One of the most common questions we receive from new sellers trying to set up Amazon businesses at the Amazon Copywriting Brothers is whether or not we think retail arbitrage on Amazon is a winning business model and how it compares to setting up amazon wholesale stores online.
The answer to, “is retail arbitrage on Amazon or Amazon wholesale a winning business model?” is complicated with some positive aspects and some negative aspects for both business models.
We also get lots of questions about the Amazon Wholesale business model. We are coming out with a new article about the pros and cons of that soon.
Click the link if you want to read about other business models such as Amazon FBA private label.
First, lets define Retail Arbitrage
At its most basic level, arbitrage is when you purchase a good or service in one marketplace and then sell the exact same good or service in a different marketplace for a (hopefully) higher price to turn a profit.
Arbitrage, in one way or another, has been going on for millenia in human societies and is not a new concept.
Since we're dealing with Amazon here, we are going to only talk about arbitrage in the context of retail arbitrage, which is when you sell a physical retail good rather than a service.
Retail arbitrage for beginners typically involves an individual seller going to their local retailer, usually a big box store like their local Walmart, Target, Best Buy, or other brick and mortar business, and purchasing discounted products.
The individual seller then goes to their Amazon seller account to list the product for a higher retail price than they paid for it.
If that last sentence sounds confusing to you, most products on Amazon are sold by third party sellers. Amazon does buy and manage inventory of products it sells directly to consumers, but most products are listed by third party sellers.
Some of those third party sellers are Amazon retail arbitrage sellers.
Amazon arbitrage sellers can sell via FBA or FBM.
They either send it into an Amazon FBA warehouse fulfillment center, where it becomes Prime eligible and Amazon ships the product out when it is sold.
Or they keep it and ship it out themselves when it sells.
Once the transaction is complete the person is officially a retail arbitrage seller within the Amazon retail arbitrage ecosystem.
Seems pretty simple and easy right?
Go find a product at a local retail store while it’s on sale or otherwise cheaper than the current selling price on Amazon, list it there and sell it for a nice profit.
Rinse and repeat a few thousand times and you’ve got a “winning business model.” Congrats you’re rich!
Well, hold up a second...the process is ultimately simple. It is easy to get started, but turning it into a profitable and sustainable winning model isn't as easy.
The number 1 biggest obstacle a successful retail arbitrage seller has to overcome is finding a consistent source of profitable products.
For most name brand products that sell fast on Amazon, this can be difficult.
You have to monitor clearance sales like a hawk and identify upcoming sales in your local and regional market. You then have to travel to those different retail stores and purchase as many units as you can afford and/or transport in your vehicle back to your home or office.
You aren't alone doing this. There are experienced retail arbitrage sellers doing this as their full time job and you're competing with them to find deals and gobble up inventory.
Some Amazon retail arbitrage sellers exclusively look for clearance sales and discounts on retail websites. This is a form of online arbitrage where you’re competing with people outside of your local or regional market.
Therefore, the biggest obstacle with Amazon retail arbitrage is the fact that you need to consistently find really good deals on lots of products that people actually want to buy on Amazon.
Most successful Amazon retail arbitrage sellers live in relatively high population density areas with lots of different retail stores all within relatively close driving distance to them.
People in high cost of living areas, like major cities, will often struggle to find products with enough profit margin built in to make a profit when they sell the product on their Amazon seller account.
You also have to account for Amazon fees, shipping costs, storage fees etc. when identifying profitable items.
A basic price difference of just a few dollars probably won’t have a positive profit margin, so it’s not like you can gobble up hundreds of products at your local store and flip them online. You’ll end up losing money.
Factor in the cost of gas and the time it takes you to drive to all your different retail stores and shopping spots and you’ll realize it’s difficult to make a profit.
That said, there are many FBM and FBA sellers who make Amazon arbitrage work for them and build a profitable business.
Let’s say you do have a reliable network of local retail stores (or online marketplace) you can tap for a relatively steady supply of discounted products you can sell for a higher price on Amazon and make some money.
There are still some other obstacles that make Amazon retail arbitrage difficult.
Making Sure Your Products Will Actually Sell on Amazon
You may find an entire shelf of discounted products that you believe you can sell with your new retail arbitrage know-how.
If a product is heavily discounted in your local retail store, there may be a big reason. Perhaps it’s out of season, unpopular, unreliable, low quality, unsafe etc. So people aren’t buying it in stores, but that means they probably aren’t buying it online either.
Those products may be cheap but they’re poor choices for Amazon retail arbitrage because Amazon customers will know the product is out of season, unpopular, unreliable, low quality, unsafe etc. just like in store shoppers.
You'll need to do retail arbitrage research in store while you're shopping to make sure your product will sell on Amazon.
Once you have an Amazon seller account you can log into the Amazon Seller App on your phone or mobile device.
Within the Amazon Seller App is the ability to scan product barcodes in realtime and view them on Amazon to see if the product sells well.
The Amazon Seller App is free to use, but you need to have an Amazon Seller Central account to use its full functionality.
If the product has a low number sales rank, then it is likely selling pretty well. Keep in mind, on Amazon, the closer the sales rank is to 1 the more sales a product has.
Click this link if you want a more in depth breakdown of what is sales rank on Amazon.
Selling Ungated vs. Gated Products
Once you create a professional account on Amazon and have access to Amazon Seller Central, you can start listing products. However, certain branded products including major name brands like Nike, Lego, Apple etc. are “gated”.
Amazon and many major brands want to make sure that only “legitimate” Amazon business retailers are selling those products online. They generally don’t look at retail arbitrage or online arbitrage as “legitimate” businesses they want to work with.
Brands with gated products are typically household brands with tons of sales, thus they are very alluring for Amazon arbitrage sellers.
To get ungated you'll need to get a letter of authorization directly from the brand.
If you are a small independent Amazon arbitrage seller, then almost no major brand will give you this letter of authorization. They give those letters to distributors, wholesale businesses or large retail store sellers.
If you're an Amazon seller with a professional selling plan, then you can also apply to get ungated if you provide Amazon with some specific invoice documentation.
You’ll need to provide an invoice that meets all of the following criteria:
Are dated on within the last 180 days
Includes your name and address, matching the information in your selling account
Includes the name and address of the manufacturer or distributor
Show the combined purchase of at least 10 units
A basic sales receipt from your local retail store won't count for this invoice unless they are a manufacturer or distributor.
It doesn’t matter even if you purchased more than 10 units.
Many people try to photoshop invoices, which is very risky. Amazon is good at figuring that out and you’ll get denied and possibly get your Amazon account suspended.
There is also always the risk that a brand owner decides they don’t want any Amazon arbitrage sellers on their listings and may ask Amazon to boot you off. The brand owner’s need to be brand registered with Amazon to do this, but most major brands already are brand registered.
Amazon arbitrage is a low risk method to start selling products on Amazon.
We personally know some successful Amazon business owners who have made a very successful living doing retail arbitrage amazon selling.
Some of them end up doing it full time and earn six figure salaries with multiple employees and their own warehouse space.
They need to really focus on sales volume of all winning products by monitoring sales history and sales ranks across Amazon categories.
You don’t want to be stuck with inventory that doesn’t move because it will accrue storage fees if you’re using an FBA Amazon business model for your retail arbitrage.
If you’re shipping products FBM then you still don’t want unsold inventory wasting space in your home, office or garage.
However, most successful retail arbitrage business owners we know end up going to other business models that are more scalable. The most popular being running a private label brand on Amazon or creating an initial private label product and scaling from there.
Again, you can read more about Amazon private label by clicking this link.
If you're new to running an Amazon business or are just thinking about getting set up. We recommend creating your professional account on Seller Central and doing some basic retail arbitrage.
You’ll learn a lot about running an online store, learn about sales rank, learn about product details page information and start to understand that just having the lowest FBA price doesn’t necessarily mean success.
But you’ll learn all this information and gain valuable experience without having to risk thousands of dollars on private label inventory, high amazon fees, shipping fees and other key aspects of running an online business on Amazon.
New Amazon sellers will find this experience and information invaluable to running an Amazon business even if they don't stick with the Amazon arbitrage model.
At the end of the day, the biggest risk with a retail arbitrage business model is sitting on unsold inventory for too long.
If your product listing is tied to an FBA product that isn’t selling will start to accrue storage fees.
If there are too many other Amazon arbitrage sellers selling the same slow moving product, you may never win the buy box.
You can always lower your price to attempt to win the buy box, but then you risk not making a profit on the sale of your retail arbitrage item.
You don’t want to start selling all your inventory at a loss or you will quickly be out of money.
Retail arbitrage Amazon sellers who aren’t monitoring the current sale rank in their Seller Central seller app while deciding whether to buy inventory will likely lose lots of money on poor selling products.
Still, there will always be hard lessons to learn when running an Amazon business and getting started with retail arbitrage is a way to make sure those hard lessons aren’t very expensive.
Losing some money on a few $20 retail arbitrage items you found at a local store is a lot different from losing thousands of dollars in inventory because you launched an unsuccessful private label product.
Starting a business always requires some risk, some resourcefulness and some resources.
This is true for any business on Amazon including a retail arbitrage business. We don’t want to discourage anyone from getting started and building their dream business, just take into account all the pros and cons of retail arbitrage we discussed in this article before you get started.