Did you know that reselling items in-store or online is a popular and effective way to make money online in 2022? Third-party sellers choose from three or four primary methods of selling on Amazon- two of those methods are known as online and retail arbitrage.
Online and retail arbitrage offers third-party sellers a lucrative avenue to make money online. Like any method, there are advantages and disadvantages that sellers should be aware of before deciding which route to take.
This article will outline the differences between online and retail arbitrage so you can make the best decision based on your goals.
What is Amazon online arbitrage?
Online Arbitrage (OA) involves buying products from an online retailer at a lower cost and reselling these products for a higher pricepoint on online marketplaces.
Amazon Online arbitrage is a reasonably easy business model to start and affords third-party sellers the option to sell products from the comfort of their homes. Online arbitrage may not be as passive as some new sellers think and requires a great deal of time and energy on product souring and evaluating costs and price points.
With online arbitrage, sellers must ship goods to Amazon, adding complexity to the sales model. Depending on the product, sellers’ margins can be slim as they are required to pay specific Amazon fees to sell on the platform.
What is Amazon retail arbitrage?
Amazon Retail Arbitrage (RA) involves buying products from a physical retail store for less and reselling these products on online marketplaces such as Amazon for a higher profit. In the retail arbitrage model, sellers must also invest time and energy in product sourcing and logistics.
Because these products are purchased for much less or on liquidation, significant profit margins are possible.
Why do sellers choose Amazon arbitrage?
Besides making money from sourcing and reselling products, Amazon arbitrage has some interesting benefits that encourage buyers to adopt this trading model specifically for the Amazon marketplace
1. Capitalize On Trends
It’s normal in this day and age to find in-demand and or trending products, especially across different seasons. For example, toys are hot products that arbitrage sellers can buy and resell on Amazon for profit during Christmas.
Amazon FBA retail arbitrage and online arbitrage sellers can diversify their market and adapt to what is trending by watching social content on platforms like TikTok and Instagram. These platforms offer hints about viral products that people are scouring to purchase on sites like Amazon. Keeping up with trends is a massive component of online and retail arbitrage.
2. Low Barrier to Entry
Pretty well, anyone can sell using the RA or OA method. Something to note is that some brands and manufacturers may request approval from sellers at any given time. An added bonus is that sellers can source and sell different products while building credibility and ensuring their customers get maximum satisfaction from the goods they sell.
3. Low Investment
You do not necessarily need a large capital investment to start retail or online arbitrage since you can purchase products from other retailers and online platforms for a lower cost. Typically, high volume purchases can mean discounted prices, so it can be to your advantage to purchase in bulk, depending on the demand for each product.
You won’t need to spend money creating and optimizing Amazon product listings, either. You’ll often sell these products under existing listings because you are not the brand owner, making both RA and OA cost-effective sales models.
4. Fast ROI
Another great benefit of online and retail arbitrage are the profits you can make from reselling items if you get the process right. Once you find a buyer, you can easily send the goods to Amazon FBA to process the delivery. As a result, you can enter different product categories and markets, increase sales and incur a faster return on investment.
5. A Quick Way to Scale
Online and retail arbitrage are reasonably fast ways to scale your Amazon presence because you’ll have lower bars to entry, so you can scale your inventory and business at a faster rate than private label selling.
What are the challenges of retail and online arbitrage?
Like any business model, retail and online arbitrage have challenges that should be mitigated to keep Amazon accounts in good standing. Knowing these potential risks and downsides can help you make the best decisions when selling on Amazon
Things to look out for
Time-Consuming – Retail arbitrage, in particular, can be a heavy investment of time, as sourcing in retail stores requires consistent dedication.
Customer Complaints – Product quality problems like damaged packaging, packaging that doesn’t match the listing description, store returns with possible missing parts unknown to the seller, etc., can arise.
Intellectual Property Complaints – IP complaints can arise when an Amazon OA or RA seller sells a particular product from a renowned brand. Usually, the brand may ask the seller to provide invoices and proof of authorization to sell their products, and sellers may or may not have access to this documentation.
What should RA/OA sellers do to protect themselves?
Arbitrage selling comes with its fair share of risks. To stay on top of account health, you must have dependable structures and processes that help you manage risks and keep customer complaints at bay. As a retail arbitrage or online arbitrage seller, you should:
Thoroughly inspect and carry out quality and packaging checks on all products before sending them to Amazon FBA or shipping them to the seller. Customers will complain and return flawed or defective products– you don’t want bad feedback about your business.
Have detailed procedures for matching products to the listing detail page to prevent complaints. Ensure the item strictly fits its online description before sending it to the buyer to avoid complaints due to negligence.
Collect and carefully store the receipts for all the products. The receipts will come in handy when you need to either return a product to where you sourced it or prove its own when necessary.
Source goods from reputable businesses where the company name is on the receipt. Getting your products from reputable stores helps avert brand intellectual property complaints and gives your business good credibility.
Have an aggressive quality management program for your buyers. When buyers have complaints, do not ignore them. In the case of multiple complaints, pause the product listing and examine the product for defects or quality issues.
Online arbitrage (OA) and retail arbitrage (RA) are proven methods to make money on Amazon. While they may seem to offer fast profits, they require time and a dedicated approach.
You’ll want to keep your Amazon account health in good standing, so mitigating risks at the outset is imperative. Research the best products to sell, identify the best time to enter the market at a low cost, slowly build your customer base, and manage product and shipping quality at all costs.
Need help with an account issue or have a question about Amazon online vs. retail arbitrage? Riverbend Consulting offers essential services to help you scale on the world’s largest online marketplace. Contact Us for a quote.
Lesley is co-founder and co-owner of Riverbend Consulting, where she oversees the firm’s client services team. She has personally helped hundreds of third-party sellers get their accounts and ASINs back up and running. Lesley leverages two decades as a small business consultant to advise clients on profitability and operational performance. She has been an Amazon seller for almost a decade, thanks to her boys (19 and 13) who do most of the heavy lifting.