Retail Arbitrage on Amazon: What Is It and How Does It Work?

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If you’d like to get a grip on how to run an Amazon business without the hassle of getting brand-trademarked, then retail arbitrage might be the right choice for you. The question is, would this be an ethical move?

Embarking on a new business venture requires not only a capital investment but a great amount of risk-taking. Nowadays, thanks to the fast-growing eCommerce industry, more and more people rather start an online business to save on the expenditure that comes with opening a brick-and-mortar store.

Over the course of 25 years, the eCommerce giant – Amazon – has opened the door to a whole new world of possibilities for small and medium-sized companies, embracing new technologies, new generations, and wagering on features and programs to help sellers, around the world, build their retail empire.

The reality is, however, that there are people who rather begin their career as sellers on Amazon by listing items from other brands either to gain experience so they can start their business as Brand Owners thereafter or simply because they find it convenient. And, in some cases, this works for them.

Retail Arbitrage on Amazon

Retail arbitrage has been around for a long time now. It is known, in the eCommerce world, as “…the act of buying products in local retail stores and then selling them through online marketplaces for a profit…”.Online Selling Experiment

This practice has become “the talk of the town” because it seems to be pretty well accepted among many retailers; and somehow, it has gone under the radar for far too long.

Since brick-and-mortar stores have limited space to stock inventory, it is easier for them to clear up their shelves by putting products on sale. And although this process of buying items on clearance to sell them for a nice profit on Amazon – or other eCommerce platforms – sounds like an easy task, it actually requires a great deal of persistence, commitment, and discipline.

Additional read: “How to Stop Amazon Unauthorized Resellers”

Is Retail Arbitrage Illegal?

In 2013, the US Supreme Court declared, in a landmark ruling, that retail arbitrage does not constitute trademark or copyright infringement as long as the merchandise was acquired legally, this means that it is genuine and not counterfeit.

However, if you decide to take the plunge into this reselling adventure, you might find yourself facing some problems, such as:

  • Intimidation/harassment from brands for commercializing their products
  • Retaining customers once the products on clearance are discontinued
  • Finding out that the items you are reselling are counterfeit (this will tarnish your seller rating).

Note: If this ever happens, you may not be able to retrieve your items from FBA and they might get destroyed.

How Does Retail Arbitrage on Amazon Work?

Retail Arbitrage can be summarized in 3 simple steps:

  1. Create an Individual Amazon seller account
  2. Download the Amazon Seller App
  3. Start looking for products and list them on Amazon

The whole purpose of this practice is to get you started as an Amazon seller with the minimum investment; so, first, you’d want to set up an Amazon individual seller account as it doesn’t require any monthly fees.

However, you must keep in mind that, with the Individual seller account, you will have to pay a $0.99 per-item-sold fee, and if you start selling more than 40 items a month, your whole revenue will be used to pay these charges.

So, as soon as it makes sense for your business, you’d want to switch to the Professional account since it allows you to sell a wider range of products with no “per-item-sold” commissions.

Also, you should download the Amazon Seller App, which allows you to scan the barcode of any product – with the camera on your cell phone – to find out what is the selling price of that item on Amazon and see what your profit would be if you decide to resell that item.

These are some of the best stores for retail arbitrage:

  • Walmart
  • Target
  • Home Depot
  • CVS
  • Bed, Bath & Beyond
  • Office Depot
  • Staples
  • Walgreens

Once you have the items you want to sell, you need to list them and price them. The Amazon Seller App can help you decide which price will give you the best profit.

Which Fulfillment Option is Better for Retail Arbitrage?

During the first quarter of your selling journey, it might make sense that you fulfill orders yourself, using Fulfillment By Merchant (FMB).

But, as you start gaining more experience, and customers, you might want to try FBA. FBA (Fulfilment by Amazon) is a pay-as-you-go program that aims to make Amazon Sellers’ storage-and-shipping experience trouble-free.

FBA allows you to ship items in bulk, and then Amazon ships them to the individual customers. If you opt for this program, make sure you adjust your pricing at a similar level to your competitors.

This is a cost-effective option since you will be charged for storage space and the orders Amazon fulfills ONLY. The cost of shipping is already included in your fees, and if you ever decide to start selling your own products and become a Brand Owner, with this shipping program you don’t get an extra charge for Amazon Prime Free Two-Day Shipping and FREE Shipping on eligible orders.

Additional read: How to Be Eligible for One-Day Delivery and Other Premium Shipping Options

Closing Thoughts

Retail arbitrage is one of those questionable practices which Amazon has been battling indirectly with for some years. How? By launching advertising features to help Brand Owners stand out from the crowd and attract new customers.

While many find retail arbitrage appalling, some others believe this is a great selling tactic; there are testimonies of sellers who have built their empire this way.

At the end of the day, you decide whether retail arbitrage is the best way to start your Amazon business. Just keep in mind that there are other businesses that have built an unimpeachable reputation for themselves through effort and dedication, and you can do it too.

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