Starting a business on Amazon can be challenging. You need to make a ton of investments, hire people to work for you, manufacture the product itself, and promote it. Without having a budget, it seems there’s no point to get into online retail.
There is a way out, however. If you have little or no experience in sales and management, consider Amazon retail arbitrage as a way to start a profitable business with little investment.
- 1 What is a retail arbitrage Amazon strategy?
- 2 How to get started with Amazon retail arbitrage
- 3 Amazon retail arbitrage downsides
- 4 Final thoughts
What is a retail arbitrage Amazon strategy?
Retail arbitrage refers to buying a product in a discount store or exporting it from developing countries to sell it online for a cost that’s 2-3 times higher than the initial value.
Quite often, people who practice retail arbitrage buy products on sale or in bulk so that the price is lower than a regular one on the market. Later, these items are sold online on marketplaces like Amazon.
What are the profits of retail arbitrage?
It’s important to understand that retail arbitrage is hardly a plan that will make millions. However, it is considered by many a great option for making your way into retail. Here are just a few benefits you get from such a practice:
- A significant profit. If you master the art of scouring products in discount stores, your profit from every sale can be 2 times higher than the initial cost of the product.
- You will learn how to sell on Amazon. Without having to produce the product, the promotion will be one of the main things for you to worry about. You’ll learn how marketing works and what products sell better than others, while becoming skilled at writing listings and taking product pictures, etc.
- A step towards private label selling. All the experience in ecommerce you get while meddling in retail arbitrage will be useful for moving to your next step – private label selling. You’ll be familiar with the retailer’s Seller Central Dashboard and Fulfillment, building yourself a gateway into private sales.
All that, combined with almost no capital needed proves Amazon FBA arbitrage to be quite a dependable starting out in retail – plus, there’s little-to-no risk of getting banned.
How to get started with Amazon retail arbitrage
Getting started with retail arbitrage is pretty basic – you can find all the steps you need to take on the web. However, to make your research easier, we’ve created a step-by-step guide with the retail arbitrage Amazon tips that will get you started with retail arbitrage in no time.
Step #1. Choosing a product to sell
One of the most common questions our team gets on the daily basis is “How do I know which products are good for Amazon FBA retail arbitrage?” Unfortunately, there isn’t a silver bullet here — no products have a 100% chance of selling and making a profit.
So to make sure you place your time and effort in the right direction, there are things to analyze and consider before choosing your products. Let’s go over a few important factors.
- The initial cost of the product should be 25-35% lower than the price you want to sell it for.
- The item should be lightweight, not much over 2-3 lbs. Heavy things are often treated as the items you can not sell using retail arbitrage on Amazon.
- Make sure the product is unbreakable and is hard to damage during dropshipping.
- Look for expansion opportunities so that you can consider selling complementary products later.
All of the above ensures that your product won’t break or be returned by a shopper. In an ideal environment (high level of demand, no competition), such a product is very attractive to sell.
However, there is never an ideal environment, so while choosing a product to sell on Amazon, you have to analyze the competitive environment as well. Here’s a few pointers for things to look for:
- Make sure the type of products you’re considering are not sold by big brands.
- The item can be found using different keywords and search queries.
- There are a few high-volume keywords that relate to the products (over 100,000 searches).
Step #2. Setting up an Amazon account
Now that you know how to do retail arbitrage on Amazon, the next step is setting up an Amazon seller account and getting started. Amazon has explicitly laid out these steps, but we’ll go over the procedure briefly to show how straightforward it is.
- You can create an Amazon account by clicking the “Selling on Amazon” button on the “Services” page.
- Choose the type of seller that fits you better: personal or professional. A personal seller is one who tries to sell something they no longer need. A professional seller, however, is one who sells items regularly with the purpose of business and ongoing profits. Henceforth, for retail arbitrage selling on Amazon, you should choose the “Professional” option.
- Make a monthly fee payment of $39.99 dollars for professional sellers.
- Set up a seller profile – your account info, notification preferences, login, return options, etc.
- Fill in your tax information.
- Submit all of your personal info and wait for Amazon to make it approved. The retailer is quick to follow up on account submissions so you’ll hear from Amazon soon after completing your profile.
- Learn more about the workplace. Seller Central workplace can seem complex at first so it’s better to take some time to learn all of the tabs – orders, promotion, advertising, etc.
Step #3. Install a few useful apps
Apps are a seller’s go-to while dealing with all the aspects of Amazon selling. You might find a ton of those on “Product Hunt” but here a few we recommend you use:
- Amazon Seller App. This app is the one you absolutely need to succeed as an Amazon seller. It gives you mobile access to your Amazon Seller Account so that you can manage it anywhere, anytime.
- Scoutify. Scoutify is a scanning app that helps you find promising Amazon products. It has all of the necessary integration to make your search for the next Amazon bestseller as easy as possible.
- Discount Stores. This app uses GPS to find the closest discount shops in your area.
- Inventory Lab. a must-have tool to put your product lists and inventory in order. You can also track your sales progress on a monthly basis instead of creating spreadsheets on your own.
Amazon retail arbitrage downsides
1. Sales are dependent on the market
When you’re in retail arbitrage, your freedom is restricted. On the contrary, it is up to the market to determine if your next product will do well. You will have to constantly be on the lookout for good deals and discounts, scouting for the next big product, and considering whether the margin you are selling at is too high.
Also, retail arbitrage doesn’t allow you to create a cohesive product line and be remembered as a brand who excels in a particular line of items.
2. Retail arbitrage is a short-term fix
Retail arbitrage is not sustainable in the long run. There are simply too many factors at play – whether it’s an issue with the particular store you use to buy goods, or their price policy, and quite often you’re strictly tied to a location. By yourself, you deliver little value, you have no freedom to offer discounts and loyalty programs, and can’t develop a relationship with customers. Between you and someone who’s more flexible, a buyer might ultimately choose a competitor’s product.
3. Risks get higher as you try to scale
In the beginning, retail arbitrage seems completely risk-free – you buy as much as you can sell, and when the inventory is empty, you go for a new purchase.
However, as your business grows and scales, you’ll be forced to buy more, thus increasing the investment. If the market landscape changes suddenly and the sales volume drops, you might end up with a lot of items that you don’t know how to distribute.
4. You can’t own up to your failures
A lot of Amazon sellers are famous for customer service – sending a product replacement when needed, including a free gift with the package, developing the product better in response to community feedback on what they would like to see.
You would have none of these features with retail arbitrage. At the end of the day, you can only sell what you bought yourself without being able to work on the product in any way.
5. Low return on investment (ROI)
While some people choose to buy a product at an above average price simply because it’s more convenient and there’s no need to go to a physical store, it’s important to remember that people are perceptive when it comes to buying. There’s a certain pattern as to what’s cheap and expensive, a border you cannot cross.
This limits a seller in their desire to drive profits from the shop. Thus, the only way to earn more is by prioritizing quantity over quality, getting more and more items to sell. That is possible and at times efficient, though, as mentioned above, this model is a huge risk as well.
- Retail arbitrage on Amazon is a convenient business model for those who want to get some money with little investments and are in for a new experience in trying their hand at Amazon sales. If you’ve been wondering, “Is retail arbitrage allowed on Amazon? – the answer is “yes.”
- In order to know how to retail arbitrage on Amazon, you have to find a product to sell and a shop that sells it with a lower-than-average price tag. Then you need to set up an Amazon Seller Account – and voila, you’re ready to do business.
- Retail arbitrage is not a straight road to a successful business; it has its own bumps – the lack of market control and freedom, low ROIs.
If you want to get the hang of retail arbitrage and avoid the pitfalls, be sure to contact Amz-Expert. We work as a team of dedicated experts that answer all questions regarding Amazon business. We’ll be here to guide you through retail arbitrage any time.