What Is Retail Arbitrage? A Guide for Beginners

The Covid pandemic pushed over 40% of employees into remote positions almost overnight. This change meant that a lot of people sharpened their online knowledge and skills out of necessity. While some people yearn for the old days of heading to the office every day, many also saw a possibility of launching an online business.

While some might go into freelancing or consulting, others looked toward options like retail arbitrage. Is your first thought, “What is retail arbitrage?” If so, keep reading for our beginner’s guide to learn what you need to know about this business model.

What is Retail Arbitrage?

At some point, you likely walked past an item in a retail outlet that was marked way down from its normal price. Sometimes, you probably even looked at those products and thought they were way too nice for that kind of markdown. When that happens, there probably isn’t anything wrong with the product.

Retail outlets work with a finite amount of space. Big retailers also stock products based at least in part on deals made by corporate executives. Once those products hit shelves, though, they get a limited amount of time to prove themselves.

Just as importantly, products in stores might sell well in one region or city and sell poorly in another. In areas where a product sells poorly, the corporate execs will routinely look for another product they think will sell better. In the meantime, though, they need that old product off their shelves.

That’s when you see deep discounts on seemingly nice products. Retail arbitrage happens when you buy those discounted products at retail outlets and resell them at retail prices. In most cases, you resell them online.

Retail Arbitrage Pros and Cons

One of the benefits of retail arbitrage is that you likely already visit one or two major retailers on a regular basis. That lets you look for clearance items at Walmart or Target as part of your regular shopping trips. Since these stores regularly put things on clearance, you get a steady stream of options.

One of the cons is that you can never predict exactly what will come up in these stores’ clearance sales. You might get some great deals one week and find nothing worth the effort the next week.

If you only want a part-time business, that’s okay. If you plan on making a living through retail arbitrage, though, you’ll end up haunting the aisles of retail stores most days of the week.

Online Retail Arbitrage

A common variant of the retail arbitrage strategy is online retail arbitrage. In online retail arbitrage, you look for heavy discounts on products from online retailers rather than brick and mortar retailers. Online retail arbitrage offers you both pros and cons when compared with regular retail arbitrage.

On the pro side, you can look for products from the comfort of your own home. Online stores remain open 24/7, so you can shop when you’re tired or even right before you go to bed.

On the con side, not every online retailer lists the universal product code or UPC. That makes it more difficult to know if the product you see on one site actually is the product listed on a seller’s site. That can make decisions trickier since you can’t make a direct pricing comparison.

Another con is that purchasing on sites can tack on shipping fees that cut into your eventual profit margin.

Retail Arbitrage on Amazon

For most people, Amazon is the go-to place for launching a retail arbitrage business. Amazon makes it fairly easy for you to start. You create a seller’s account on Amazon.

You can go with an individual account or with a professional account. The individual account places limitations on the categories of products you can sell by excluded restricted categories. It also limits you to a maximum of 40 products.

You pay a per-sale commission and percentage of the sale that covers things like shipping. For part-time sellers who just want to test the water, this is a good option.

The professional account works a little differently. You pay a monthly fee, as well as a variable closing fee, but you also get access to Fulfillment by Amazon. Access to FBA simplifies the process a lot because you simply ship your products to an Amazon warehouse and they deal with everything else.

That frees you from dealing with shipping and opens your products up for Prime shipping. The downside is that you may pay storage fees for products that don’t sell.

Retail Arbitrage Tips

Making a serious go of retail arbitrage isn’t something that happens by accident.

First, you need some method for picking products that can make you a profit. If you plan on selling on Amazon, get their free seller’s app. That app lets you compare prices and calculate profit in one place, which can spare you the pain of buying things you can’t resell.

Expand your horizons occasionally and check out other retail outlets. If you do this once or twice a month, you may discover another great spot to source products.

Always make sure the condition of the item is new. This is particularly important if you plan on grabbing multiples of one item. It’s easy for anyone to overlook damage to one item in a stack of five or ten.

Retail Arbitrage and You

With the, what is retail arbitrage, question out of the way, you must decide if retail arbitrage is a good entrepreneurial choice for you. Retail arbitrage offers pros and cons.

On the downside, it means you must sacrifice your free time in the early days. You’ll face unpredictable product availability. Fees can eat into your profits.

On the upside, you can start small and build up the business without quitting your job. There is a steady stream of discount products available at retailers. There is even a readymade marketplace to sell your products.

Looking for more ideas or entrepreneurship tips? Check out some of our other articles in the Business section on this site.