Retail arbitrage is the act of buying products from a retailer and selling them on another marketplace for a profit. Retail arbitrage is the act of making a profit from selling a product that was purchased from a brick-and-mortar store.
Understanding retail arbitrage
Retail arbitrage can be rather lucrative in some circumstances. In a video uploaded to YouTube in 2018, a user known as “Bearded Picker” visited several Walmart stores to purchase 182 copies of the Monopoly for Millennials board game for $19.82 each. Less than 24 hours later, he had sold 131 copies on Amazon for $77.29 each which netted a profit of $2,500 once overheads were deducted.
While Amazon is one of the more popular choices to resell purchased items, other marketplaces such as Facebook Marketplace, eBay, Jet, and Craigslist are worthy alternatives.
When effective, retail arbitrage is a low-cost and low-risk way to sell items online. Users can purchase a single item to test the waters or make it their full-time job. In any case, sellers avoid the expense of marketing, operating a physical shopfront, or purchasing bulk stock from a wholesaler. They can also leverage the brand equity associated with well-established items.
The retail arbitrage process
The following steps show how the retail arbitrage process plays out.
Bargain hunting
For many individuals, the process starts by pouring over newspapers, brochures, magazines, and websites to find coupons and promotional codes. Some also make use of services such as BrickSeek which collates deals from various retail chains.
Scanning products
Once in store, sellers redeem any coupons or discounts and may purchase items in bulk.
Many will also use app-based scanners to read shelf barcodes and determine which products are potentially most profitable. The Amazon Seller app calculates various fees and estimates profit, while others such as Keepa and Jungle Scout provide more advanced analytics and historical sales and revenue data.
Targeted store visits
New resellers may be tempted to hit as many stores as possible or blow their entire budget on a single product, but seasoned individuals take a different approach.
With experience, they’ve learned to study discount patterns and clearance schedules of various stores and use aforementioned tools such as BrickSeek to monitor product specials in real-time. In some cases, these sellers will access distributor apps or databases to ensure a particular item is in stock before they leave home.
Creating an online store
Fulfillment by Amazon (FBA) is arguably the most popular choice because sellers can leverage Amazon’s brand trust and take advantage of the company’s “done for you” fulfillment.
However, as we noted before, there are a plethora of choices with respect to where one can sell retail arbitrage products. Some of these will likely feature much less seller competition and may be better suited to smaller or one-time orders.
Retail arbitrage best practices
To conclude, let’s take a brief look at three retail arbitrage best practices:
- Exhaust each store before moving on – some sellers visit as many stores as they can in a day, but a better approach is to spend an hour or two in one store and conduct a methodical search. Indeed, it is better to exhaust one store each day as opposed to a superficial look of 10 stores where bargains could be overlooked.
- Look for ranks and reviews – while scanner apps show the potential profit of a product, what they sometimes omit is market demand. Thus, it can be useful to assess the item’s Amazon Best Sellers Rank (BSR). Specialized calculators help sellers better understand how sales revenue correlates to popularity and, even if not selling on Amazon, BSR gives sellers a general idea of an item’s popularity.
- Develop relationships with employees – this may seem a waste of time, but often, employees are the first to know when a certain product will be marked down for clearance. Some whom a seller has built rapport with may even be willing to bring stock out from the storeroom which has not yet been put on public display.
Key takeaways:
- Retail arbitrage is the act of buying products from a retailer and selling them on another marketplace for a profit.
- When effective, retail arbitrage is a low-cost and low-risk way to sell items online. Users can start small and avoid most of the expenses associated with owning or operating a traditional brick-and-mortar store.
- Some retail arbitrage best practices include exhausting one store per day before moving on, understanding the relevance of BSR, and developing relationships with store employees to get first access to discounts.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
Attention Merchant Business Model
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
* This article was originally published here
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