Retail arbitrage is one of the best ways for beginners to start selling on Amazon, because it provides a low-cost, low-risk entry point. We encourage you to consider the potential benefits and drawbacks of retail arbitrage, provide guidance on how to engage in retail arbitrage with brick-and-mortar and ecommerce retailers, and explain the importance of obtaining purchase orders or receipts for all products you buy.
For any product you plan to resell on Amazon, be sure to have a receipt or purchase order proving you bought the product from another party. Amazon may request a purchase order to help resolve any buyer-seller disputes about the product or questions about its source.
To succeed in retail arbitrage, be prepared to diversify your product portfolio with many categories rather than sticking to a single product category. A diversified portfolio helps you manage the risks more effectively and balances your profit margins across product categories.Buying from brick-and-mortar retailers to sell on Amazon
Large brick-and-mortar retailers (often referred to as big-box stores) are the obvious first choice for those seeking to engage in retail arbitrage. These stores are locally accessible and often have a large number of a variety of products on sale or clearance. Some of the larger and more popular brick-and-mortar retailers are- Big Lots
- Costco
- CVS
- Dollar General
- GameStop
- Home Depot
- Lowes
- Marshalls
- Meijer
- Menards
- Office Depot
- Ross
- Sears Holdings
- Staples
- Target
- TJ Maxx
- Walgreens
- Walmart
Visit any big box store and comb through the aisles looking for deeply discounted products, such as discontinued items. Some stores relegate these items to clearance shelves or racks, which makes your job easier. You can then purchase the items at a deep discount and sell them for close-to-regular price, especially if those items are popular but scarce in other parts of the country.
If you find a product that looks like a great deal, use the Amazon Seller Mobile App on your smartphone to scan the item’s barcode. The Mobile App displays any product that matches the barcode and is being sold on Amazon.
The Amazon Seller Mobile App.If you see the matching product, tap the arrow to the right of it to display additional information about the item, including the following very useful details:
- Sales rank in its product category
- Product rating
- The lowest price the item is currently listed at
- Estimated Amazon selling fees
- Gross proceeds (estimated profit; tap the arrow to the right of Gross Proceeds for additional details)
- Seller eligibility, which indicates whether you’re permitted to list the product for sale
Gauge the product’s profitability.This information helps you determine the sales and profit potential of the product.
If the product doesn’t have a current listing on Amazon, you’ll be the only seller listing this product, in which case you have zero competition. Having no competition doesn’t guarantee sales, but if you think you can sell the product for a price that will earn you a decent profit, you may be able to corner the market for a time.
Buying from online retailers to sell on Amazon
Online arbitrage involves buying products in one online marketplace at a low price and selling them in another marketplace for a profit. The most common forms of online arbitrage are Amazon-to-eBay, eBay-to-Amazon, and Amazon-to-other-marketplaces.The process is similar to that of buying products from brick-and-mortar stores and selling them on Amazon. The only difference is that you can’t simply scan a barcode to get most of the information needed to gauge a product’s profitability. Instead, you need to do some research on your own to estimate the potential salability and profitability of a product.
Prior to engaging in online arbitrage, check the policies that govern the source and target markets to ensure that the method you have in mind is permitted. Here are a couple examples of policies that restrict online arbitrage:
- Amazon prohibits its Prime members from purchasing products on Amazon for the purpose of reselling them anywhere. However, if you’re buying products on Amazon as a regular (not Prime) shopper, you’re permitted to resell the items you buy.
- eBay prohibits its sellers from taking orders on eBay and then buying the product in another marketplace and having that seller ship the product directly to the customer.
Be prepared to encounter challenges with online arbitrage that aren’t likely to arise when you’re using more traditional product sourcing methods, such as the following:
- Refund delays: When a customer requests a refund, processing it may take four to six weeks due to variations in payment cycles across marketplaces. Delays may lead to dissatisfied customers, who leave negative customer feedback about you. One way to work around this problem is to issue the customer a refund immediately and wait for reimbursement (for example, from the eBay seller who sold you the item and shipped it to your customer).
- Uncertain inventory levels: When you source products through retailers in other marketplaces, keeping your inventory levels updated on the target marketplace is difficult and often results in cancellations/refunds. You can avoid cancelling an order by getting the product from a different seller at a higher price, but that option will negatively impact your profits and may even result in a loss.
- Inconsistent packaging: If you’re having eBay sellers ship products to your Amazon customers, your customers may receive products packed in eBay boxes, which can be confusing for your customers and embarrassing to you and result in a breach of Amazon’s policies.
- Evolving marketplace policies: To improve the customer satisfaction on their platforms, Amazon and eBay (the main platforms for online arbitrage) regularly revise their policies. If you fail to keep abreast of and comply with current policies on either platform, you could have one or both of your accounts suspended.
The importance of having a purchase order (PO) or receipt
A purchase order (PO) is an official document prepared and sent by a buyer to a seller indicating the types, quantities, and agreed prices for products or services. Whenever you’re buying products to resell on Amazon, be sure to obtain a purchase order or receipt and save it as proof of purchase. Having proof of purchase is essential for the following purposes:- Category approvals: New sellers may not be permitted to sell products in certain categories until providing proof that the products have been sourced through approved channels. A PO or receipt provides that proof.
- Legal protection: If a dispute arises over where a product was manufactured or whether the product is authentic, Amazon requests a copy of the PO or receipt to help verify the claims made in your product listing.
- Inventory tracking and price protection: Amazon wants to know that its third-party sellers can fill orders and provide some price stability to customers, which also impacts your success. Having a PO, complete with pricing information and quantities, serves as proof that you have a relationship with a supplier that can ensure adequate stock at affordable prices.
- Inventory management: POs provide insight into product demand based on dates and frequencies of orders, enabling you to make more accurate sales projections and prevent overstocking and understocking.
- Accurate transaction history: POs provide you with a transaction history that’s useful whenever you audit your inventory. With your POs and inventory reports in hand, you can identify the source of any discrepancies in your inventory records.