Online shopping has been on the rise for decades, but COVID-19 has dramatically changed the game.
The rise of online shopping has led to the rise of retail arbitrage, which — with a bit of know-how and some start-up cash — can become a new revenue stream.
In this article, we’ll discuss:
- What Is Retail Arbitrage?
- How Does Retail Arbitrage Work?
- How to Get Started
- Best Places to Find Products to Sell
What Is Retail Arbitrage?
Retail arbitrage is simple: You buy a product at a brick-and-mortar store at a low price, then turn around and sell it for a higher price, pocketing the profit.
In theory, you could sell that product anywhere — at a yard sale, on Craigslist or Facebook Marketplace, at a flea market, etc.
But given the advent of online shopping, the real way to be profitable (and turn retail arbitrage into a full-time gig) is to sell on e-commerce sites like Amazon and eBay.
Online marketplaces, especially Amazon, are actually designed to support sellers who practice retail arbitrage. Amazon FBA (Fulfillment by Amazon) might be the greatest investment you can make as a full-time retail arbitrageur.
How Does Retail Arbitrage Work?
To understand how you’d make a profit in retail arbitrage, let’s imagine a hypothetical scenario:
You walk into Walmart, wallet packed with cash ready to invest. Immediately, you head to the clearance shelves and find 20 iPhone cases that originally sold for $24.99, but they’re for an older-model phone from last year, so they’ve been marked down to $4.99 each.
You use your tools (more on those later) to determine if the product is worth the investment. After some research, you feel confident you can list these on Amazon for a couple of dollars below the retail price (to undercut the competition) and sell them easily.
You purchase all 20 for a total of $99.80 plus tax, list them online for $22.99 each, and sell them quickly, incurring fees for FBA and shipping. After all fees and the cost of the investment, you earn roughly $10 per phone case, for a total profit of $200.
Now imagine this on a grander scale. If you have the time and resources to invest in this endeavor, you could quickly make a lot of money.
And just in case you’re wondering, retail arbitrage is 100% legal. In the 2013 Kirtsaeng v. John Wiley & Sons case, the U.S. Supreme Court reaffirmed that owners have resale rights to items they legally acquired through retailers (something we’ve long done before retail arbitrage through yard sales, Craigslist, etc.).
Do note, however, that brands are increasing “gating” their products, meaning average Joes can’t sell them online. Do your homework before listing anything for sale that you’re unsure about.
How to Get Started Selling on Amazon and Other Websites
Getting started in retail arbitrage may seem overwhelming, but if you break it down into more simplified steps, you’ll see just how stress-free it can be.
1. Get the Money for Your Initial Investment
The number one thing you’ll need to get started in retail arbitrage is the money to invest in your first items for resale.
But if you’re strapped for cash, you can turn to your own goods lying around the house to get started: kitchen appliances you rarely use (do you really ever plan to use that breadmaker from your wedding?), old DVDs and video games, clothes you’ve grown out of and furniture you’re not in love with.
List it for sale on Craigslist or Facebook Marketplace (that way you don’t have to worry about shipping logistics yet). Once you’ve sold enough, you should have enough seed money to start your venture for real.
2. Get the Tools You Need
You’ll need some tools to help you accomplish the following things for your new retail arbitrage side hustle:
Knowing What to Sell
Do some research before your first trip out to the clearance racks to find products that will be lucrative to resell. The Amazon Best Sellers list is a great place to start, but you can also check out our list of the best products to sell on Amazon FBA.
Ideally, you’ll find products that are hot sellers on Amazon to ensure that there is a reasonable market and that you can move products quickly.
Pay attention to a product’s Best Sellers Rank (BSR). On average, you can expect to sell an item with a BSR of 100,000 once a day.
Some of the most popular categories include electronics, home and kitchen, baby items and clothing. (Be aware that clothing sales are gated to newbies; you’ll have to get Amazon’s approval down the line to be able to legally resell clothing.)
You can also browse online to determine any stores in your area that are having moving sales, going-out-of-business sales or end-of-season clearance sales.
Setting Up an Account
If you plan to sell on Amazon, you’ll also need to set up an Amazon seller account.
On this page, you’ll see an orange “Sign up” button, but beneath it, take notice that it costs $39.99 a month plus selling fees. (Remember, these will be tax-deductible!)
To avoid this monthly fee, click “Learn more” and then scroll down the page, where you’ll find a message that says, “Just have a few items to sell? Sign up to become an individual seller.”
Please note that while going the individual route makes sense at first, as you’re just getting your feet wet, you’ll eventually want to upgrade to the paid seller account to manage large levels of inventory and a vaster selling empire. (The individual account includes a $0.99 fee per item sold, which can add up quickly. Nothing in life is free, eh?)
Downloading a Scanning App
You should also download a seller scanning app to use in-store. These apps can immediately give you data on how much scanned items are selling for online, how well they’re selling and whether you’re eligible to sell that item (certain items are gated, or restricted, from being sold third-party).
There are plenty on the market; some are free while others have one-time or monthly costs. Each has different pros and cons, but we’ve found paid apps will typically offer more helpful features, so you may want to eventually invest in one for the long term.
Track Prices and Reviews for Your Products
In addition to a scanning app, we recommend you use a website like Keepa, which tracks prices and sales for various items in Amazon. By referencing this site, you can determine how well certain items are selling and what prices said items are fetching.
In addition, you can check out current reviews for the product on Amazon. If the product has been garnering many recent negative reviews, you may have a harder time selling it.
3. Shop to Your Heart’s Content (But Be Smart About It)
Research the best stores in your area to hit up. Are there any going-out-of-business sales? Has Walmart put its Christmas stuff on clearance as of Dec. 26?
Determine where you’d like to shop and keep your target locked on the clearance sections. Remember to stay focused; this isn’t Supermarket Sweep
As you find potential items, scan them with your app, check them on Keepa and determine if the market is hot on Amazon and other marketplaces.
Don’t invest too much in a saturated market, but be wary of gambling on an untapped niche market. Items that sell moderately well but don’t offer much in terms of competition online are your best bet.
Keep in mind when selecting items for resale that you won’t retain 100% of the profits. So if you find an item for $10 that you can sell for $25, that does not mean you will net $15. Remember you’ll need to take several costs into consideration, including shipping fees, costs associated with FBA and any recurring business expenses you might have. (These might be small at first, but eventually you’ll want to start calculating fuel costs and maybe even rent for a separate storage place.)
The Amazon Seller App will help you calculate exactly what you’d make on the sale of a single item after purchasing the item, listing it and shipping it.
Retail arbitrage professional Ryan Grant recommends the 3x rule. This means you should be able to sell an item for three times what you paid for it; otherwise, it’s not worth the time and effort.
4. List the Items for Sale on Amazon
You can sell on other marketplaces (eBay is another popular option), but Amazon is by far the largest and most profitable because it’s where the buyers are. The site has a handy how-to for getting started selling on Amazon.
You can choose to fulfill orders yourself, and you may want to do that starting out. However, if you intend to make this a regular gig, you should seriously consider the Fulfillment by Amazon program.
In short, the FBA process involves:
- Sending your items to Amazon, where the retailer will store them in a fulfillment center;
- Customers purchasing your items;
- Amazon shipping your items for you, earning a small cut of the cost.
There are pros and cons to going this route, but spoiler alert: Most retail arbitrage pros will tell you to use FBA for all its perks.
So where do you find all the great stuff to sell? The most common places to source items to sell as part of your retail arbitrage business are, well, retailers. It’s kind of in the name, after all.
Top Retailers for Sourcing Products
When it comes to finding clearance items, your best bet is box-box retail staples and wholesale clubs/warehouses, including stores like:
- Sam’s Club
You should also consider home improvement stores, convenience stores, pharmacies, discount clothing stores, office supply stores and grocers, including the following:
- Home Depot
- Rite Aid
- TJ Maxx
- Office Depot
Don’t forget to check out other potential goldmines like Big Lots, Dollar General, Gamestop, Barnes & Noble, Home Goods, Michael’s and more for items on clearance.
Flea markets and outlet malls can also be sources of products.
Always be on the lookout for “store closing” signs and moving sales. It’s often cheaper for companies that are moving to sell their wares at a discount rather than pay to have them relocated.
But it’s not just retailers that offer you the plunder you’re after. You may also find them at:
- Antique stores, thrift stores and garage sales for unique finds;
- Craigslist and Facebook Marketplace to spot potential items;
- Your local library (or other libraries in your region) for book sales, where you can make away with boxes of books for some spare change.
Retail arbitrage can be highly lucrative if you are willing to put in the time and effort. Some key things to keep in mind:
- It will require some initial investment for you.
- Going it alone can be tough; using tools (whether provided by Amazon or a third party) and relying on FBA can make things much easier.
- Live by the 3x rule.
In addition, keep in mind that you have the option to go into the private label business on Amazon.
Retail arbitrage is often the first step successful sellers take on the path to creating their own brands (i.e., private labels) for the online marketplace. Doing so can help protect their products and make even more cash.
Here’s an intro to becoming a private label once you have a good handle on your retail arbitrage business.
Timothy Moore is a market research editing and graphic design manager and a freelance writer covering topics on personal finance, careers, education, pet care and automotive. He has worked in the field since 2012 and has been featured on sites like The Penny Hoarder, Debt.com, Ladders, Glassdoor and The News Wheel. He lives in Ohio with his partner and their three-legged dog.
This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.