Want to become a professional Amazon seller ASAP? Maybe you’re dreaming of making a few hundred bucks through a low risk and low capital strategy. Or maybe you want to start your entrepreneurial journey without making a full-time commitment.
You might consider retail arbitrage.
Retail arbitrage involves purchasing products from retail stores and reselling them at a higher price. You can source products through dropshipping, partnering with existing private-label brands, using the Amazon seller app, and visiting local retail stores.
Yet, some manufacturers or sellers might claim retail arbitrage is illegal which could hold you back. This is not true.
Reselling items you own is not illegal so don’t be afraid to do it yourself.
In this guide, you’ll learn all you need to know about retail arbitrage including the step-by-step process for starting your own retail arbitrage business on Amazon— even with a low initial investment. Whether you’re a seasoned entrepreneur or a complete newbie, you can easily make your first few sales.
Here’s how to do just that.
What is retail arbitrage?
Retail arbitrage involves purchasing products from a retailer and reselling them online at a higher price.
Let’s say you found phone cases at Walmart or Target for $5 each. With retail arbitrage, you can resell them for $25 (market price) on Amazon or eBay and make a profit with minimal effort.
If you purchased 30 units and sold them for $25 each, You’ll spend $150 and profit $600!
In a nutshell: This is the retail arbitrage process.
Retail arbitrage seems similar to traditional retailing — but there is one significant difference. A traditional retailer purchases in bulk from manufacturers or wholesale suppliers. Retail arbitrage involves the acquisition of products from other retailers or sellers, and it has low barriers to entry. As a reseller, there are minimal startup costs and it can be profitable.
Is retail arbitrage legal?
Retail arbitrage involves reselling a product, so you may wonder whether it is permitted by the law.
The good news is retail arbitrage is legal, and it is also acknowledged by Amazon.
According to the US Supreme Court, retailers can’t stop resellers as long as the products are acquired legally.
The exception is counterfeit goods and branded items that are available through authorized resellers. In addition, products under the Amazon Brand Registry require the approval of a manufacturer or private label. If you are caught reselling these goods, Amazon may suspend your account.
How to get started with retail arbitrage
Success in retail arbitrage requires understanding the step-by-step process for finding profitable goods, sourcing products, and reselling them on Amazon.
Here is the 9 steps process you must follow for reselling products on Amazon:
Step 1. Register for an Amazon seller account
Either register a new Amazon seller account using your business account or use your existing Amazon customer account to get started.
To create an Amazon seller account, you need:
- Business email address or Amazon customer account
- Chargeable credit card
- Government ID (for identity verification)
- Tax information
- Phone number
- Bank account number and bank routing number
Amazon has two selling plans — an Individual plan and a Professional plan. The Individual plan is priced at $0.99 per sale and the Professional plan is priced at $39.99 per month for unlimited sales.
Let’s take a look at the advantages of each plan:
An individual plan is recommended for:
- Sellers closing deals for less than 40 items per month
- Sellers who do not use add-on programs or selling tools
- Sellers who want to keep up-front costs low
- Amateur sellers starting their business
A Professional plan is recommended for:
- Experienced e-commerce sellers
- Sellers closing deals for more than 40 items per month
- Sellers using advanced sales tools and add-on programs such as Amazon Business
No need to pressure yourself to pick a specific plan because beginner merchants can choose the individual plan and change to a professional plan anytime.
Step 2. Source your products
Finding products for retail arbitrage is like bargain hunting. The goal is to find cheap and quality items from Target, Walmart, or other clearance sales which you can resell with a good profit margin.
Being inexpensive isn’t the only factor you need to consider. Check how the item is selling on Amazon, eBay, and other online selling platforms.
Stay updated on trends and sell popular products with high sales numbers. You can also use the Amazon Seller app to find strategic products to sell.
Search for the product through text search, visual search, or scan barcodes. Then, the results will provide a preview of current prices, customer reviews, competing offers, and product profitability — but we’ll discuss this app in-depth in a later section.
Now here are the different ways you can source products:
Dropshipping. With dropshipping, resellers never have to handle the inventory of products in their online store. Rather, when a consumer buys an item, they are also buying from the wholesale supplier or original manufacturer. They also take charge of packing the goods and shipping them directly to customers.
In this business model, the wholesale supplier and original manufacturer handle the inventory, shipment, and logistics. However, the drop-shipper could take a significant cut of your profit margin.
Partner with an existing private-label brand. Rather than solely browsing clearance sales, an alternative option is finding profitable private-label brands.
Here are four ways you can get this done:
- Google search: A simple Google search with the keywords product + private label lets you identify private-label items.
- Social media and forums: Scour niche forums or social media groups for interesting private-label brands or manufacturers.
- Amazon and Alibaba: Both platforms have private-label goods but you may have to examine product listings to pinpoint manufacturers.
- Look for private-label brands in your local community: Look for manufacturers or artisans in your local community.
Next, reach out to the private-label brands and ask whether they’re willing to sell items exclusively in your online shop with your brand name. You should also schedule weekly or monthly meetings with your partners to build a long-term relationship.
Once you get the green light to sell these private-label goods, enroll your product on the Amazon Brand Registry to prevent infringement, and protect your brand and partners.
Their global team has blocked 6 billion suspected bad listings. In addition, enrolled brands experienced a 99% reduction in suspected infringements.
Use the Amazon seller app. The Amazon Seller app has a “scan and search” feature which lets you use your phone’s camera to scan the barcode of any item. Afterward, you can view the sales rank, current price, customer reviews, competing offers, and estimated profitability.
Here’s a step-by-step process for qualifying products for retail arbitrage:
- Determine eligibility: Find out whether you’re eligible to resell this item on Amazon and other online platforms.
- Assess profitability: Head to the app’s profitability calculator and identify shipping fees, other associated costs, and your estimated profit. Use the “Low Price in New” feature to estimate the product’s profitability against other Amazon sellers.
- Consider shipping prices: The cost to ship to Amazon is around $0.25 to $0.30 per pound so you could pay around $2.41 per product for smaller goods and expect an increase for shipping larger or heavier goods.
- Consider retail price: Indicate the retail price in the app to determine the profit.
Retail arbitrage expert Ryan Grant uses the following formula to calculate the ROI of a product:
Profit / Cost to Purchase = ROI
He recommends beginners purchase items with a 50% or higher ROI.
Also, purchase products that offer at least $3 total profit. Don’t waste time on goods with lower profits because a slight change in the market could diminish your margin.
Visit your local retail stores. Plenty of stores sell products that are ideal for retail arbitrage. A good tip is to visit shops nearest to your location for your initial research. To get started, we’ve listed the 16 best stores to find goods for retail arbitrage:
- Bed Bath & Beyond
- Big Lots
- Home Depot
- Office Depot
- Rite Aid
- Toys R Us
Once you get the hang of things, expand your reach, and visit a variety of retail stores in your area.
Step 3. Look at the Amazon FBA seller’s competition and bestseller rank
At this stage, you’ve probably found a few potential products to sell. Before you buy them in bulk, assess the competition and bestseller rank.
- Consider Amazon seller competition: Avoid a highly competitive market to make profits at a faster pace.
Here are a few questions to consider:
- Who are your competitors?
- How is your product different from your competition?
- Are your competitors’ products delivering more value compared to yours?
- How will you set your products apart from the competition?
- How much will it cost to enter this market?
- How long will it take before you gain profits?
Monitor your competitors to get a long-term overview of the niche market. You can also contact suppliers or customers to understand the demand for the product
- Amazon Best Sellers Rank (BSR) or Amazon Sales Rank – is an indicator of how well the item is selling on Amazon. The number is given to a product once a sale is made.
The number is based on the following 4 factors:
- Total sales: A product with low sales has a high BSR while products with high sales have low BSR. For instance, an item with a BSR of 5 generates more sales than an item with a BSR of 500.
- Past sales: Amazon BSR also considers past sales numbers. If you managed to sell 10 more units than your competitor in a day, but your competitor has more total sales overall, then you won’t overtake your competitors yet.
- Similar competitive products: Amazon BSR can fluctuate between product categories. By monitoring your Amazon BSR and its corresponding sales number, you may be able to estimate the sales of your competitors in your product category.
- Price fluctuation due to sales and promotions: Amazon BSR is updated per hour based on current and past sales. If you sold 20 products in an hour due to an online sale, you would get a higher BSR than a competitor who only sold 10 units in that same time period.
Ryan Grant recommends looking for products with a sales rank of around 250,000 and below. If an item does not fulfill this criterion, then move on and scan another product.
Amazon BSR could also be used to monitor your competition. With Junglescout, you can predict the estimated sales of competitors based on their bestseller rank.
Step 4. Check out the Amazon sales page to assess competition
Stalk your competitors on Amazon.
A scouting app usually has insufficient information so visit the Amazon website to assess competitors at the top of your product listings.
A product listing with only around 10 to 100 reviews indicates low competition. If a listing has a few hundred reviews, that’s fine too. It may take some time to make it to the top listing but it’s doable if you invest time and effort into growing your business.
However, if the listings have around 1000+ reviews, then these sellers dominate the market and it would be challenging to compete.
The best-case scenario is to find goods with high demand but with low competition — but finding these items will take time and effort.
Step 5. Research the item’s Keepa graph
Keepa tracks the sales rank and price of millions of Amazon product listings. Their data is not completely faultless but it can paint a clear picture of a product’s profitability and market price.
A Keepa chart lets you view price history, track the product, and view data based on different time frames.
Step 6. Look at the item’s sale rank
In the far right section, you can select menu options to get an overview of the sales rank, Amazon position, and other relevant information.
Step 7. Check customer reviews
Before you start buying in bulk, check whether Amazon sells the items you will be sourcing.
Search for the products you plan to sell and their customer reviews. You can find the exact product by typing the UPC (Universal Product Code) in the search bar.
For starters, the UPC is the 12-digit barcode found in every product.
Next, look at the number of reviews and how recent they are. Customers scarcely leave a review so when a product has plenty of reviews this means it’s selling like hotcakes.
Find items with recent reviews because they are likely selling well at present. A smartphone case could have 500 hundred reviews, but a bulk of these reviews could be from 2015.
Step 8. List items
Create a product listing to start selling online.
Here are the elements of a basic product listing:
- Product name – Indicate the name of the product
- Product description – Include a compelling description of the item’s features and characteristics.
- Keywords – Conduct keyword research to find phrases signifying high purchase intent. Place these keywords in the copy to boost your visibility in the marketplace. (Note: We highly recommend using the JungleScout keyword research tool to pinpoint high-converting keywords based on geographic location and cost-per-click.)
On top of this, you must ship the goods to your buyers. While you can do this yourself, we highly recommend using Amazon FBA (Fulfillment by Amazon) services.
The Amazon FBA program lets you store your inventory in Amazon fulfillment centers. Amazon will do the heavy lifting for packing or shipping the products, as well as provide customer service.
Step 9. Market your business
To attract more customers, market your products, and generate publicity.
Let’s take a look at the strategies you can consider:
- Run Amazon sponsored ads: Amazon sponsored ads appear at the top of the product listing and follow a pay-per-click (PPC) model. More clicks on your ads mean more money spent on advertising so set a daily limit to stay within your budget.
- Participate in lightning deals: Products in Amazon’s lightning deals are discounted products for around 24 hours or less. Although these sales have lower profit margins, you could profit from selling many items and attract more traffic to your online store.
- Launch a website: Create a website jam-packed with blog posts or videos of your product.
- Social media: Build a social media page and post social media ads to attract more customers to your online store.
- Email list: Encourage customers to join your email list so they’re aware of new products in your online store.
As a reseller, you won’t gain millions and thousands of followers. But, a loyal fanbase of around 100 customers is a lot better than none at all. You can also experiment with marketing campaigns, and monitor results to see what works best for your business.
Does Amazon retail arbitrage really work?
The former accountant realized that he didn’t like his current career path. So, he used retail arbitrage to make ends meet and break away from the 9-to-5 grind.
In the beginning, he bought products from Walmart and Target then flipped them online on Amazon. With the Amazon Seller app, he would scan toys, home improvement goods, and games. Then, he used Amazon FBA to get a third-party to handle the bulk of shipping and processing.
His initial product inventory consisted of LEGO, Barbie dolls, and stainless steel flatware.
At the start, he worked 10 hours per week and earned around $1,000 per month. When his profits eventually matched his annual salary, he quit his full-time job.
“I was confident that if I had full-time hours to dedicate to selling online that I would be able to more or less scale that up,” He told CNBC.
Three months later, he generated $9,000 in profit and $25,000 in total sales! Afterward, he hired people that could help him scour retail stores.
Over time, he learned that seasonality was the key to success. He recalled many people bought discounted candy after Halloween and half-priced Christmas decorations around New Year.
As time passed, what started out as $3,000 to $5000 per month in sales, eventually skyrocketed to more than $200,000 in monthly sales.
According to Grant, focusing on wholesale arbitrage allowed his business to grow immensely. This entails sourcing products directly from manufacturers or brands.
By 2019, his business generated a whopping $2 million annually through retail arbitrage! In fact, his businesses’ Amazon Sales Dashboard generated $585,751.96 in ordered product sales last April 2019 alone, with over $200,000 from retail arbitrage.
His story reminds us that retail arbitrage can be a profitable venture, especially if you have a long-term approach.
Retail arbitrage tips for clearance sourcing for Amazon FBA
Despite your willingness to immerse yourself in retail arbitrage, there are some strategies to consider to maximize profits and minimize losses.
Take a look at these clearance sourcing tips to guarantee the success of your Amazon retail arbitrage business.
- Look at clearance sales: Hunt for products on clearance sales for affordable prices and better profit margins.
- Know where to look: Heavily discounted items may be hidden because “high-traffic” shelves are reserved for bestsellers that could generate more revenue. That’s precisely why you may have to look for shelves with clearance items.
- Ask employees: Having a good relationship with employees in retail outlets could eventually pay off because you regularly return to their stores. The staff could even be delighted to offer clearance items hidden in the backroom to resellers they know.
- Be open-minded: In all likelihood, bias towards certain products could lead to bad choices and missed opportunities for your store. While you may not like a product, there could be hundreds of people willing to buy it on Amazon at a higher price.
- Monitor trends: Monitor trends in different niches to know which products could sell.
- Find items in good condition: Some goods end up on clearance shelves because they are damaged, need repair, or were returned so assess the product’s condition first. If customers don’t think they are in good condition, they may leave a bad review.
- Look at other retail stores: Browse other retail stores because they could offer cheaper rates for your desired product. Shops do not always promote clearance items and you may only discover them by checking their cataloging system or asking employees.
- Double-check prices: There could also be errors in pricing due to incorrect labels or misplaced stickers. We highly advise you to recheck and confirm whether they are heavily discounted before you a bulk.
6. Amazon retail arbitrage: Pros and Cons
As of December 2019, there are around 112 million U.S. Amazon Prime subscribers which makes Amazon the ideal place to kickstart your retail arbitrage business.
If you need more convincing, here are some of the biggest pros of engaging in retail arbitrage on Amazon.
Just like all business models, retail arbitrage also has a few flaws that you must take into account:
- Low barrier to entry: Retail arbitrage on Amazon is possible with capital for as low as $100 to $300. You can create an individual Amazon seller account for free, purchase a few items from a clearance sale — and you’re good to go.
- Gain a few bucks: Retail arbitrage lets you earn a few bucks by simply reselling goods on the Amazon platform. It’s a lot easier than building your own brand or launching a new line of exclusive products.
- Learn Amazon: Amateur entrepreneurs can use their retail arbitrage experience as a starting point to sell more items on Amazon or launch their own private label.
- Lower margins: Retail arbitrage on Amazon has lower profit margins than buying from direct suppliers. Amazon also requires you to pay a commission for every sale (for Individual plans) and shipping fees (for using Amazon FBA).
- Brand regulations: The Amazon Brand Registry protects private labels and brands. Selling an item registered on the platform, without prior approval, could lead to a flagged listing or account suspension.
To recap, here are the reasons why retail arbitrage is a good business model:
- It has low barriers to entry: All you need to do is to create an Amazon account, find items to sell, and create product listings. No need to create a brand, exclusive product, logos, and other complicated requirements.
- Minimal investment: Start small with minimal investment and scale your inventory as your business grows.
- Merchants earn immediately: No need to create a huge following or unique branding to sell your product. Just find a good bargain and resell them at higher prices.
- Learn the Amazon marketplace: Becoming an Amazon seller seems like an intimidating venture for first-time merchants. However, retail arbitrage provides you with a low-risk opportunity to sell goods and understand the Amazon marketplace.
All these benefits make retail arbitrage an ideal business.
If you need a little help to get started, search for items to sell, or even someone to manage your online account, retail arbitrage independent contractors can help in any way you feel you might fall short. You can also use Amazon FBA for hassle-free handling of inventory and shipping. This way, you can focus more on sourcing products and fulfilling orders.