How to Effectively Handle Retail Arbitrage on Amazon in 2022
Retail arbitrage on Amazon is a low-risk business method, and it is suitable especially for beginners who want to start selling. Because retail arbitrage on Amazon doesn’t require massive investments to get started, it is an excellent way to make money online.
This blog will take a look into what retail arbitrage is on Amazon and how you can create your successful Amazon business with retail arbitrage.
Table of Contents
- What Is Retail Arbitrage on Amazon?
- Is Retail Arbitrage on Amazon Legal?
- The Opportunities and Obstacles of Amazon Retail Arbitrage
- How to Get Started with Retail Arbitrage on Amazon?
- How to Source Products for Retail Arbitrage on Amazon?
- Tips for a Successful Retail Arbitrage on Amazon
What Is Retail Arbitrage on Amazon?
Retail arbitrage is a reselling form where the seller takes advantage of a price difference between two or more markets. In other words, retail arbitrage is buying products from retailers and selling them on Amazon.
However, reselling does not necessarily need to happen only from physical stores. Some arbitrage sellers find products online and create Amazon listings for a higher price. Therefore, the process called ‘online arbitrage’ is basically the same.
Note: Amazon resellers’ profits come from price differences, and sellers take advantage of this. For instance, if there is higher demand in specific areas or regions, the same product’s price can vary.
Is Retail Arbitrage on Amazon Legal?
Reselling products sounds appealing, almost too good to be legal. Retail arbitrage’s legitimacy is one of the biggest concerns for beginners. Fortunately, there is a simple answer to this question: retail or online arbitrage is perfectly legal, at least in the US. More precisely, the US Supreme Court states that retailers can’t stop anyone from reselling the product if the sellers legally obtain the merchandise.
However, even if you have the right to resell the item, there are some requirements regarding the condition. The product’s condition must be unchanged, so sellers must sell the new product in a new condition. Retail arbitrage sellers face many challenges even though it is legal, and some brands are unhappy with you trying to benefit from their product.
The Opportunities and Obstacles of Amazon Retail Arbitrage
Retail arbitrage on Amazon has some significant benefits over other Amazon business methods such as lower risk earning and lower starting costs. In the following, we have brought a list of pros and cons:
Lower Starting Costs
Starting retail arbitrage on Amazon does not require enormous capital or massive investments. You can start with as little as a few hundred dollars. Testing the market demand for those products won’t be a huge financial loss since the amounts you buy directly from the suppliers are small.
Because you acquire your stock through retailers, starting the business is faster than other Amazon business models. However, keep in mind that you should invest some time in research and product hunting.
Since you already source branded products from the retailers, arbitrage is an excellent way to earn some income quickly. Additionally, it is one of the fastest ways to make profits on Amazon and experience the platform.
However, like any other business model, retail arbitrage on Amazon also has its cons. The biggest drawback is that it is an unscalable model with Lower Margins.
Naturally, the retailers also cut the price before putting it on the shelf. Therefore, as a reseller, your profit margins are lower than businesses that directly source from a manufacturer. For this reason, retail arbitrage is not a scalable business model.
If you wish to expand your Amazon business in the future, you need to start sourcing from manufacturers and suppliers.
Amazon’s Brand Registry gives private labels control over their listings and protection over Amazon hijackers. Retail arbitrage on Amazon is not hijacking, in which the thieves copy the whole brand and product. However, arbitrage can be a risky model if you sell brand-registered products without approval.
As a consequence, Amazon may suspend your account temporarily or permanently. Before listing your product, before listing it, always make sure your product isn’t part of the brand registry.
How to Get Started with Retail Arbitrage on Amazon?
Now you know how retail arbitrage on Amazon works, and the next step is to learn how to get started.
Setting Up an Amazon Seller Account
The first step is to create an Amazon seller account and choose the selling plan that suits your business the best. The account options differ in benefits and selling fees.
An individual selling plan is free, but you have to pay a $0.99 ‘’per-item fee’’ or a commission fee for every sale you make on Amazon. This model is practical if you sell less than 40 items per month.
A professional selling plan has a monthly subscription fee of $39.99 in addition to Amazon’s commission and possible closing fees. It is a bit more expensive but comes with more benefits. For example, you don’t have to pay an additional ‘per-item fee’ from your sales.
Additionally, your listings are eligible for the Buy Box and restricted categories.
Select A Shipping method
After setting up your Amazon seller account, you need to decide whether to fulfill your products yourself (FBM) or let Amazon handle the logistics and customer service Fulfillment by Amazon (FBA).
How to Source Products for Retail Arbitrage on Amazon?
In retail arbitrage on Amazon, you’re looking for a great deal on a product that you can turn into profit. Sourcing products online is an option, but most resellers visit local retailers. However, searching for products can be time-consuming, especially for beginners who lack experience.
For this reason, there are a few tricks that make your retail arbitrage expedition successful. First of all, you should narrow down your targeting to two or three stores initially. For example, Walmart, Target, and Homegoods are popular destinations.
After deciding the stores, you should focus on looking for products during clearance sales. This move gives you the best chance to gain the most profitable listings for Amazon.
Scan the Item with Amazon Seller App
However, just because the item is on sale does not mean it’s a profitable idea for retail arbitrage on Amazon. While sourcing products, sellers use the Amazon Seller App to determine whether they should purchase the item. It is a smartphone app that scans product barcodes and lets you see real-time prices and product listings.
You can calculate the possible profits instantly on the store. Just make sure you consider the shipping and other Amazon selling fees before making your purchase.
What If the Product Is Restricted?
While scanning the products, you might sometimes find products you can not sell on Amazon. These restrictions apply to gated brands or gated categories. Most sellers would just put the item back on the shelf, but there is a way to get access.
If the product is profitable, you can apply with Amazon to get yourself ungated. Moreover, after a few months of experience under your belt, Amazon trusts you more, and you might get them automatically ungated.
Create an Amazon Listing for Retail Arbitrage Products
Once you’ve found the product you want to sell, it’s time to create a product listing on Amazon. Since the people involved in retail arbitrage on Amazon are not a manufacturer or private label sellers, they don’t make a new listing. Instead, you need to find the product’s current listing and add that ASIN to your catalog in Seller Central. If you’re unsure how to do this, read this detailed guide.
After adding the product to your seller account, you can start selling. Optimizing your listing and keeping your prices competitive is a great way to boost sales.
Keep in mind that most Amazon sales take place through the Buy Box. Therefore, you might want to invest in an effective Amazon repricer tool that automatically adjusts the prices. This way, you win the Buy Box with the most profitable price.
Tips for a Successful Retail Arbitrage on Amazon
Finding success in retail arbitrage on Amazon requires hard work, but it is a valuable learning opportunity. Once you get the hang of it, you can move on to private labels, for example, to expand your Amazon business. But first, here are some tips to help you become a successful reseller.
Look at the Product’s Sales Rank
Sales rank is one of the most important metrics for analyzing products for retail arbitrage on Amazon. Best Sellers Rank (BSR) indicates how well the product sells compared to other products in the same category.
The lower the score, the better it sells in sales volume and historical sales data. However, a good ranking varies between categories. Generally, any BSR under 10,000 sells well, and you should avoid products above 200,000. Anything in between is considerable.
Check Customer Reviews
Customer reviews can be a good indicator of how frequently the product sells. Even if buyers are satisfied with the product, they rarely leave a positive review. Therefore, if the product has a good rating and many reviews, the chances are it sells more often.
However, you shouldn’t be scared of negative reviews for the same reason. Buyers are much inclined to express their dissatisfaction. See the reason for the negative review and make your purchasing decision based on that. Try to take action based on comments.
Sell Discontinued Products
Sometimes companies stop producing a specific product or a brand, leaving the fans heartbroken. Many see a lot of effort going through stores and online sites to experience their favorite product one more time. Some are even willing to pay a significant sum to find discontinued products.
If you can get your hands on these items, there is a massive demand and a big chance for retail arbitrage on Amazon and turning these products into profit.
Consider Trends and Seasonal Products
A great way to source products is to find out trending or seasonal items that sell more during a specific time of year. Pay attention to the holidays, seasonal changes, and major events that may change the market demand and consumer behavior.
Be Patient And Gain Experience
Going from one retail store to another, scanning items, and estimating profits can be tedious from time to time. However, if you keep going, you will eventually become more efficient and find the most profitable products to sell on Amazon.
The key to success in reselling is to look for new products to list on Amazon. Even better if the products are on sale constantly. However, counting on discounts is a very luck-based method for retail arbitrage on Amazon. Instead, focus on product research, optimize your listings on Amazon, and develop a well-thought Amazon pricing strategy for retail arbitrage.
There is plenty of competition on Amazon, and the same item might have hundreds of other sellers. Typically, you have to wait until other sellers are out of stock to get sales if you match the price. Alternatively, you can lower the price but cut your profit margin. However, there is a good idea for resellers to increase profits without just pricing lower than the competition.
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