Retail arbitrage. You may have heard the term but still struggle to get your head around what retail arbitrage actually means. Don't fret - in this guide, we will go over what retail arbitrage is, how to perform retail arbitrage across just about any marketplace, which industries and niches to focus on, and whether or not this is still worth doing today.
What is Retail Arbitrage? 🛒
Retail Arbitrage is just a fancy way of carrying out the most elementary of all business concepts out there: Buy low, sell high.
Let's break the term down:
➡️ Retail: The retail portion means that in most cases, you are purchasing goods from a public marketplace at what you would consider to be the lowest price available.
➡️ Arbitrage: Arbitrage in the financial sense is simply reselling an asset in a marketplace which it is more valuable, so this can be done in the crypto and traditional trading markets.
With retail arbitrage, you are taking advantage of the knowledge or availability discrepancy between different online marketplaces. When done well, retail arbitrage can be a great way to learn ecommerce basics without having to put any effort into the unique marketing of the product. This is because you are selling brand names that already have established demand, often on platforms that are quite popular already.
However, as with anything, there are risks. The risks of retail arbitrage include being stuck with inventory that has dropped to a price below cost. If this happens, you are at a net loss. In addition to this, the legal aspects of retail arbitrage can be confusing as well.
Keep reading to further understand what retail arbitrage is, where to practice it, how to gain a competitive advantage, and decide whether or not retail arbitrage is right for you.
Where to Perform Retail Arbitrage as a Seller
Firstly, you will need to have access to two sides of the marketplace in order to execute retail arbitrage fully. These are the buying and selling sides.
Arguably, the most important side is selling. Without selling, you will be stuck with inventory you can't shift, and so will not be able to generate revenue or profits.
Then, there is the buying aspect. It is critical to be a strategic buyer if you want to compete in the RA world. Ideally, you will buy from an overlooked or limited opportunity marketplace, and sell on a well known platform. However, performing the reverse is possible - and sometimes the better strategy.
Here are some marketplaces that you can execute retail arbitrage on:
- Strong consumer base which means high volume if you get the buy box
- FBA makes for hands off fulfillment of orders
- Extremely competitive
- Account requirements to be 'cleared' as a seller
- Potential for price fluctuation
- High fees
When you think of retail arbitrage, many associate the term with Amazon. Although there are many retail arbitrage sellers on the platform, one should approach with caution and realize that many of the big players are dominating brand name products, and so may have access to bulk deals that make the items profitable only for them.
After all, on Amazon, there is only one Buy Box - that is, the item of the lowest price - in which case the seller of the item gets to move their piece of inventory, while all others sit.
Additionally, Amazon has a gating process: they don’t let just anyone sell brand name products like Nike or Colgate. All new sellers must first be cleared, or ungated, to sell the product. This often means submitting wholesale invoices in addition to already having been selling on Amazon for a certain amount of time.
So, because of the competition and requirements, performing retail arbitrage on Amazon as a seller is high risk, particularly because of the race to the bottom to get to the Buy Box which might have you sitting with piles of inventory that you may end up liquidating for a loss.
One positive that is unique to Amazon is their Fulfillment By Amazon (FBA) program, which is a seller’s dream in terms of inventory management. You simply ship your products in a prepaid label in bulk without having to worry about organizing or separating, and they fulfill each order individually. However, if you decide to go the FBA route as an Amazon seller, you’ll be met with fees that will cut into profit margins significantly: in addition to a selling membership of $39.99 per month, overall FBA selling fees sit at around 33%, which is 3x the industry standard of about 10% for most secondary marketplaces.
As a buyer, it could be possible to source an item on Amazon, as the price is often more competitive than other marketplaces, but opportunities like this are rare and would require quite a bit of manual research to find.
- Easier to sell brand name items in multiple categories without requirements
- Less competition, more room to find a niche in buying and selling
- Established without being overly saturated throughout
- Lower fees
- Not as much volume, declining user base
- Lower user trust in some cases for brand name items
If you’re just starting out with retail arbitrage, eBay may be a great place to look as both a buyer and a seller. With the spotlight on Amazon and big box retailers, you can fly under the radar and find hidden gems that will allow for profitable opportunities on eBay on both the buying and selling side.
Unlike Amazon, the requirements to sell brand name items on eBay are minimal to none, especially if you’ve already established a seller history. You can establish a seller history easily by selling a household item.
Retail arbitrage on eBay is more beginner friendly also because it requires less up-front commitment and isn’t as cutthroat as Amazon. You can more easily test out single items without having to commit to getting ungated or worrying about a buy box. Even if you don’t have the lowest price, buyers can consider you if you have better pictures, a more trustworthy reputation or faster handling time.
eBay, however, isn’t perfect. The user base is declining and has been for a number of years now, with Amazon continuing to expand its monopoly and stronghold on online shopping behavior, especially with the younger generation. Additionally, a reputation for fraud and fakes exists on eBay more so than Amazon, especially for brand name items.
- Emerging Walmart Plus marketplace that could mean an opportunity window for new sellers
- Competitive fees that are lower than Amazon
- Clearance items can be a good source for selling elsewhere
- Difficult seller application and onboarding process
- Not as much consumer awareness
- Still too early to know if Walmart Plus can gain meaningful traction
Walmart is continuing to close its physical locations nationwide, but it is doing so to preserve its cashflow and to focus on ecommerce.
It may not be common knowledge, but in addition to the brand selling items itself directly to consumers, third party sellers are able to list items on the marketplace and take advantage of the broad reach that the mega retailer has. As such, it is possible to perform retail arbitrage on Walmart as a seller.
The market cap of Walmart in late 2023 sits around 400 billion, which is just a fraction of Amazon’s whopping 1.3 Trillion. Still, the brand, which has been around nearly 40 years before Bezos’ empire opened shop, is waging war against the giant - most specifically with a Prime alternative.
Walmart Plus is an alternative to Amazon Prime. It was birthed in September 2020 during the boom of the increase of online sales - perhaps the most strategic time to launch.
Press and traction didn’t reach far, as many have still never heard of it, and in 2023 the membership to Walmart+ sits at only around 11.5 million compared to Prime’s user base of over 200 million.
Plus, just like with Amazon Prime and its FBA program, sellers can sign up to Walmart+ as a seller and enjoy its Walmart Fulfillment Services (WFS) program for inventory management and fulfillment.
One good thing about Walmart being smaller is that there is far less competition: the platform has only about 50,000 US sellers as opposed to Amazon’s 500,000+. However, the process for signing up as a seller is perhaps more complicated than any other marketplace, with strict business requirements including having a proven track record as a seller elsewhere. You also have no choice but to sign up for WFS as a seller on Walmart, which has its own onboarding process and rules to understand.
If your goal is retail arbitrage selling on Walmart, you’ll enjoy straightforward and reasonable fees with WFS, which charges no monthly membership. However, you will be charged a fixed monthly storage fee which is based on cubic feet. On top of this are the selling fees, which are competitive compared to Amazon. Walmart’s clearance rack in person can be a good source for inventory to resell on eBay or Amazon FBA.
The overall verdict for selling on Walmart is mixed, but if you already have an established channel and a unique product at a good price, you may want to place your bets on Walmart+ sticking around - at least enough for you to maintain a profitable business with it.
- All the perks of selling in person: No requirements, ability to haggle, immediate access of funds
- Ability to ship while reaching a targeted local audience
- Less competition, especially for unique items
- All the risks of selling in person: Risks of robbery/fraud, inability to reverse a transaction
- Unreliable resource, luck and a lot of browsing required
- Depending on the city you are in, it may not be active or too saturated
Facebook may be the last place you think of in relation to retail arbitrage, but may resellers favor its Marketplace as a channel for finding both customers and inventory.
Transacting in person may be considered a long lost art form for some, but the benefits are many. Unlike all other platforms, no signing up is required apart from having a Facebook account, so listing any item (apart from illegal or unsafe items) is as easy as taking a picture and writing a description. You’ll be able to hone your negotiation ability, a critical skill for an entrepreneur in any niche, and you will be paid on the spot in your currency and method of choice.
However, selling in person can be dangerous, so be smart about where, when, and with whom you meet up with. Make sure to check the profile and reviews of who are meeting with - Facebook Marketplace, in addition to showing the profile of the seller, has a reputation and rating system that allows you to sus out anyone who isn’t worth dealing with.
You can also ship items on Facebook Marketplace, and in doing so, reach a local audience that might not see many other competing products in that niche. It is because of this that some choose Facebook Marketplace as a place for dropshipping in addition to retail arbitrage.
Finding Profitable Retail Arbitrage Opportunities as a Buyer 🤑
Competition is fierce in retail arbitrage since the business model has no need for marketing. That aspect is already handled, both by the brand you are reselling and the platform you choose to sell on. Thus, in order to fare well, you need to have a good method of finding opportunities as a buyer to keep your inventory profitable and replenished.
In addition to the platforms we mentioned in the previous section, all of which you can use to potentially find inventory, here are some places you can find inventory for retail arbitrage:
Browsing the clearance sections for personal use is a habit that is ingrained in all of us. But have you considered that the reason you might buy something that is deeply discounted is because you would have happily paid more? This is the core tenant of why retail arbitrage works.
If you are approved to sell a certain item that you know has a high demand, seek it out on clearance. Groups like Price Errors and Frugal Season have been known to push insider deals or wild discounts on brand name products across multiple well known retailers, that you can use for a sourcing retail arbitrage inventory.
One of Amazon’s core operational tenants is to have zero waste. Because they also get so many returns that are sometimes unable to be resold, part of its business model to help move inventory and free up warehouse space is to sell its returns in bulk to resellers.
Retail arbitragers are some of the biggest customers of return pallets of all kinds. Reputable websites where you can buy return pallets from retailers including Amazon and others include Liquidation.com, BStock.com, and Directliquidation.com.
Keep in mind that sometimes the condition might be open box or damage may occur, which will affect your ability to price the item well or sell on certain channels. eBay and Facebook Marketplace are the best places to sell items of any condition.
When a store goes out of business, whether due to bankruptcy or any other change, they will liquidate their inventory. You’ve probably seen a local store going out of business with liquidation signs all over the window. Next time, if you know the store is selling brand name items, go in and check out the prices and compare them to what they’re selling for online, taking into account any platform and shipping fees when estimating profits.
Larger businesses follow this same model but have more discreet distribution, and even if they’re not going bankrupt, they’ll move inventory through different B2B methods. They will send inventory either to discount stores like Ross Dress for Less, or to wholesale websites like GovDeals.com.
If you’re able to get directly in touch with any company going out of business or have a lead on recent Chapter 11 or 13 bankruptcies, you might be able to score a lucrative off-market deal.
Perhaps the most consistent way to get bulk inventory is to have a relationship with a wholesaler of a brand or the brand itself as an independent distributor.
However, using this channel for retail arbitrage distribution is for the advanced. It takes a large budget and a unique relationship to secure, and often you will be fighting with a party that has more money or a better relationship with the brand than you probably do.
Optimizing and Scaling Your Retail Arbitrage Business 📈
To conclude, if you have read through this guide and feel like retail arbitrage is a business model that you’d like to pursue, remember these key points:
- Familiarize yourself with all of the marketplaces and pick a platform to start selling on
- Find and establish your niche and product opportunity by comparing prices of an item across different platforms and calculating a profit margin
- Once you have a winning product, continue to buy as much as you profitably can.
- Use software such as Tactical Arbitrage or Invisible Hand to find opportunities and JungleScout or Helium 10 to conduct competitive research
- Keep an eye on your inventory movement, liquidate to profitably reinvest if necessary
- If everything is going smoothly and you want to scale, consider expanding to other marketplaces or adding more product
- Consider joining a reselling community that discusses retail arbitrage
Is Retail Arbitrage Legal?
Retail arbitrage is legal in the US and the UK as it has been ruled that retailers cannot prevent individuals from reselling their product so long as they have purchased through legitimate means. However, Nike recently passed a rule stating that they can cancel any orders that they consider to be made strictly for resale. So keep up to date and ensure compliance with laws and regulations related to your locality and the specific product you choose to sell.
To ensure you are in the clear in the legal realm, make sure to have any licenses necessary. Also ensure that you are sourcing ethically and legally, and that you aren’t violating any intellectual property terms. Consult expert advice if you have any doubts.
Where is the Best Place to Perform Retail Arbitrage?
While there may be ideal places to source for individuals, it’s impossible to make a general statement of which is best. You will have to craft a unique strategy and a competitive advantage so that you can carve yourself a profitable slice of the retail arbitrage pie which gets crowded every day from new sellers joining and current sellers expanding.
Refer back to this guide to have a handy summary of all the top places that you can do retail arbitrage.
What are the Risks of Retail Arbitrage?
The biggest risk of retail arbitrage is buying inventory that is impossible to sell for a profit, and either being stuck with it or having to liquidate for a loss.
Some people on social media may be flexing their RA income, or may make it seem easy, but realize that their incentive may be to get views and gain revenue from that or from a course. In fact, the rise of many retail arbitrage themed influencers might be a sign that the opportunity is fast closing.
So don’t jump into retail arbitrage just because you found someone flashing their revenue online. Understand that you can easily lose money, or worst case, get a cease and desist letter from a company. Be a conscious consumer and do thorough vetting before you might buy a course as well, as this guide alone should give you a broad and actionable overview to go off on your own.
How Does Retail Arbitrage Compare to Other Business Models?
Unlike building a product from scratch, retail arbitrage rides the coattails of the hard work that brand name companies have already done to create a useful product and to establish demand. It also piggybacks off of existing platforms and their marketplaces.
For this reason, retail arbitrage, or even reselling in general, is a good way to practice basic business for those who have never done anything entrepreneurial. With retail arbitrage you will still have to perform business processes like customer service, market analysis and competitive research to generate profits.
Is Retail Arbitrage Right For Me?
If you’ve read through this entire guide and feel compelled to give retail arbitrage a go, by all means, go for it! However, make your goals clear and concrete so you know whether or not to continue. Also, start small and scale from there. For example, make a goal of finding and selling one single profitable flip at first with a target profit margin or dollar amount in mind, and choose one platform to sell it on. If that exercise goes well, you’re in the rare group of people that have found a winning product, so scale from there if you’ve enjoyed it - hopefully it will be the start of a fulfilling and lucrative venture.
👉 If you want to learn more about retail arbitrage from experienced resellers, check out Whop's reseller communities. Or, if you happen to have unique industry knowledge, consider becoming a seller on Whop yourself - here you can reach an audience on our marketplace and share your skills, while making money!
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