Have you ever wondered why there’s a person in your local Target pushing a shopping cart with six plasma screen TVs inside? Or why another person seems to be obsessively analyzing every product in every aisle? No, they aren’t crazy – they’re just practicing retail arbitrage. What is retail arbitrage? Retail arbitrage has become increasingly popular among burgeoning entrepreneurs looking to make a profit on Amazon, eBay, or through other channels. Continue reading to find out what exactly retail arbitrage is, and why it’s such a big deal right now.
What is retail arbitrage?
Retail arbitrage is the practice of buying items from retail stores like Walmart, Target, Best Buy, and others and selling them for more than you paid. It’s basically the same as flipping a product. Many people will also flip products from lesser known stores or even local garage sales.
When is it beneficial?
Being successful at retail arbitrage can be difficult since you’re competing against big stores. These stores are keenly aware of what a certain item will go for in the market. They’ll make sure to price it accordingly, making it harder for you to make a sizeable profit. Retail arbitrage is most profitable when a store is advertising exceptional deals, for example on Black Friday or on certain holidays (Columbus Day, Labor Day, the week of Christmas, etc.) You’re going to have greater margins if you’re able to buy low and sell high.
How do I know what items to buy and resell?
Maybe you’ve noticed people in stores scanning product barcodes. You take a closer look and realize they’re not employees. So what are they doing? These people are probably using an app like Scoutify, Amazon Seller, or Profit Bandit to estimate the item’s worth and the profit they could earn reselling it. While each app differs in its interface and usability, the favorites among sellers tend to have the same basic functions. Such functions include the ability to calculate your profit, highlight FBA offers, indicate the total number of offers from other sellers, and show the product’s popularity ranking.
It’s crucial that you use an app like the ones mentioned above when selecting your inventory. Buying without knowing your return on investment would be like shopping while blindfolded. Take a look at this side-by-side comparison of the Scoutify and Profit Bandit apps to give yourself an idea of how they differ and can benefit your business.
Keep in mind that you’ll have a much more difficult time selling products also sold by Amazon. Steer clear of these as Amazon’s algorithm will almost always play in their favor.
Is it legal?
Yes, retail arbitrage is in fact legal. The U.S. Copyright Office’s First Sale Doctrine states, “a person who buys a legally produced copyrighted work may ‘sell or otherwise dispose’ of the work as he sees fit, subject to some important conditions and exceptions.”
Note the “important conditions and exceptions” part of this quote. While retail arbitrage is legal and practiced widely, there are still scenarios where you could be asked to stop selling a product or be banned from shopping at a certain store.
According to a column published on Entrepreneur.com, selling under the table could invalidate the warranties provided to the first consumer. You are more at risk of doing this if you’re trying to create a business out of reselling online.
It’s also possible to violate trademark rights by using the manufacturer’s logo as a method of advertising. This could result in a trademark infringement lawsuit. Another issue that could arise involves sales tax. In addition to personally paying the sales tax on the item you bought from a retail store, your customer will have to pay the same fee when they buy from you. Forgetting to collect sales tax could leave you with a big bill depending on how much you sell.
And of course, Amazon provides an extensive list of products that are restricted from being sold online. Attempting to sell previously recalled items, weapons, alcoholic beverages outside of pre-approved wine sellers and unregistered pesticides will get you in big trouble with Amazon, and could result in your account being permanently deactivated. Take a look at Amazon’s restricted products page as well as its terms of service to avoid potential issues with Amazon or manufacturers.
Why retail arbitrage is such a big deal right now
Retail arbitrage is such a big deal because it gives ordinary people the opportunity to sell products that are familiar to the general public. There’s more than one way to do this, too, as you can sell items anywhere from Craigslist to Amazon and even garage sales. It’s also proven to be very profitable. Some people end up making this a full-blown business.
Take a look at this story for example. After realizing retail arbitrage was more profitable than he originally thought, this seller quit his 9-to-5 job and started reselling items on Amazon as a full-time gig. While there were certainly some bumps along the way, he and his partner ended up making $76,000 in sales in seven months. This shows that retail arbitrage can be much more than just a hobby.
However, keep in mind that sales are different from profit. To calculate their profits, you’d need to subtract the expenses for inventory, the initial cost of the product, and shipping and then divide the result between two people. While that might equate to a healthy profit for some, for others, it might not be worth giving up their current salary.
Popularity and misconceptions
Retail arbitrage is also popular simply because not everyone knows what they’re getting themselves into. Considering the story above, potential sellers may get a skewed representation of how it works. They may not stop to consider actual profits or how much work is required. Many people will jump at this opportunity because they want to get rich quick. But just remember, if success in retail arbitrage was easy, then why haven’t more people jumped on the bandwagon yet? Trust us, it’s not because it’s a well-kept secret. Rather, retail arbitrage requires a lot of hard work and commitment. You’ll also need a surplus of cash to start your inventory and get you through the months before you see a real profit.
Will retail arbitrage be your next venture?
Retail arbitrage can be a huge benefit to your business on Amazon or other e-commerce platforms. Keep in mind that this isn’t a get-rich-quick scheme, as there will be many bumps and unexpected setbacks on the road ahead. Take a look at our guide to the best products to sell on Amazon FBA to give you a better idea of what to look for on your treasure hunt.