So, if you are reading this, you have probably heard of all the wonderful things that can be achieved through Amazon FBA. You have probably daydreamed many-a-time after having read some Amazon FBA sellers rags to riches success story. Maybe you’ve marveled at the relative ease with which they seemed to accomplish it.
No one can blame you for wanting to jump into the Amazon FBA game head first yourself. However, starting an online selling business can be a tricky and daunting venture. The concept itself of selling through purely online channels where you have no direct customer contact or physical stores might seem strange and risky.
Being the cautious person that you are, you might want to find a way to jumpstart your Amazon FBA business using the easiest, cheapest, fastest, and most proven method.
Private labeling is attractive since you can sell your own branded products but you will most likely need to take on risk by sourcing from overseas suppliers, not to mention importing the goods. Furthermore, you might not have a killer product idea of your own. Even if you do, you’ll need an indeterminable amount of startup money and time with no guarantee of success.
Retail arbitrage is one of those methods that seem to provide an answer to all those concerns and that’s the reason we want to talk to you about it today.
What is retail arbitrage?
Retail arbitrage is actually a very fancy term for a very simple business model. What basically happens is that you find sales on items from local retail outlets that are priced lower than the same items on Amazon. You then buy as many of these items as you can (or want) and sell them online. Easy, isn’t it?
But hold on! If it’s so easy and if they are selling them at lower prices, why aren’t these stores selling it online themselves? Very astute question.
Why does it work?
The main reason is that Walmart and other similar retailers are streamlined to operate the way they do. Products are meant to travel in one direction and that is from their source (shipping centers) to stores and then into consumers hands. This one-way traffic is an essential element to their success.
The thing is that we humans aren’t quite that universal in our likes and dislikes. What sells amazingly well in one location might perform very poorly in another. Since Walmart tends to stock items that sell extremely well, they can’t always account for this discrepancy beforehand.
This could lead to a store in one region not selling enough of their stock whilst they sell like hotcakes in other locations. This stock needs to be cleared off at some point to make room for items that DO sell. As they say, hindsight is 20/20. But once you are stuck with products that don’t sell, it’s better to get rid of them, even at basement prices.
Fulfilling these other functions of redistributing products to other locations would cost extra time, money, and effort. They would have to hire new employees and implement new processes that don’t fit in with their founding principles.
Why it also works with online retail
Another way you can find products for your retail arbitrage business is to buy from other online stores and marketplaces and then sell on Amazon. Remember that Amazon has a huge Prime membership in addition to their status as the biggest and most used online marketplace. This means a lot of people don’t bother to check other sites or stores. It’s also a common assumption that you won’t find prices as cheap anywhere else which further fuels their traffic. Additionally, free 2-day shipping is enough to persuade someone to purchase from Amazon over another online store. After all, Amazon has some of the most competitive shipping rates and service there is.
Benefits of retail arbitrage with Amazon FBA
You work with proven products
Because of how large retail outlets such as Walmarts work, they only stock products that are proven to have a huge market and that usually sell at a fast pace. These stores survive on very fast turnover of inventory.
You can take advantage of this as most of the “market research” has been done for you. Of course, it doesn’t hurt to do some extra research to see how the product sells online and how likely people are to purchase the said product from an online marketplace. Some people are skittish to have fragile products shipped to them, for example.
Quick turnover of products
You can literally buy and start selling products within a matter of hours. It takes a very short amount of time to set up an Amazon seller account and the process to create and post listings is also very straightforward.
This means that you can literally go shopping, drive home, create listings for each of your products, and start to sell them. Creating listings shouldn’t take you more than a few minutes per type of product.
No customer support
This is another great benefit of Amazon FBA, maybe even the biggest. Amazon handles all customer care after the product leaves their warehouse. This includes handling returns and shipping problems since it’s them handling it.
One of the biggest problem that small sellers have is handling customer support as well as their usual business functions. You would be surprised how much time this can take up.
Very low effort
This is probably the lowest effort-to-payout method to selling on Amazon FBA. You don’t need to do particularly hard work sourcing products, you don’t have to deal with any tricky importation and shipping to you, you don’t need to have or run your own store, and once you send your products to an Amazon Fulfillment center, you are pretty much off the hook already.
This also makes it a great way to get to grips with online retailing if you have larger ambitions. Even if you make only a modest profit, it also came at a modest amount of effort.
How does it work?
Alright, now that we got all of that out of the way and you have a very good mental picture of what your retail arbitrage business could look like, let’s see how it actually works from start to finish.
Once you’ve read these steps, you will just see how ridiculously easy it is to run a retail arbitrage business and you can even try it for yourself when you have some spare time. All you will need is a few hours!
Inform yourself of Amazon’s costs and fees
There is no way that you can jump into any business venture without an idea of your costs breakdown. How else can you hope to estimate a profit and proceed securely?
This is also important so that you understand why you make what you make and why some charges are made to your account. For example, Amazon has a base “sellers-fee” charged on all products that vary slightly by category. Most are 15%.
Many people are also confused by how shipping works. What happens is that Amazon charges the customer for shipping, this amount is “credited” to your account, and then this credit is used to pay for your fulfillment fees. Sometimes it could lead to you paying more fulfillment fees than the shipping credits and vice versa.
You should also know about returns fees, unplanned services fees, and removal fees. Keep in mind, there is a monthly storage charge with extra penalties if your items have been in storage for more than 6 months and more than a year.
This is arguably the most tricky part. You’ll need to know when items tend to go on sale. And you’ll need to stay on top of the latest news from all of your local retail outlets. If they have any email lists on which they regularly communicate sales to their customers, you should subscribe to these and keep checking them regularly. As we mentioned before, big outlet brands such as Walmart should be your first port of call.
Even if you just walk around the mall, you should keep your eyes and ears open. If you spot a fantastic deal in a clearance sale or something similar, you can quickly do a price check on Amazon, gauge the product’s success, and buy them. Like almost any type of online store, your success depends largely on your ability to adapt and keep an open mind to any new opportunities.
Create an Amazon seller account
It’s extremely simple to create an Amazon seller account. If you already have a normal Amazon account, you will be spared extra time as your basic information will already be filled in.
The first thing you need to choose is which kind of account you want to make. There are two options:
- Individual seller account: This account is totally free to create, you only get charged $0.99 per product you sell! That means you can start completely free and only get charged once you actually make some money. Zero commitment to fees unless you make money means this is an excellent option for wary beginners.
- Professional seller account: This account gives you access to unlimited sales for $39.99. If you do some quick math, you will see that this type of account is more economical if you sell more than 40 items. However, you need to commit to a $39.99 fee every month, whether you make any sales or not.
You will then only need to fill in some basic payment and billing information and you are on your way!
List your products
Listing products on Amazon is super easy. The first thing you should do is search for the exact product you want to sell. In 99.99% of cases, someone is already selling that kind of product. Hopefully, you have already done this but you can now check the prices and try to come up with a competitive one that will still make a profit.
You can then click on “Sell this product” and create your own listing. If the product does not exist, you can easily create a listing from your seller account page. Remember to fill in all details as accurately as possible to avoid angry or disappointed customers as this can result in bad reviews that hurt your future sales.
Ship merchandise to Amazon FBA center
Unfortunately, Amazon does not as yet provide services to pick up products from you and take it to their fulfillment centers themselves. However, you can sign up with many carriers that are affiliated with Amazon which offer shipping at reduced rates, such as UPS. Amazon centers are located everywhere which means that there should be a center near you. In turn, your shipping costs should be very low.
Once you have done this, your part of the business has run its course. You can now sit back and relax as Amazon’s comprehensive and leading fulfillment infrastructure takes care of the rest.
Amazon also provides extensive tools to help you monitor and track your inventory, view your profit and cost breakdowns, as well as notify you of any movement in your merchandise. It’s very rare to feel isolated or like you don’t know what’s going which is absolutely essential.
Get your FBA business moving forward with retail arbitrage!
The main thing we want you to take away from this article is that you can start experimenting with retail arbitrage right away! If you find a good sale and you are patient, you should at worst come out the other end even in terms of money.
Retail arbitrage is so simple and low-risk that there is absolutely no excuse if you get wet lips at the prospect of starting your own online selling business. We hope that this guide helps to light your way! If you’re more interested in creating your own private label, read more here. Good luck and happy selling!