Retail arbitrage is a business strategy where you buy an item at a certain price from one marketplace and resell it in a different marketplace for a higher price. For example, you may buy an item from the clearance sales section at a local store and then sell it online at a higher price, pocketing the difference as profit.
Retail arbitrage often involves buying in-demand items. This practice is similar to arbitrage in investing, where people take advantage of price differences between two markets. Let's explore how retail arbitrage can be lucrative and how you can get started.
Retail Arbitrage: Is it worth it?
|Verdict: Retail arbitrage involves finding discounted items to purchase and reselling them for a profit, a practice you may enjoy doing if you have a good eye for bargains. This business strategy can be profitable, especially as you refine your ability to identify in-demand items and expand on your knowledge and resources to sell them effectively.|
What is retail arbitrage?
Retail arbitrage is a method of making money by purchasing an item at a low price from one store and reselling it at a higher price elsewhere. Figuring out how to make money using this method involves identifying in-demand items and good deals.
For example, you may find sporting equipment on clearance at your local Target and buy as much as possible. You then list the equipment online on Amazon and eBay at a higher price. The price difference, minus any fees, is your profit.
Common stores and marketplaces to consider
When using retail arbitrage, some of the common brick-and-mortar stores to consider include:
- Office Depot
- Home Depot
- Other department stores
These are stores that often have clearance items and may offer high-quality products in their original packaging. Additionally, some of these items might be difficult to find in other parts of the country.
When selling your items, some of the common marketplaces include:
- Poshmark (for marked-down clothing and accessories)
If you are unable to sell certain items, you can try listing them for sale locally on platforms such as Craigslist or Facebook Marketplace. Although you may not make a profit, you may be able to minimize your losses.
Online retail arbitrage
Instead of purchasing low-cost items at your local brick-and-mortar store, you can opt for the fully online version of retail arbitrage. You can buy items at a low price online rather than at a physical store and then resell them for a higher price on a different online marketplace.
To do this, you can search for deals on items listed on online portals for stores such as Walmart, Target, Best Buy, and Wayfair. Once you have purchased these items at a discounted price, you can resell them on platforms such as Amazon or eBay for a higher price.
Keep in mindIt’s important to research the market and know the price you may be able to sell an item for before you buy it. Analyze your competition and make sure to offer a good price.
When you use online arbitrage successfully, you can take advantage of price differences between different online markets to make money. However, you should consider the shipping costs and factor them into your pricing.
How does retail arbitrage work?
Retail arbitrage can be done in person by buying products at physical stores and reselling them in your local community. It can also be online by purchasing products from online retailers and reselling them through an online marketplace such as eBay or Amazon.
The core steps of successful retail arbitrage are:
- Identify an in-demand product. Choose an item that will likely sell well online.
- Locate a good deal. Search for the product online and in local stores to find out if it’s on sale or clearance. You can also use promotions or coupons to decrease the item's price.
- Decide your sale price. Research the market and check out your potential competitors to get an idea about your potential sale price before buying the product. This can help you avoid deals that may appear good but aren’t so much so.
- Buy the discounted product. Get your chosen item at a discounted price by placing an online order or buying it in-store.
- List the product online. Do this through an Amazon storefront or on eBay. If you find high-quality clothing and accessories at a discount, you can use a site such as Poshmark to sell your items. Make sure to ask for a higher price than you paid, but one that has an edge over your competition.
- Ship the product. Make sure to send purchased items to the buyer quickly, as this may help you get more positive reviews. You should also update how many items you still have available.
- Make a profit. Once the transaction is completed, you can pocket the profit you make after paying any fees. You can also use this profit to expand your business.
An example of retail arbitrage
Let’s say you’re at your local Target, and you notice a children’s book on clearance for 99 cents per book. You look up the regular price online, and it’s $6.99, so you decide to offer the book on Amazon for $4.99.
You buy 20 books and pay a 6% sales tax, which brings your total cost to $20.99. When you use Amazon to sell less than 40 items per month, you pay 99 cents per item sold, reducing what you get per book from $4.99 to $4.
You should have $80 after selling the 20 books. Subtract the original $20.99 cost, and your profit should be $59.01.
Keep in mindThere are other seller fees you might end up paying, so it’s important to double-check the exact fees you’ll pay before assuming your profit.
|Number of purchased books||20|
|Total after-tax cost||$20.99|
|Book sale price||$4.99|
|Amazon’s basic seller fee per item||$0.99|
|Post-fees sale value||$80|
As you expand your business and begin selling more than 40 items on Amazon, you may have to upgrade your plan and pay for a professional account that costs $39.99 per month.
Another option is to open a Fulfillment by Amazon (FBA) account. Using this account allows you to delegate inventory storage and shipping to Amazon, which manages it all for you.
An Amazon FBA account can significantly simplify things when you sell many items. However, Amazon FBA charges for storage and shipping, among other fees, so you should account for this cost as you price your items and estimate your profits. You can use the Amazon revenue calculator to get an estimation of the profit you may make.
Who can earn money from retail arbitrage?
Retail arbitrage has a low entry barrier. Anyone can potentially earn money using this technique, especially those who have a skill for finding discounted items and good deals.
However, some criteria can contribute to your success even with the low entry barrier. Before you begin, consider whether you:
- Are willing to do product research to find items that are likely to be in demand and sell well
- Have the time to look for good deals in retail stores and online
- Can set up systems to keep track of your inventory and make sure you ship items in a timely fashion
- Are prepared to do some level of marketing to ensure your product listings are easy to find and buyers get to know you as a reliable and reputable seller
- Know how to take pictures so your items look attractive and your listings are professional
One of the most accessible retail arbitrage forms is using your eBay account to sell items. When you sell on eBay, you usually pay a listing fee, often called an insertion fee, as well as a percentage fee of the sale.
However, eBay allows you to pay zero insertion fees on up to 250 listings per month. Once you sell an item, your percentage fee is based on the value and category of the item. eBay does offer add-on seller services in its Sellers Hub, but if you’re just starting, using a personal eBay account can be a cost-effective way to learn the ropes.
Alternatively, you can set up an individual seller account on Amazon. This is a relatively simple process, and once your account is ready, you can sell up to 40 items a month before needing to upgrade your account.
|Target audience||Wider customer base and easy-to-use shopping experience||Specialized customer base, often used for collectibles and rare items|
|Product selection||Potentially more limited, as Amazon has certain restrictions on what can be sold||More diverse product selection, as eBay allows a wider range of items to be sold|
|Shipping options||Choose between various fulfillment options, such as shipping it yourself or using Fulfillment by Amazon (FBA)||Choose your own shipping options and couriers|
How to start a retail arbitrage business
When starting a retail arbitrage business, you need to determine what platform you’ll use. In the following steps, we’ll focus on Amazon because it’s one of the world’s largest online retailers and offers a variety of tools designed for sellers.
1. Open a seller account
Start by opening a retail arbitrage seller account on Amazon. There are two main types of Amazon business accounts:
|Personal Amazon seller account||Professional Amazon seller account|
You’ll need the following information to open an Amazon seller account:
- Government ID
- Taxpayer information and ID
- Phone number
- Amazon customer account or business email address
- Bank information
- Credit card information
TipCarefully consider which plan makes the most sense for you and double-check the fees. Fees can vary by item type, category, and sale price.
If you plan to sell a large volume of products, you may want to consider using an Amazon fulfillment service such as Fulfillment by Amazon (FBA). With this option, you ship your products to an Amazon fulfillment center, and Amazon handles the rest, including shipping and customer service.
Although there are additional storage fees and shipping costs, using FBA can save you time and effort by taking care of the logistics for you.
2. Use a retail arbitrage app
You can increase your efficiency by using a mobile app on the go. A retail arbitrage app can help you identify popular products and may even help you figure out the saturation level on Amazon. The sweet spot is sourcing products that are likely to sell but don’t already have many listings.
Some retail arbitrage apps enable you to scan the product barcode you hope to sell and receive information about its saturation on Amazon, as well as potential pricing and profits. This can help you decide whether to make your purchase and use the item for retail arbitrage before you spend any money.
Amazon also has its own Amazon Seller app. This app helps you analyze sales, manage inventory and stay on top of your Amazon retail arbitrage business. You can also determine whether your pricing makes sense and improve your presentation by taking and editing pictures from your mobile device.
3. Locate profitable products
By this point, you have the tools you need to look for profitable products. These are products you can sell for more than you paid. They should also be products that are likely to be in demand.
Check various stores to find good deals and prices. You may find items on sale or clearance. You may also be able to get a better price on an item by buying it in bulk.
Popular stores include:
In addition to brick-and-mortar locations, these retailers also have online portals that may run great promotions.
TipAmazon requires you to have a professional account to sell items in restricted categories, such as cosmetics. Make sure you qualify for selling the item you plan to sell.
You should also consider the shelf life of certain items. Groceries and medicine expire, so you should sell them well before their expiration date. In many cases, it may make sense to focus on items that don’t expire and won’t spoil before you have a chance to sell them.
Once you make up your mind, you can buy the product. It’s often best to use your own money, but make sure not to drain out your savings and avoid using money you can’t afford to lose. You can also learn how to get a loan, but be aware that interest charges will reduce your potential profit margin.
5. Sell the products
Once you have the items you plan to sell, you can list them on Amazon. You typically need to provide information about the product, including:
If you plan to fulfill the orders yourself, you also need to have shipping and courier information.
If you plan on becoming an Amazon FBA seller, you need to send your retail arbitrage product to one of Amazon’s warehouses. Amazon usually verifies the product quality and packaging before putting your listing live. Once the listing is live, Amazon handles shipping and customer service issues.
5. Calculate your return on investment
Your return on investment (ROI) is a percentage that represents your profits versus costs.
For example, let’s say you:
- Received $7,000 in revenue from selling items through Amazon arbitrage
- Paid $3,000 for the original item purchase cost plus all the fees
To determine your ROI:
- Subtract your costs from your revenue
- Divide the number you get by your cost
In this example:
- $7,000 minus $4,000 equals $3,000
- $3,000 divided by $4,000 is 0.75
This means that your ROI is 75%, which is a great return on investment.
However, there may be additional considerations to keep in mind. This may include:
- The amount of time it took you to make this revenue
- The consistency of these returns in the future
- The interest charges you pay if you take out a loan
How does retail arbitrage compare to other retail forms?
Retail arbitrage is one of many forms you may consider when choosing your resale business model. You may also consider dropshipping and regular retail. Each model has its pros and cons.
Retail arbitrage vs. regular retail
|Retail Arbitrage||Regular Retail|
Retail arbitrage doesn’t require you to have a brick-and-mortar storefront. You often use a marketplace to list items you got from a store as a regular customer instead of going to the wholesaler or supplier.
Retail arbitrage typically has a lower cost and risk than regular retail. You may be able to use a smaller markup on the items you sell because you don’t need to pay rent for a retail location and generally have fewer expenses.
Regular retail, on the other hand, usually involves buying items from a supplier, such as a wholesaler. You receive the inventory, display some of it, and store the rest. You often need to rent a brick-and-mortar store but can also consider selling through an online portal or an e-commerce website.
Your price markup in regular retail has to take into account the following factors:
- Rent and utilities you pay for your brick-and-mortar storefront
- The cost of the goods you sell
- Applicable insurance policies
- Costs related to an online portal if you have one
- Labor costs if hiring people to work in your store
Retail arbitrage vs. dropshipping
In retail arbitrage, you’re responsible for managing your own inventory and storing the products until you sell them. The upfront costs for retail arbitrage can vary depending on the quantity and price of the products you get, but they can typically be low to moderate.
The risk involved in retail arbitrage is typically slightly higher than dropshipping because you use your own money to buy the products. This means there is a risk of not being able to sell the products or the products becoming damaged or lost.
Dropshipping, on the other hand, refers to selling products without holding any inventory. Instead, you as a seller place an order with the manufacturer or supplier to ship the product directly to the customer.
Keep in mindDropshipping makes it harder to ensure the quality and availability of the products you offer.
The upfront costs for dropshipping are generally low, as you only need to pay for the product's cost after selling it. The risk involved in dropshipping can vary, but it is generally low because you don’t have to worry about purchasing or storing the products.
Retail arbitrage FAQs
How much do you need to start retail arbitrage?
To start retail arbitrage, you mainly need to cover the cost of the items you plan to buy along with any additional expenses, such as fees and shipping costs. You can start with less than $100 and gradually scale your business. It’s still a good idea to have a cushion of extra cash in case you encounter any unexpected costs or if your products do not sell as quickly as you hoped.
Is retail arbitrage profit taxable?
The IRS requires you to report your income when you file your taxes, including income you made through business ventures such as retail arbitrage. This is why you should keep track of your business revenue and expenses to accurately report and pay the appropriate taxes.
Can you start selling using Amazon FBA with no money?
You generally need at least a little bit of money to start selling using the Fulfilled by Amazon (FBA) service. You need this money to pay for the cost of the products you purchase and any fees or taxes associated with selling on Amazon
Other side hustles to consider
Retail arbitrage can be a great way to make extra money if you have the time and energy to seek out good deals and manage the selling process. However, make sure you’re aware of upfront costs, marketplace fees, and potential risks.
If retail arbitrage doesn’t feel like the right fit for you, consider one of the best side hustles:
You can work for DoorDash by delivering food in your free time. This service is widely available in the U.S. and enables you to make money by getting food from local restaurants to customers. As a Dasher, you work as a contractor and are responsible for delivering the orders on time and in good condition. You get paid for each delivery you make, and your pay is based on distance, order value, and tip, among other factors.
Get more information in our DoorDash review.
You may consider becoming a shopper with Instacart. This grocery delivery service allows its customers to order groceries from local stores and have them delivered to their homes. As an Instacart shopper, you’re responsible for shopping and delivering these groceries on time. You may also need to communicate with customers to replace unavailable items with similar products. You get paid for each delivery, and your pay is also based on several factors, including distance, order size, and more.
Find out more in our Instacart review.
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