What is Retail Arbitrage?
You may have heard a tonne of stories about people buying things low and selling them higher, building their way up to selling cars and houses to fund their newfound lives as buy-and-sell millionaires. A story once circulated around my primary school of a man working his way up from trading a pencil for a pen, a pen for a rubber, right up to supposedly buying a mansion and a Ferrari.
Now, of course, stories of this nature are dubious to say the least, however the underlying principle that launches these fictional characters into financial heaven remains the same. Buying cheap and selling at a higher price is an excellent way of increasing your wealth.
Retail Arbitrage is exactly that. Buying items at a lower price than they can be sold for and thus making a profit for doing so.
How Does it Work?
I’m sure we’re all guilty of buying products for the value we see first rather than searching around to get the best deal – it’s just far easier to choose the top listing on Google rather than filing through pages and pages to save a few pounds. Many people buy from Amazon in particular, regardless of the price an item may be, as it’s a trusted, well-known and easy option. However, Amazon (although generally selling products fairly cheap) do not always offer the best prices available. Oftentimes items will be being sold for significantly less than they are on Amazon, opening the door to a great opportunity for retail arbitrage.
To put it very, very simply (and yes we will be covering these steps in more detail below), here are the steps you’ll be taking with retail arbitrage:
- Find a product listed on Amazon that sells well.
- Search around for this same product listed at a cheaper price from another store.
- Buy the lower priced product
- Sell it through Amazon
Finding Products to Sell
Now for the detail.
Amazon has it’s own storage warehouses set up for retailers working through their site – the system is called Amazon FBA (Fulfilment by Amazon). That means that when buying and selling you can send your products straight to Amazon’s storage spaces, removing any needs for self handling and storage – they will also take care of any shipping and packaging for you so all you’ll need to do is find products to sell!
When searching for a product you should follow these guidelines:
- Look for products that fall below half the price that they’re listed on Amazon. Considering you’ll be paying for shipping and storage, you want to aim for as big a margin as possible to maximise your profit.
- Search for products that have some reviews and are selling well. It’s best to find products that you can flip quickly so you won’t be dealing with tonnes of orders at once, or struggling for storage space.
- Find products that are physically small – the larger a product the more it’ll cost to store and ship.
A great little app you can use to gauge the price margins for a product over different websites is Idealo. Idealo will show you the difference in prices for a product at a tonne of different stores, including Amazon, so you can easily decide whether the product is profitable to sell.
Amazon has a useful FBA Calculator that allows you to input your prices to calculate exactly how much you’ll be paying to store and ship a product. Then, take this value and subtract it from the cost of your profit per item (Amazon price minus your buy price) to calculate how much you’ll earn for each item sold.
You’ll need to purchase items at a lower price and have them sent directly to you. Open them up, check them for damage and then list them on your Amazon Seller Central store (it doesn’t take long to set up an account). Then, choose how you’d like the item sent and send it off to Amazon. They’ll do the rest for you & notify you when you’ve made a sale while you search for other opportunities to sell!
It’s really that simple.