What is online arbitrage? What is retail arbitrage? In this article, we are going to give a brief overview of different business models for selling on Amazon, followed by a comparison of the two most popular entry-level models: online arbitrage and retail arbitrage.
Classifications of Amazon Sellers
Millions of sellers on Amazon are using one or multiple different methods of procuring products to sell for profit. These methods are generally classified by where the product is purchased or how the product is created.
They are:
Retail Arbitragers who buy items in person from brick and mortar retailers and resell them on Amazon.
Online Arbitragers who buy items from retailer websites and resell them on Amazon.
Liquidators/Overstockers who buy liquidation and overstock lots and list the products for resale on Amazon.
Generic Private Labelers who buy unbranded products directly from manufacturers and then brand them with their own logo and packaging and list them for sale on Amazon.
Wholesale Resellers who set up accounts with established brands and buy products in bulk to resell them on Amazon (usually with controlled prices, rules of the brand).
Brand Builders Creatives / Authors / Businesses who design and make their own products and sell them on Amazon (a more advanced type of private labeling).
Designers who create t-shirts and other merchandise and sell through Amazon’s print-on-demand merchandise marketplace, Merch by Amazon.
Amazon themselves (who fall into multiple selling categories).
What is Retail Arbitrage? Is Retail Arbitrage Scalable?
Retail arbitrage is the act of buying a product from a retailer such as Walmart or Target at a discounted price and reselling the item for a profit.
All of the selling methods above can create a lucrative foundation for a business, although retail arbitrage has traditionally been the most popular way to quickly start a business and make some extra cash whether using eBay or Amazon. It’s definitely the easiest Amazon FBA gate to enter with the most minimal investment.
You can buy inventory whenever you want in any quantity you want (up to stock limits), and you don’t have to wait for shipping or manufacturing to get the items to Amazon FBA warehouses before you can list and sell them. These characteristics make retail arbitrage the most popular among beginners looking to create an opportunistic business or side hustle.
As a seller builds a successful retail arbitrage business, it’s not uncommon to see them venture into other selling methods once they are more established and financially sound. In reality, the largest sellers on Amazon are private labelers, wholesalers, standalone brands, or mixtures of these models plus online arbitrage.
As an early seller, it’s harder to take risks and make larger investments in wholesale accounts, private label products, and building your own brand. These systems take large financial investments that most sellers don’t have when they start.
The truth is, traditional retail arbitrage is very much like a brick and mortar business. It’s tedious, requires large amounts of effort, and has quite a few moving parts, making it extremely difficult to automate and scale. It can be done, but not without the price of paying physical employees which also requires employee payroll and insurance plans and maybe even a warehouse.
Even with the amazing opportunity that Amazon FBA provides you in handling order fulfillment, if you are looking to create a business that produces income while you sleep and has no limit on scalability, retail arbitrage has many drawbacks that make it a less attractive option than other methods of selling.
When practicing retail arbitrage, the game becomes a process similar to hunting Easter eggs. Sometimes you find the eggs, sometimes you don’t, but you (or your team) are spending time doing it regardless of the outcome. That time you are spending costs money.
The General Process of Retail Arbitrage (and how it eats up time.)
- You spend your time checking sales ads, newspapers, and websites to identify sales and collect promo codes and coupons.
- You spend more time throughout your day scanning barcodes on shelves of retail giants packed with masses of shoppers.
- Hopefully, you find a few good leads throughout the day, but that certainly isn’t guaranteed.
- You push your cart of Easter eggs up to the checkout register and wait for your turn to exit.
- Once home, you spend the next hour laying out and sorting all the products you found. It’s time to remove all the store barcodes, tags, and prices.
- You then spend time packing all of the items into poly bags and bubble wrap to make sure they meet Amazon’s packing requirements.
- Once you have them wrapped, you create listings for shipments, printing labels, and putting the labels on the items.
- Next, it’s time to pack the items into poly bags and boxes.
- And finally, you round it all out with a trip to UPS to drop the boxes off, unless you schedule your pickups.
- You wait for your items to hit Amazon warehouses and become available for sale.
Retail arbitrage isn’t so bad when you are first getting started, packing up a few items at a time and shipping them off for resale. Plus, it can be a really exciting feeling to touch the product that is about to make you money online. When the sale happens, you can feel a connection and sense of accomplishment because you made it happen.
The time spent driving all over town, scanning shelves, waiting in checkout lines, transporting the product home, prepping the product, and shipping it all in takes resources and effort. RA can feel draining, but once you see sales rolling in it can also be uplifting too. It gives you just enough motivation to go out and hunt more Easter eggs and try to make more money!
But, despite the re-energizing nature of making a sale, is the retail arbitrage process truly sustainable? The answer to this is ultimately yes, but not without the things that come along with trying to wrangle all of the moving parts into a clean, smooth operation
The reality is that retail arbitrage can be tiring, frustrating, and repetitive. It’s a good way to feel out how the reseller system works, but it’s a really rough long term play.
A Deeper Look at the Retail Arbitrage Scalability Problem
To truly have an Amazon FBA business that can scale to larger revenue and profit numbers, it’s important to figure out ways to automate the different segments of your business so that you can actually be free to do other things, like growing new or existing revenue streams. Otherwise you will hit burnout.
What if you could free up your time and allow business growth to happens organically with automation and systems? Instead of spending all day in stores, you could be out hitting the snowboard slopes with family.
To automate a business and free up time, you have to delegate and outsource tasks to other people, tools, and services.
Even if you are going hard seven days a week, there are only so many hours that you can spend driving, searching stores, and packing boxes. Eventually, you will hit a ceiling physically because of the nature of the business and monetarily because RA is much harder to scale.
Yes, you can slowly bring on a few people to help you hunt for, prep and ship products, and you’ll see a higher revenue number because of it. But what about the employment requirements? In the United States, you have to set up unemployment insurance accounts and pay taxes on top of the cost of the actual employee. And, just like you, your employee will also have physical limits in being able to scan products, pack, and ship.
Retail arbitrage is a suitable system to make some extra income on the side, but without some serious moving parts and intricate systems in place to manage all those moving parts, the model has scalability limitations.
So, is there an immediate solution for transitioning a retail arbitrage business into a larger scale business with more profit? Yes.
What is Online Arbitrage in Comparison to Retail Arbitrage? Exploring the Opportunity to Make More Money as an Amazon FBA Seller
If you are hitting a wall with retail arbitrage, or you don’t have the funds available to take risks with private label or brand building, then online arbitrage may be the best option to bring more revenue to your business.
With online arbitrage, you can simply purchase products from retailer websites, as opposed to physical stores, and ship them to either your home or third-party prep companies to prepare them for Amazon FBA sales.
Here is a break down of the major benefits of retail arbitrage in comparison to online arbitrage below:
8 Benefits of the Retail Arbitrage FBA Selling Model:
✔️ Great for starting a side hustle to make a little money in excess of a job.
✔️ Never worry about creating new Amazon listings, driving traffic, or creating new products. Arbitrage allows you to sell brand named products with minimal overhead on listings that are already created and ranking well in sales velocity.
✔️ Freedom to buy as little as you like (but not necessarily as much because of stock limits).
✔️ Low risk because you don’t have to buy large quantities from wholesalers or manufacturers.
✔️ Ability to be more diverse in product lines, which is safe for a new seller. More products in less quantity is much safer than fewer products in high quantities.
✔️ Build airline or other reward points if you responsibly use credit cards to purchase inventory.
✔️ Ability to slightly scale by hiring others to scan shelves and pack boxes for you.
✔️ No waiting to receive your products in the mail. You can buy, pack, and ship to Amazon warehouses all in the same day.
Since traditional retail arbitrage is the parent of online arbitrage, many of the pros above translate to online arbitrage as well, some slightly modified. The big kicker is the number of extra pros you get when using online arbitrage over traditional retail arbitrage.
20 Benefits of the Online Arbitrage FBA Selling Model :
✔️ Great for starting a business you can scale to replace your full-time income.
✔️ Never worry about creating new Amazon listings, driving traffic, or creating new products. OA allows you to sell brand named products with minimal overhead on listings that are already created and ranking well in sales velocity.
✔️ Freedom to buy as little or as much you like of a product, given online stock quantities are usually much higher than in-store stock quantities.
✔️ Low risk because you don’t have to buy large quantities from wholesalers or manufacturers.
✔️ Ability to be more diverse in product lines, which is safe for a new seller. More products in less quantity is much safer than fewer products in high quantities.
✔️ Almost an endless mass of online stores to source brand name leads from in comparison to the limited physical stores in your area that retail arbitrage offers.
✔️ Build a ton of airline or other reward points if you responsibly use credit cards to purchase inventory.
✔️ 100% Virtual! Ability to scale to unlimited potential by outsourcing and delegating every task!
✔️ Never physically see or touch any of your products by utilizing prep companies, freeing a massive amount of time for you.
✔️ Take advantage of online stores with lighting fast shipping plans, which will allow you to still get your products to Amazon warehouses quickly.
✔️ Pay 0% sales tax on all of your purchases by using and shipping to prep companies in sales-tax-free states!
✔️ Make thousands of extra dollars for free by using cash-back and click-through sites that only work for online shopping.
✔️ Take advantage of gift card discount sites without any risk because you know the exact amount you need to purchase a lead.
✔️ Set up and optimize your business foundation to easily transition to future demands of business by being online and 100% virtual.
✔️ Easily use your existing online company to expand into other online markets and segments when it’s time to expand, such as creating your own products, private labeling, wholesale reselling, Merch by Amazon, and more!
✔️ Find assistants for a fraction of the cost of physical employees, allowing you to have multiple assistants online for the same price that one would cost you doing traditional retail arbitrage.
✔️ Access to power sourcing tools, lead scrapers, and premium lists of online products to help you and your assistants find leads immediately without having to scan shelves in stores or drive anywhere!
✔️ Spend your time working on the business and not in it. Use your extra free time to create systems that run themselves to remove limitations.
✔️ Travel and work from anywhere in the world that has a wifi connection or hotspot!
Online Arbitrage vs. Retail Arbitrage in Summary
As you can see, there are massive benefits to using online arbitrage in comparison to traditional retail arbitrage.
If you are currently running a retail arbitrage business, it’s truly beneficial to make the transformation to doing some online arbitrage as well.
Having an online arbitrage business is wonderfully powerful, and it puts you in a position to automate, scale, and adapt to future business models with less overhead and more lead opportunity.
If you are looking for online arbitrage product leads, check out our daily online arbitrage sourcing list service here.
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