According to the Oxford Dictionary:
“the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.”
e.g. “profitable arbitrage opportunities”
Retail Arbitrage for Beginners: What is Retail Arbitrage?
From the definition above, it’s a fairly simple question to answer. My guess is you didn’t come to this blog post if you wanted a definition from a dictionary. You came here because you heard that retail arbitrage can make you money online and you have no idea where to start.
Great news. The place to start is right here.
Retail arbitrage is simply the process of buying something from a retailer to sell on for a profit elsewhere. You might do both the buying and the selling either online or from a bricks and mortar store. If you’re buying products to “flip” and make a profit from arbitrage, you’ll always be looking for whichever source you can buy from at the cheapest price, while also tracking where you can sell and make the highest profit.
It’s very similar to the idea of buying and selling stocks. You are buying low and selling high, but in this case you are doing it with products you can touch, feel, and even buy at your local Walmart.
While the concept of retail arbitrage is simple, and the potential is there to make significant profits, the practical act isn’t always straightforward. The concepts are easy to understand, but it takes some practical application to make it a profitable enterprise.
If it was easy, everyone would be doing it! And if something’s worth doing it will be hard, right?
How is Retail Arbitrage Possible?
We’re regularly hearing about the power of the biggest retailers, so how can it be possible to get one over on them by buying from them cheaply and selling on at a profit?
Well. It all comes down to some economic principles. These economic theories are usually taught in school, but they get a little more complicated when they happen in real life.
Could the retailers not just keep hold of their stock and sell it at a higher price themselves?
Technically, yes. But it is a lot more complicated than that. A retail store operates a bit differently then you would think. They are focused on keeping high selling products on the shelves at all time and getting rid of items that aren’t selling. A perfect example would be the holiday section at the front of the store. During that season (and a few weeks before), they can make some serious money on the seasonal items; however, the moment the holiday is over, the products are now useless to the store.
Although this seems logical, retailers aren’t making money when product is dwelling on shelves and not being purchased. Consumer buying habits can fluctuate wildly. Fluctuations may happen across seasons, which would be expected and planned for, but sometimes a particular product might simply stop being popular. It also must be noted that popularity might vary based upon geographical reasons as well (for example: Swim diapers are popular in Wisconsin during the summer and not in the winter, but Florida can use them all year long).
If a retailer needs to get something off the shelf, they lower the price. It’s essentially playing with supply and demand, but the lower the price, the more people who are willing to buy an item.
On top of this are several logistical issues. Retailers have usually planned their inventory at least 12 months in advance; stock is arriving regularly and their central warehouses and local stockrooms only have finite space. The world’s biggest retailers don’t tend to work on a “sale or return” basis with their own suppliers; they’ve paid for product at a price they believe will allow them to sell at a good margin. Their only option is to sell it. What’s the quickest way for a retailer to move product quickly?
Drop that price! If they need space or more money to buy future products, they can lower the price and sell the item at a breakeven level or even a loss. Might seem a bit backwards, but it happens and the big box stores actually profit from this practice (they use the money the receive from the loss to reinvest in items that will sell quickly, sell those for a profit, reinvest, and do it over and over again – Items that don’t sell are a retail store’s worst enemy).
And we can’t discuss how retail arbitrage is possible without looking at the huge influence the internet holds over brick and mortar stores.
Let’s face it. In the long-term, competing with e-commerce prices is unlikely to be sustainable for many retailers, but there was a great marketing mind who came up with the idea of a loss leader. Think of this way: stores will gamble on selling something at the same price as it can be bought online, for example on Amazon, sacrifice their profit margin and sometimes even making a loss, with the hope that a customer will spend their cash on other, more profitable, products while they’re in store. It’s why a supermarket will sell milk for $1/gallon and hope that you grab bread and eggs while you are in the store. They don’t make any money but the price point of the product, but they make money when they sell other items in the store. Their focus is traffic. More people in the store = More products sold.
What happens when bricks and mortar retailers try to compete with e-commerce?
Economics tells us that the price should go down and the real world mimics the economic theory.
How Can I Do Retail Arbitrage?
As we already know, the logic behind the idea of retail arbitrage makes sense, but you now need to know how in the world to actually do it.
And I imagine if this is your first time looking at retail arbitrage, you are going to have a few questions. I have been around long enough to be able to read your mind and know what you are thinking with starting retail arbitrage.
These might sound something like?
- So what exactly should I buy?
- How do I sell these products when I have them?
- Where should I buy from and where can I sell my products?
My favorite answer to give is “it depends” but in all honesty the answers to all of those questions could reasonably be “whatever you want” and “wherever you want”, but we appreciate you need something a little more helpful than that!
To help answer all three questions, we need to start by looking at the last question and working backwards from it.
Sourcing Products for Retail Arbitrage
If you don’t have products to sell, then you have no chance at making a profit. It’s the same idea as asking how many points a wide receiver can get if he never gets thrown the ball. Zero. You have to product in order to have profit.
When I started selling on Amazon (my tip for an answer for #1), I literally would hop in the car and drive around town like a madman. I would scan a ton of items and barely find something that could make a profit when I was in the store. I spent a lot of time searching and very little time making a profit.
I sound like an old guy when I say this, but you don’t have to do it like I used to do in the old days. Thankfully, you don’t need to jump in the car or hire a van and start driving around town looking for the best items on clearance that you might be able to buy in bulk! There is a tool that can do the search for you and all you have to do is drive to the store and make the purchase.
Tactical Arbitrage helps you to find the best arbitrage opportunities for buying products to sell at a profit on Amazon. All you need is an active Amazon Professional Seller account and you can get started. Once you have signed up to the tool, it is up to you (and will depend on your budget) what you buy to sell at a profit. You basically will do the following:
- Use Tactical Arbitrage to search the local big box stores in your area for possible products to sell. You get to determine the profit margin, the price, and you can examine the price history of the product on Amazon.
- You then create a shopping list for your local stores.
- Head to the store, pick up the items, head home.
- Pack and ship the items to Amazon and let them handle the rest.
The hardest part is finding good products to buy via retail arbitrage, but technology like Tactical Arbitrage makes life a lot easier.
What Do I Need to Do?
Start out by figuring how much you want to invest in your retail arbitrage adventure. Once you get started, know how much cash you’re starting out with, and have signed up for access to Tactical Arbitrage, your routine for making a profit from retail arbitrage might look a little like the below:
- You Choose a Product to Buy. With our tool you can choose a product that you’re interested in, the one with the highest volume sales on Amazon, or the one with the highest profit margin. Choose the products you want to buy to sell!
- The Product is Delivered; You Send it on to Amazon. While you can choose to sell your products yourself, most people execute retail arbitrage by choosing to send products onto Amazon Fulfilled By Amazon (FBA). This means that your products will be sold as Amazon products. When you receive your products, if you plan to sell via Amazon FBA, Amazon will send you a mailing label to send the products onto Amazon’s fulfilment centers.
- Amazon Sells the Item, You Get Paid! Your products are sold via Amazon, and are sent to the customer by Amazon. And you get paid! Any customer questions and returns are also dealt with directly by Amazon.
- Take Your Profit, and Grow Your Arbitrage Business. Once you’ve been paid, you can reinvest your profits into buying the next product that the Tactical Arbitrage tool has highlighted that meets your criteria.
Whether you want to make a second income “on the side” or want to grow your retail arbitrage activities into a full on business, we can help you to achieve your goals.
Get Started with Retail Arbitrage, with Tactical Arbitrage!
We provide all our new users with a no-obligation, seven-day free trial to try out our tool and discover how it works.
Sign up here to give it a try and see whether retail arbitrage could be a “side hustle” or a long-term earnings and business opportunity for you.