What is Retail Arbitrage How Does it Works?
Amazon has become the dominant e-commerce channel in a big part of the world. To give you a comparison, in 2018, Amazon made $232 billion in sales. eBay made only $10 billion.
Amazon has become so popular for several reasons:
- A huge customer base of over 100 million Amazon Prime members
- Amazon does all the shipping and fulfillment for you through its Fulfillment by Amazon (FBA) program.
- Amazon makes it easy to list and sell products
In 2018, more than 200,000 sellers on Amazon earned more than $100,000 a year, thanks to Amazon’s huge customer base. It could be said that never in history has it been so easy to reach so many customers.
If you want to start making money and take advantage of this opportunity, Amazon is the right choice for you. But what is the best way to start selling on Amazon? If you ask us, retail arbitrage is the best way to start making money and selling products on Amazon. And how does retail arbitrage work? What does it mean? Keep reading to find out.
What Does Retail Arbitrage Mean?
In a nutshell, retail arbitrage means finding products for a low price somewhere and selling them for a profit on Amazon.
An immediate difference between this strategy and private labeling or selling out is that you will always be looking for the next deal, whereas with the latter, you can trade a single product for a long time.
You may be wondering, why would someone pay $20 on Amazon for a product that can find on clearance somewhere for less than $5? First of all, clearance offers aren’t always in the same place as the customer, so they may not be aware of it. Second, Amazon offers more convenience. You’d be better off than someone going to a clearance sale an hour away for a product you’re not even sure you’ll find.
How Does it Work?
Amazon FBA Arbitrage or Amazon online arbitration refers to the act of buying products from online stores and reselling them for more money. This way, you get more profit using the Amazon service. To clarify, it is a totally legal act, and it is not necessary to have a special license. Typically, Amazon FBA Arbitrage sellers can aim to earn 30% to 100% ROI on each sale made. For example, for every thousand euros invested, 300 are returned, according to Amazon rates.
We are going to explain to you how this whole online sales process works. First, you must go to a retail website like Walmart and find discounted items that can be resold on Amazon at a higher price. Once done, you must place the order and deliver it to your home. When the inventory arrives, the items must be unpacked, listed on Amazon, and shipped to one of the Amazon FBA fulfillment centers.
You can take advantage of this option from Amazon because it is a business based on convenience buyers rather than those only looking for the cheapest product. Some Amazon customers know they can get the product at a lower price on another site. However, they prefer to opt for this route because it is easier for them or due to lack of time. They can simply open the Amazon app and find, order, and get what they want in a day or two. Everything is to their advantage!
Another reason why customers prefer Amazon FBA Arbitrage is because they can earn money by buying items with special coupons, cashback offers, or reward points. They are gifts to attract and keep those customers loyal to this service, for which Amazon rewards them for their behavior.
There is a misunderstanding about retail arbitrage, as people think it is the same as regular retailing when it is not. In traditional retailing, you directly buy your products from the manufacturer, while in retail arbitrage, you purchase your products from other retailers. The major contributor to this business is the difference in the prices. People looking to make easy money are shifting to amazon FBA retail arbitrage. In this business model, you purchase products and send them to an Amazon warehouse, then a customer puts an order, and Amazon ships the item to the customer. Here, you can save time and have less stress, which helps you gain profit and save money.
You can find more information about retail arbitrage here.
Can I Still Make Money from Retail Arbitrage?
Retail arbitrage is something very aspiring Amazon seller, and entrepreneur wants to know, and the short answer is: yes. Selling on Amazon can be incredibly lucrative, with new sellers typically making $42,000 in profit each year. According to research by Jungle Scout, 85% of Amazon sellers consider themselves profitable.
However, many sellers can also not sell on Amazon because they lack the knowledge to offer winning products to their customers. They may also not be marketing their products properly, which means they’re not reaching customers who are likely to be interested in what they have to offer.
Keep in mind that before looking for products to sell, it is essential to distinguish the type of business model you want to follow as a seller on the platform.
Pros and Cons of Retail Arbitrage
The delegation of important tasks such as logistics through the Amazon FBA service (or Amazon logistics) will help you, especially if you are an entrepreneur. Do you want to know why? Below, we review the advantages of Amazon retail arbitrage.
- Your sales will increase: Amazon is the world’s leading online sales platform, with millions of consumers. If you publish your products there, you will generate more credibility among customers who trust you when buying.
- You do not need an online store: Creating an online store is a job that involves time and investment and is tiring. By using Amazon Fulfillment, you will increase your visibility without all that effort.
- You can sell in international markets: Because it is on every corner, with Amazon, it will be easy for you to expand internationally. In this way, you can grow in the location of your choice.
- Easy access: Using the FBA service requires few procedures and is very simple.
- More comfortable work: As you already know, the company offers you the service to manage the entire sales process.
- Customer service: All your users will receive quality service and information about their orders 24/7.
Using Amazon to sell your products also comes with certain drawbacks that are important to analyze beforehand. Below, you will find the most critical challenges with retail arbitrage.
- Great competition: Although your sales strategy is perfect and your products are of high quality, there will always be sellers to whom the same thing happens. Due to this, it is normal for the marketplace to be highly competitive.
- Commissions: From each product you sell, Amazon receives a percentage, varying according to the item’s category. On the other hand, creating the account to be able to sell has a cost.
- You must organize yourself: If you are one of those people who plan everything in detail, this will not be a problem. It is important to know how to manage your work and ensure that your products are always in stock in Amazon warehouses.
- Little presence of your brand: Because Amazon delivers the products, it is difficult for your brand to be recognized. But this is nothing you can’t counteract if you use good packaging strategies.
- You don’t know your customers: You will know absolutely nothing about your buyers due to Amazon’s restrictions. You won’t even be able to get their email, which would help you with your marketing strategies.
How to Get Started with Amazon Retail Arbitrage?
Here, you will find out about the 4 steps necessary to start a successful arbitrage business on Amazon. Here is the step-by-step process:
- Create an Amazon seller account
- Download the Amazon seller app
- Buy the right products
- Sell these products on Amazon
1. Create an Amazon seller account
If you want to make money on Amazon, you need to create an Amazon Seller Account. This point is pretty uninteresting, but there are a few things to consider.
First, go to the Amazon website. Next, you must decide whether you want to set up a professional seller account or a basic account. Here’s the difference:
- Sell less than 40 items per month
- No monthly subscription fee
- Referral fees: €0.99 per item + normal referral fees
Professional seller account:
- Sell more than 40 items per month
- Monthly subscription fee: 39€
- No €0.99 fee per item
- Normal Selling Fees
If you can afford it, we recommend that you get a professional account. If you can’t afford it, create a basic account, but upgrade to a professional plan as soon as you can afford it.
In addition, you should have the following documents available:
- Business license
- Proof of identity
- Bank account
- Credit card
- Valid phone number
Set up your account and go to step 2.
2. Download the Amazon Seller App
After creating your Amazon account, you need to download the Amazon seller app. With this app on your phone, you can go to the retail store and scan the barcode of the products you want to buy. It shows you how high the price is on Amazon and how many fees you have to pay for it.
3. Buy the right products
In the meantime, you’ve laid the foundations for your arbitrage business on Amazon. The hard part is done. You’re one step closer to your first sale. But laying the groundwork isn’t what really gets you ahead.
If you can’t find suitable products, it will be ten times more difficult for you to close your first sale. Anyone who is successful with retail arbitrage spends a lot of time finding good products. So, once you’ve got the basics down, it’s time to start looking for products.
If you’re looking for good products, the first thing you need to do is: look for places to buy them. In addition to chain stores like Walmart and Lowe’s, these are the places that are worthwhile for retail arbitrage:
- Closeout sales
- Bankruptcy settlements
- Hardware stores
- Wholesale markets
- Flea markets
- Remainder sales
- Factory outlets
When you’re in one of those places, you can open up the Amazon Seller app and scan as many products as you can. If you find a suitable product, buy it. It’s that simple. But which products are really suitable?
Basically, there are three things to consider when choosing a product:
- Whether you can sell the product
- The BSR of the product
- The estimated profit
4. Sell your products on Amazon
When you’re ready, all that is left to do is list your product on Amazon and sell it. You can use the FBA service to sell on Amazon or ship your product yourself.
However, we recommend using the FBA service because it will save you a lot of time. When it comes to retail arbitrage, you should spend your time researching products, not packaging them. So, use the FBA service if you want to save more time and make more money faster.
Anyone who has always toyed with the idea of starting their own business can start their own business relatively quickly with the Amazon FBA plan. Building your own business is rarely easy. It requires the investment of money and labor.
Starting an Amazon FBA business is beneficial because you work within a marketplace with millions of customers to offer your products. In addition, market entry is remarkably flexible. Founders can start with a side business and then scale their online shop to their main job. All in all, selling on Amazon and having your products shipped by Amazon can therefore be a very promising option to build up your own business and even start your own company.