual answers.
Next, you will be asked to choose your country of residence and business entity type. Once you have made your selections, click to create your Amazon seller account.
Note: We have found that a limited company does appear to fair better with fewer selling limitations. The formal structure in law implies greater trust and accountability, although a limited company clearly is not an essential factor.
After this, you will be taken to a page where you can enter your payment information. Amazon will need your credit or debit card details for any account related subscriptions, and a bank account to send you payments for the items you have sold.
You will also be asked to provide your phone number and a physical address. This is so Amazon can contact you if there are any issues with your account or the items you are selling.
Once you have entered all your information, click ‘Submit.’ You have now successfully set up your Amazon Seller account! Congratulations!
Pitfalls of Retail Arbitrage
Before getting too excited and diving into this new venture, it’s maybe a good time to look at the potential downsides to retail arbitrage.
Many online trainers and retail arbitrage advocates will tell you the idealistic viewpoint. They will simply tell you to invest £500, sell that stock for a profit, then re-invest that money to grow exponentially.
While this is basically true, there are certain factors that can derail this perfect plan.
- Amazon will not pay out your earnings for at least 2-weeks after the sale. Realistically, if you bought £500 of stock on the 1st of the month and sold it all by the 10th of the month, you could easily be looking at the end of the month before you see the money returning to you.
- The products are not guaranteed to sell quickly, and you could quite easily see only some selling during your first month.
- Online purchases are free to refund within 30-days under current UK consumer law. Returns are often not resalable, and those products are often of little value after their return.
So, let’s now break these pitfalls down with a little more detail and better pre-planning to reduce the impact they might bring.
Even though the idealistic plan is to invest your cash into one arbitrage opportunity, list them, wait for the money to return, then reinvest along with any profits, aka exponential growth.
In truth, you might be better investing 50% in stock at the first step. Prepare those for sale on the marketplace, then when they are listed and ready to go, start looking for your next opportunity (product).
This will make life easier as you will have products at different stages of their sales cycles, and you will start to create a more flowing process, rather than the stop-start of the general advice.
By the time you have sourced, packed and listed your second item, you should then start seeing the money coming back from the first product.
Don’t expect to get 100% back at this time, but even if you have sold half, you will have money building up and ready to invest in product 3.
We have already set the expectation of not selling everything the moment it is listed. If you plan carefully though, you can increase your chances of seeing faster sales.
Before buying, you could check on amazon or ebay to see how many people are already selling the same item, how many units each have, what the price range is, and what is an optimal stock volume you should invest in to see faster sales.
When you get a little further through this document, we will talk about the tools that make this task much easier, but you can certainly find most of this data without actually needing tools.
There is a thinking within the industry that buying 6 pieces of one item is a sweet spot. This may be true, and it certainly is difficult to make profits of any substance with less than this.
Go over 20 units, and you are probably moving into slower sales, so you certainly need to give some forethought to this factor.
Amazon in particular are infamous for being 100% customer centric.
More than anything, they value the customer experience over seller experience. After all, your customer probably buys many items each month off Amazon, even if they buy just one from you.
The downside of this is if a customer returns a product and demands a refund, you can be almost certain that Amazon will give the money back.
Even if the customer returns an empty box, or a damaged, non-resalable item, they still get their money back and we, as the seller is the 100% loser.
You need to factor this in to your pricing, and in general, you can certainly expect 1 out of every 100 sales to come back at you in this manner.
Although there is little we can do as sellers to stop customer returns, there are one or two things you might want to consider to at least reduce your risk.
- Pack the products well to avoid damage during transit.
- Use tracked delivery to at least prove whether a package was delivered.
- Avoid high-returns items such as shoes, clothes, wearables or things that almost certainly would return in a non-resalable state.
- Avoid short-life groceries, where time would not permit a return and resale cycle.
This is a massive topic, and one that so many people get wrong.
Please go through this section carefully as not taking note here will ultimately cost you money.
Customers Do NOT Buy by Price Alone
We have evaluated this factor extensively.
In one experiment on ebay, we priced exactly the same item, with exactly the same listing and at exactly the same time.
Each listing was priced from £75 through to £95, in £1 increments.
Each time we evaluate this, we always saw the more expensive items selling first.
Now, we cannot be certain whether ebay were pushing the higher prices first to make bigger margins, or whether customers felt the more expensive listings were more likely to be genuine. From feedback it is likely that both were an influencing factor.
We evaluated whether 79.95,80.00, or 79.99 made any difference. There weren’t any conclusions here other than people are definitely not tricked by the 79.99 being much cheaper than 80.00 anymore.
The third point, which was very surprising is how customers often have shipping price blindness or disregard.
We noticed that many people took a price of 74.99 over a price of 79.99, despite the £74.99 having a £9.95 shipping cost, as oppose to free shipping on the £79.99 option.
This is even more bizarre when you think that with equal shipping fees, people then tend to go for the more expensive option, so it almost proves little other than that you can’t make assumptions about pricing.
Price Smashing Smashes Profits
We have noticed seriously annoying trend, which seems to be amongst new sellers.
If someone is selling a product for maybe 39.95 (and has the Amazon Buy Box), a new seller feels that they need to smash that price to steal the sales.
What is often astounding, is that they often don’t just reduce the price by 1p, they totally smash the price and offer it at £29.95 instead.
Not only are they taking away sales from other people, they most probably aren’t making money themselves.
It seems that new sellers need to get the sale, no matter what. Even when that means selling at a loss, which is insanity, and the reason why so many new sellers fail within just a few months.
The Truth About the Buy Box
It is not strictly true that the Buy Box is awarded to the lowest priced seller.
Amazon do favour FBA (products shipped out of Amazon warehouses) over seller fulfilled products, but still not exclusively this way.
They also don’t tend to exclusively give the buy box to one seller, no matter what their metrics are.
We typically notice a trend of around 6% buy box wins in our own accounts over time. This means that we are potentially sharing the buy box with around 14 other sellers.
There is no indication of price changes at these times, so again, shows that Amazon do apportion a ‘fair’ buy box distribution across sellers.
This in itself should suggest that there really is no point in price smashing.
Instead of knocking £10 off your selling price, by matching the low price to the penny, you are almost assured of getting reasonable sales volumes.
As long as you haven’t over-committed to high volumes of a product, this buy box share should be sufficient for your products to sell reasonably well.
Why Not Go 1p Under a Buy Box Price?
Going 1p under the buy box is not so different as going £10 under.
The thing here though is that if the other seller has pricing rules set, as soon as you go 1p under, they will step 1p below you.
This can then continue until one seller hits their lowest price floor, and the winner here is simply giving away profits for no reason.
The Best Price to Set
As mentioned above, we would always recommend that you equal the current buy box price to avoid a race to the bottom.
To add strength to this rationale, it is always worth checking how much stock the current seller has.
If you find they only have 6 items in stock, then you might as well let them sell theirs, and then step in to pick up the next raft of sales.
If they have 100+ you are not really going to win the waiting game, so you might as well just run alongside by price matching.
How To Discover Competitor Stock Volume
If you use specialist software, which we are going to discuss soon, stock levels are easy to assess.
If not, then you can try the magic 99 trick.
Put one of their items in your shopping cart. Change the amount to buy to a maximum 99, and then click to add to the basket.
If the vendor has only 7 items left, the volume will automatically change back down to 7, or whatever their actual volume is.
If the amount stays at 99, then you know they are not running out any time soon.
Assessing How Many Vendors Are Selling a Product.
As there might be more than one seller for each product, it is worth trying to figure how many, and who they are.
When opening up the listing, you will see a section that states ‘other sellers on Amazon’. While this might not show everyone (and certainly doesn’t always show everyone), it will give you an idea.
If you see a list of 6 other sellers, you could try to discover each of their stock levels, or perhaps just walk on past that product as too many sellers will slow down your sales.
Is It Good to See Other Sellers for My Product?
Yes and no!
If there are other sellers, it should indicate that the product does sell.
It also proves there is an existing listing for you to copy and get listed more quickly.
If there are more than 6 other sellers, you need to think twice before entering that market (especially with retail arbitrage).
However, if there are only 1 or 2, you should also be wary.
Check who these are.
If one seller is Amazon, you are going to be in a battle with the boss so to speak.
While Amazon do still share the buy box with others, in most cases, there are many products that they specifically take control of the market, and you simply won’t even appear as a seller.
So, if the product is for sale only by Amazon, which suggests they have locked down that product and you really need to pick your fights more carefully, so move on by.
If the one vendor is the owner of the brand, or the two sellers are the brand owner and Amazon, then again warning bells should be sounding.
There is a high chance that the brand owner is protecting their trademark and protecting their pricing structure. It genuinely isn’t worth getting into a battle here as the trademark owner will win every time.
What Profit Margins Are Needed to Make Money on Amazon
We will go deeper into account details on another post, but over our many years of selling, we have found that most every month, our average selling costs equal to 20% of the total sales figure.
This 20% includes any Amazon shipping fees, any refunds or returns, and all of the various charges they pass over to us.
As a ballpark figure, this is an easy enough cost to work with, and as it has worked out to this every month over many years, it must be reasonably accurate.
How To Calculate Profit Potential?
Using the above 20% figure for costs, you can now reverse assess profitability.
Let’s say a product sells for £30 on Amazon. This means that the average costs of selling through Amazon will be £6.00
You will have packaging and shipping costs of your own to add, and let’s just say this is also £6.00
You then want to make a minimum 10% profit after costs, which in this case would be £3.00.
Add those up together – £6 + £6 + £3 = £15.
Then take this away from the £30 selling price, which equals £30 – £15 = £15.
Are you buying it for less than £15? If not, this opportunity won’t work for you.
This is the one simple factor that will put the blockers on most every deal you find. The costs of selling are so high that only very few products will have enough margin to make it profitable for you to sell.
How To Find Winning Products?
If you have covered off the above topics, and still feel confident, you are already 90% on the way to making a start at Retail Arbitrage. Congratulations.
The only thing we need to do now is to work out how to find the products.
Software To Help When Shopping
There are several tools for finding offers. Some of these are cloud-based services that do all the scraping and leg work for you.
There are also arbitrage discovery (deal) finder services, where you pick your deal from regularly updated lists.
Then, there are apps that you can install on your mobile that you can use while out and about to rapidly check the value of an offer.
Which Method for Deal Finding Is Right for Me?
That really depends on how you like to operate.
If you enjoy shopping, and spend enough time browsing around the stores, then you might be most suited to a mobile phone app.
If you want easy-street, then you might prefer the done-for-you deal-finder services, or if you wish to have more control over finding unique deals, then an online scraper might be right for you.
In truth, there is nothing stopping you trying any or all to find how these work best for you.
You could also follow our social posts to see what deals we hand out for free regularly.
Summing It All Up
We hope the above gives you a truthful insight into the world of Retail Arbitrage.
We absolutely believe retail arbitrage to be the easiest way to gain an insider awareness of ecommerce.
You must remember though that it is a churn and burn process that is quite hard to grow into a sustainable and long term business.
The reason for this is that it depends on store offers and discounts, which are transient in their nature.
If you find one offer today, it might be there tomorrow, but unlikely to be there always or over any sustained duration.
This means you will always be seeking out new deals, and always moving your product focus to whatever you can find that week.
Over time though, you will get a deep understanding of how ecommerce works. You will learn which products sell well, and which products suit you the most.
Over time, you should find yourself slowly moving toward a more sustainable model of working, and over time, you will find offers that can become mainstays of a more traditional ecommerce business.
But for now, dive in, enjoy the learning experience, and don’t forget to reach out to us if you are still unclear as to how to get started in Retail Arbitrage.
Why would a Store Markdown Products When They Could Just Sell Them Online Themselves?
More Questions and Answers
Q. How Do I Resell Products on Amazon?
A. To Resell products on Amazon at a profit, you should follow these steps:
- Find discounted products either locally or online
- Use software to asses the profit potential and competitor landscape.
- Buy enough of each to make a reasonable return (6-10 for starters).
- List them for sale on Amazon, at least 35% higher than purchase price.
- Send to Amazon for FBA fulfilment or prepare to ship items yourself.
- Wait for 2-4 weeks for the sales proceeds to be paid into your bank.
- Rinse and Repeat
Q. How Do I Create an FBA Shipment?
A. There are many steps to take when creating a shipment to Amazon FBA:
- You must decide whether you want to label and pack the products, or have Amazon do that at a small price.
- If the products are breakable or liquid, you should make sure they are placed in sealed bags for protection.
- Any plastic bags should have a suffocation warning label affixed.
- Only send small quantities until you are confident Amazon are happy as they could be locked down, unsellable and unreturnable.
- Try to keep a consistent flow of products so that your stock does not run out. Amazon do not really like that.
- The quicker your items sell, and the quicker you restock, the more storage you will be given.
Q. What Can I Do About Bad Reviews?
A. Unfortunately, you will certainly get the odd bad review, and they are mostly unreasonable or unjustifiable.
The sad truth is also that Amazon do not care and almost never remove these negative reviews.
Even if you can prove they are wrong, Amazon tend to completely ignore sellers’ requests for review removal.
The only real way to deal with this is to answer the negative review with humility.
Apologise for the buyer experience, but then place a positive spin by saying this is an exceptional circumstance and that you have taken steps to ensure other byers do not face this situation, or words along those lines.
You could also try to request positive reviews from buyers, and there is software that enables this, but be careful as Amazon are quite strict on customer contact.
The general feeling is that new buyers are reasonable to understand that not everyone will be happy, and that it is mostly the negative customers who leave reviews. If you manage to build up a balanced review profile, it really should not harm your sales potential.
Q. When Should I Use Amazon FBA, or When Avoid It?
A. Amazon FBA can provide cheaper shipping, remove the hassle of dealing with shipping, and handle customer issues.
The thing is though, Amazon are continuously reviewing their selling guidelines, and it is possible that some products can fall out of favour.
When this happens, your inventory can become stuck in Amazon warehouses, where the only route out is destruction.
It is always to send smaller quantities of a product so that the damage to your business is minimised if anything goes wrong.
The categories to be most cautious of is topical skincare, food, and consumable, plus anything with batteries.
If amazon did block the sale of a product by FBA, they might still permit it to be sold by seller fulfilment.
If this is also banned, then you could still sell it through ebay, Etsy or on buy etc.
If you are selling something less likely to be problematic, such as maybe a garden umbrella, then it is ok to send more units, but try to keep your shipments to around 4-6 weeks of stock levels to build a better fulfilment profile.
Q. How Do I Get Permission To sell Certain Product Types?
A. The process of being able to sell into restricted product categories is called ungating.
If you are a limited company, you will find that more categories are open to you from the start, and it also becomes easier to open new categories, often by simply requesting permission.
However, things like beauty products and toys are much harder to get approved for.
This does not mean you will need approval for every item, it means you must prove capability for one, and then that whole section will become unlocked or ungated.
In general, the way to do this is to supply an invoice for at least fifteen items to prove you are a business buyer.
Now of course, for retail arbitrage, which is unlikely to happen, and so when you need to start ungating, you will also need to find some friendly wholesale companies that will provide you with invoices for items that will open a category for you.
Q. How Do I Compete with The Big Arbitrage Sellers?
A. If you do your research, this should not be a real problem.
Before choosing a product, you should evaluate to see how many other people are selling it, and what their stock levels are.
If you see a seller with a huge quantity of an item, you need to decide if it is worth competing, or better to move on past to the next opportunity.
Often, you might see that the bigger stock sellers will be targeting higher prices. They know that others will come in below them but sell 6-10 items. They are mostly happy to let them come and go, knowing that they will still see steady sales for their items in any case.
Of course, you might find some items where a seller will aggressively cling on to the buy box by setting repricing rules.
For example, when listing a product in Amazon, you can choose to reprice to 1p or 10p below the lowest price (as an example).
When you find yourself in this downward spiral, it is often better to cut and run. No one wins when the race is to the bottom.
This is also another good reason you should always self-fulfil at the start, as once the products are in the Amazon warehouse, you have less flexibility, and might feel more inclined to dump to cut the losses.
So that is all the questions we have for now. Feel free to ask more or email specific questions to firstname.lastname@example.org where we will reply promptly and personally.