Given the huge amount of consumers and demand in the eCommerce niche, selling your products online has become the go-to business idea and an almost default choice for any new business. However, for the eCommerce enthusiasts who are dragging their feet due to the investment required in launching a brand, there are few methods to utilize this opportunity without risking much of their budget. One such method is retail arbitrage.
What Is Amazon Retail Arbitrage?
Arbitrage basically means reselling to take advantage of the price difference. It is a simple concept. The seller sources product from retailers at discounted or lower rates and then sells the same on Amazon at a higher price. This price difference can be due to wholesale, regional cost differences, or special discounts.
The practice of arbitrage has been there in markets; it was already used by businesses in stock, commodities, bond markets, etc. In case you buy and sell products online, then it’s termed online arbitrage.
Amazon retail arbitrage is different from normal retailing because the seller does not have to deal with suppliers and manufacturers. Though it reduces the profit margins, it also facilitates easy operations of an online store.
Is Retail Arbitrage Legal?
You might be wondering about the authenticity of this business model and whether choosing this process is legitimate or not.
Arbitrage is an absolutely legal and accepted model. However, you should follow some best practices to ensure there aren’t any legal hindrances.
A legally purchased product is the buyer’s property, and the latter holds every right to sell it. The only restriction is that the product’s condition should not be altered, i.e., an unused item can only be sold as new.
Difference Between Arbitrage And Other Business Models
Apart from retail arbitrage, there are other business models that work on a similar principle, i.e., taking advantage of the price margins. Let’s have a look at these:
In this model, the seller is only acting as a medium for the buyer to purchase from the supplier. Acting as a middle man, the seller passes on the order to the respective supplier or manufacturer, who is further responsible for delivering the order to the customer.
While in drop shipping, the seller is not responsible for keeping stocks, in case of retail arbitrage, the vendor will have to maintain the stock. This also sometimes leads to losses because of fewer sales.
In this model, the brand owner has control over how the product will be designed, manufactured, and packed. The product will hold the brand’s name as a label. Third-party manufacturers make the products that are sold under the seller’s brand. The arbitrage sellers can’t label products with their brand and also don’t have any control over designing or manufacturing.
Wholesale businesses sell their products to retailers. They stock products according to market demand and sell them on bulk pricing. Arbitrage sellers buy products from retailers to resell them.
The Benefits Of Amazon Arbitrage
The popularity of Amazon retail arbitrage is due to its numerous benefits. Here are the advantages that Amazon arbitrage offers:
Simple and Easy Model
The retail arbitrage is easy, to begin with. You need not worry about manufacturing, designing, or shipping. You just need to identify the initial products and work on proper Amazon listing optimization.
Requires Less Investment
Unlike product labeling or wholesale models, you require very less investment. Moreover, you can choose the amount of capital to begin with and scale as per choice. Marketing is also not required as the retailers are already operating that department. However, you can engage Amazon product listing optimization services for experienced assistance in getting operational listings quickly.
You Are The Boss
You can schedule the business operations as per your need– conduct it on a part-time basis or run it as a mainstream job. It also allows you ample room to source products at leisure.
This model is a nice way to get acquainted with Amazon’s platform and online store business. Gradually, you can set higher goals like launching your private label, including a drop-shipping model, and becoming a wholesale seller.
High Returns in Low Risk
As retail arbitrage involves less investment, the risk of loss is shortened. Finding products that give you a fair enough margin is also not so tough.
Price margins happen due to regional taxes, lack of supplies, etc.
However, if your stock faces a sales decline, the same risk may increase, so it will be smart to manage your stock as per the demands and reap the profits.
How Can You Start Amazon Retail Arbitrage?
Many entrepreneurs wanting to step into the retail arbitrage segment are confused about how to begin. This section should clear your doubts about starting such a store.
Step 1: Create An Amazon Seller Account
Firstly, you need to sign in to Amazon Seller Central. The two types of accounts that you can create are:
|Individual Amazon Account
It is free to create. Amazon charges a commission of 0.99 USD on every sale through this account. An extra 15% consolidated fee is charged on total sales.
An individual account can list only 40 products.
|Professional Amazon Account
Amazon charges 39.99 USD per month along with a referral fee and variable closing fee. Charges are not fixed on a per-sale basis.
A professional account can list more than 40 products.
The account is eligible for FBA (Fulfillment by Amazon) services, where it manages storage, packaging, delivery, and customer support, though it has an extra fee.
Step 2: Finding Products to Sell
- If you have not already found a product that can be sold at good margins, you can look for clearance sales with wholesalers.
- You can visit wholesalers such as Walmart or Target, though remember that due to the evolution of the digital market, the costs have become competitive, and arbitrage margins are less.
- You can also find local retailers with the stock for locally manufactured goods, which can find an easy market on Amazon.
- Before you finalize a product, look at its demand, price, and availability on Amazon.
Amazon Product Listing for Arbitrage
As you will not be selling a private label, you have to find an identical product’s current listing and use that ASIN in your seller central account.
Amazon product listing optimization is going to be the key to your arbitrage store’s success. Amazon uses A10 algorithm to source the content of the consumer searches on the platform.
The following factors influence Amazon A10:
- Keyword match
- Stock availability
- Parent-child product relationship
- Fulfillment by Amazon
- Number of sales
- Customer reviews
- High-resolution images
- Brand and manufacturer
The following should be kept in mind while creating Amazon product description:
- Create a searchable title
- Use high quality, focussed images
- Use bullet points in product description
- Do not over stuff the content with keywords
Amazon arbitrage is a great model to start your online store. Moreover, it can also help you establish yourself as an online vendor and gives you the opportunity to expand eStore in the future once you understand the pros and cons of online selling.
At the same time, though this is an easy model, it is no less competitive. Sellers will need planning and strategic execution to achieve marginal profits. A well-planned product sourcing and focused Amazon listing experts will help you achieve your goals.