What is Retail Arbitrage?
Retail arbitrage is an ecommerce business model centered around buying inventory at a discount from offline and online retailers, then reselling it online for a profit.
It seems like easy money, right? There’s a catch. The real cost comes in the form of time, effort, and resources required to go back and forth between retailers, eyeing discounts, and jumping on sales. All this in addition to listing items online and navigating logistical complexities.
That’s why anyone who pursues a retail arbitrage model must have a passion for bargain hunting. In this post, we’re going to dive into some of the best places and ways to source retail arbitrage products. But before we do, it’s essential to answer a few preliminary questions.
How Does Retail Arbitrage Earn You a Profit?
At first glance, it seems like the description above applies to a wholesaler ecommerce model. Wholesalers buy up large quantities of product, assume the cost of storing and shipping that product, and then sell it at a higher price.
So what’s the difference?
With retail arbitrage, buying in wholesale quantities is rare. Instead, most retail arbitrage businesses “pre-sell” products in accordance with current discounts or sales.
For example, let’s say a local clothing store offers a big weekend discount on athletic shorts. You’d immediately list those exact items on your storefront of choice (usually Amazon, eBay, or your site) at a marked-up price.
Once you’ve reached a critical mass of sales that offset your costs and prove demand for the product, you physically purchase those items from the retailer. Then, you process and ship them to customers while pocketing the profit.
Savvy sellers can also stack this strategy with dropshipping for even more efficient logistics. Dropshipping, as we’ll explore below, eliminates the need to acquire the products physically.
In the dropshipping/retail arbitrage hybrid model, products are shipped directly from the retailer.
Many variables can impede profits for retail arbitrage sellers. We’ll get into the practical solutions to those pitfalls later in the post. First, let’s answer a few more critical questions.
Is Retail Arbitrage Legal?
You wouldn’t be the first to look suspiciously at retail arbitrage as a sustainable business model. Surely this practice violates some terms of service or laws somewhere, right? How can it be legal to make a living flipping product for profit?
As it turns out, retail arbitrage remains very legal in the US. The model even has certain legal protections to ensure large brands can’t intimidate resellers into ceasing their operations.
This law, called the First Sale Doctrine, allows individuals to resell goods as new. The only stipulation is that resellers must have purchased the goods in question legally.
There are some exceptions to this law in selling counterfeit or bootleg items, but retail arbitrage ventures need not fear powers-at-be knocking down their doors.
Additionally, most marketplaces like Amazon and eBay allow retail arbitrage on their platforms. Either way, it’s always a good idea to keep one eye on the terms of service wherever you’re selling.
How Much Can You Make with Retail Arbitrage?
One of the challenges with retail arbitrage is that there are many variables outside of the seller’s control:
- You can’t determine when items go on sale
- You can’t decide which particular items go on sale
- You can’t set market demand for items
The retail arbitrage seller is, in many ways, subject to the whims of the large corporate retailers.
For this reason, this model can be intimidating to those who don’t have the patience to dig through bargain bins and persist through frustrating beginnings.
That said, retail arbitrage is a sustainable business model for those willing to put in the work. It may require selling smaller items to reinvest those profits into larger items.
Still, it’s possible to make several hundred to several thousand dollars per month with retail arbitrage without significant scaling or hiring employees.
Many Amazon arbitrage sellers make a full-time living selling exclusively on the Amazon platform.
Further, several scanning tools (including one provided for free by Amazon) are available to resellers. These tools make it easy for sellers to snap a picture of a barcode and immediately see their potential profits.
In short, thanks to the speed and capabilities of mobile devices and online tools, there’s never been a more profitable time to get into retail arbitrage.
Why Would Stores Markdown Products Instead of Selling Them Online Themselves?
The short and simple answer is that small sums of money are inconsequential to most retailers.
While netting $500 a day (not an uncommon thing for the motivated reseller) is decent money for one person, it’s less than a rounding error for companies like Wal-Mart or even smaller organizations.
It’s more valuable for these retailers to move products in bulk than to concern themselves with price-matching every reseller on eBay.
The Best Retail Arbitrage Products
Not all products are well-suited for flipping. Here are some of the best categories for retail arbitrage. Later, we’ll look into the best places to source items in each of these categories.
Regardless of the store, any items on clearance racks are often the best arbitrage products. Generally speaking, the clearance rack should be one of the first places you go in any physical store you visit as part of your sourcing strategy.
Just make sure you have your Amazon Seller app handy to scan products and discern potential ROI.
Health & Beauty Items
The best retail arbitrage contenders are going to be sub-$20 items. This makes anything in the health & beauty category perfect for discounts, bulk purchasing, and profit.
Home decor, accessories, and home maintenance items are among the top candidates for reselling. This is due to their ubiquity in almost all big-box retailers (making them prime for the clearance rack), constant market demand, and mid to low-range price tag.
Clothing & Shoes
You’ll quickly see that some of the most profitable categories are those that have consistent, year-round demand. Clothing, of course, is a fundamental human need. Even in a recession, people will still be buying clothes.
Further, almost every large retailer has a clothing section. This constant demand and lower price tag coupled with frequent sales make clothing and shoes some of the best retail arbitrage products.
Sporting goods are one of the few categories of products that are non-essential but appeal to a massive demographic. Men, women, children, casual athletes, and weekend warriors all need sporting equipment.
And this doesn’t necessarily need to be a physical sport. It can be for an outdoor hobby such as hiking, fishing, or camping.
Because sporting goods have such variance in price, you have the potential to turn a very high profit if you jump on a significant sale from a large-scale retailer like Bass Pro Shops or REI.
The demand for toys is relatively consistent but skyrockets during the holiday season. Arbitrage sellers should study common discount patterns and take advantage of this seasonality, specifically on toys in high demand or with a risk of stock-outs.
Top Stores for Retail Arbitrage Sourcing
Here are some of the top retailers (both online and offline) for sourcing the products mentioned above. Many of them have daily or weekly newsletters with discount opportunities. Be sure to sign up for all of them to stay informed and quickly jump on relevant sales (more on that below).
General Selection Stores
Many of the stores or locations in this section check several boxes at once. They almost all have clearance racks, multiple product categories, and several locations. These factors make them prime spots to hit first when you’re just starting.
Dollar Stores (Dollar Tree, Dollar General)
Dollar stores (especially ones like Dollar Tree that maintain their $1 price on everything) are great places to source products for flipping. However, they’ve recently garnered a reputation among the flipping community for having certain “gated” or restricted items. Gated items are products forbidden by most marketplaces like eBay or Amazon.
If you do go the dollar store route, be sure to check these sections first:
- Party supplies
Malls and outlet malls contain many retailers that you’d never find just driving down the street. These “specialty” stores often have hidden gems that can earn you a pretty penny on a flip. Plus, there’s the added benefit of hitting a dozen retailers in multiple categories in a short amount of time.
If you go the mall route, target these types of stores first:
- As Seen on TV stores
- Electronics stores
- Boutique clothing stores
- Phone (or phone accessory) stores
- Clothing & shoe stores
If you’re not a frequent patron of a liquidation store, don’t worry. These retailers aren’t exactly staples of your typical American shopping trip. They are, however, excellent for retail arbitrage.
Simply Google “(your city) liquidation store,” and you’re sure to find 3-4 prime locations to check out. Most have websites that display all or most of their inventory, saving you a trip to the store.
Wal-Mart is a prime spot for clearance rack hunters. Especially when it comes to big-ticket items like sporting goods and toys. However, you’ll want to go in with keen knowledge on what products are gated on your platform of choice. For example, any LEGO products are strictly forbidden on Amazon.
Arming yourself with a little bit of knowledge and a scanner app can save you hours of frustration when clearing the shelves of this gigantic retailer.
Home Depot has a deceptively wide array of products that go far beyond the home repair and home maintenance categories. They run sales on everything from grilling equipment to gardening tools to home decor.
Home Depot isn’t as likely to feature their clearance items as prominently as Wal-Mart, so be sure to check online for deals before your visit. You can also speak to a manager to identify current sales and discounts quickly.
One of Target’s prominent features is the discount section, usually placed near the store’s entrance. This small area features a wide assortment of discounted “first-come, first-serve” items in many different categories.
It’s not uncommon to find stationery, toys, and small accessories there in accordance with holidays or the back-to-school season.
Thrift Stores (Salvation Army, Goodwill)
Thrift stores are one of the best sources for retail arbitrage products. Thrift store bargain hunting requires patience and a keen eye, but it’s not uncommon to score a one-in-a-million find at your local Salvation Army or Goodwill.
In addition to having items in almost every category imaginable, most thrift stores are often open to (even encourage) negotiation. This is especially true if you’re a known customer and buying several items at once.
It may seem strange to purchase discounted products on eBay and then turn around and sell them on the same platform you bought them on. However, it’s a real strategy for retail arbitrage sellers.
Sometimes Amazon and eBay have fluctuating prices, so it makes sense to purchase something on one platform and sell it on the other. Or, occasionally, you can use eBay in conjunction with Amazon to dropship retail arbitrage products (more on that in the section below).
Now that we’ve covered the general hotspots for most retail arbitrage sellers let’s explore some stores that specialize in each category. These are helpful spots to hit up as your business grows or as you decide to niche down into a particular demographic or product type.
Health & Beauty
- Rite Aid
- Vita Cost
- The Vitamin Shoppe
- Bath and Body Works
- Ace Hardware
- Bealls Outlet
- Bed Bath & Beyond
- Christmas Tree Shops
- Hobby Lobby
- Home Depot
Clothing & Shoes
- Finish Line
- Old Navy (especially keep an eye on their sales and coupon codes)
- Academy Sports/Outdoors
- Bass Pro Shops
- Sierra Trading Post
- Build A Bear
- Disney Store
- Hasbro Toys
- TV’s Toy Box
The Best Retail Arbitrage Sourcing Strategies: Retail Arbitrage for Beginners
So far, we’ve covered what retail arbitrage is, what categories of products work best for flipping, and where to source them.
However, there’s no way around it: retail arbitrage is a grind. Especially in the beginning, it may take days of arduous work before seeing real success.
We’ve collected the following strategies from across the retail arbitrage community to mitigate these frustrations. Practice these tips to avoid common pitfalls and expedite your success:
Start With One Item Category
If you’re looking at the above lists of categories, stories, and sources and getting overwhelmed, it’s time to take a step back.
It’s not sustainable to diversify your product categories right off the bat. There are just too many sales, stores, and nuances to manage. A better way forward is to start with one category or two to three sourcing locations.
Most experienced flippers recommend big-box chains like Wal-Mart for their clearance racks. Also, thrift stores are always low-hanging fruit (though they require a lot of patience, as mentioned above).
As you dip your toes into the arbitrage world with some general-purpose items found at these sources, you can reinvest your profits into more nuanced and big-ticket items.
You can then start branching out into specific categories like toys, beauty products, or home decor.
It’s helpful if you choose something you’re passionate about and knowledgeable about. This not only gives you a competitive edge in writing sales copy and discerning value but can make bargain hunting more fulfilling.
Start With One Channel
Utilizing multiple storefronts like eBay, Amazon, and OfferUp for your retail arbitrage is a great way to scale your business. These platforms are home to varying demographics that help you get your products in front of more eyeballs.
However, in the spirit of the previous tip, trying to start your business on multiple channels is a recipe for overwhelm. Not only do you need to familiarize yourself with the nuances of each platform, but you also must know which products are restricted.
The unanimous “best for beginners” platform is the Amazon Sellers Program. Not only can you take advantage of Amazon FBA, but the app includes a built-in scanner for quick ROI discernment (more on that below).
This isn’t to say you won’t want to scale up to a multi-channel strategy eventually. Just be sure you have the inventory management infrastructure to support it. SkuVault, for example, aggregates all your channels into one clean, easy-to-use dashboard. Here, you can quickly visualize profits and ROI on each channel and monitor logistics data like shipping and processing. This allows you to quickly determine which channels are performant for your business and which you need to cut.
Use a Scanner Tool to Determine ROI
Imagine a world before smartphones. Flippers in the early 2000s were the real MVPs, the ones genuinely dedicated to their business. In 2021 and beyond, we have it easy.
Back before scanner apps and mobile tech, you’d need to make estimated guesses on the value of products. You might see a DVD player at a thrift store (remember, we’re talking early 2000s here) and think you’ve hit the jackpot.
You purchase it, take it home, check eBay and find that it’s discontinued. It’s worth almost nothing, and you’ve wasted three hours.
Thankfully, those dark times are behind us. As mentioned above, the Amazon Sellers app includes a free scanning tool that immediately outputs an item’s potential value (even after processing and shipping fees).
All you need to do is snap a picture or scan the barcode, and within seconds you can determine if an item is worth your time.
As a general rule, experienced arbitrage sellers say to shoot for items with at least a 50% ROI or over $3 profit. These thresholds are at your discretion, but anything less is a waste of time.
If you want to explore other scanning apps, there are quite a few on the market right now. However, many of them are paid and don’t enjoy the immediate integration with Amazon.
Hit All Locations During Chain-wide Sales
We’ve already discussed several benefits of targeting chain retailers like Wal-Mart, Home Depot, and Target for arbitrage sourcing. One of the biggest perks of this strategy is that any discounts or sales are valid in all store locations.
Remember way back in the introduction when I mentioned the “pre-sell” strategy? Couple that technique with multiple-store discounts, and you have a recipe for some serious profit.
Once you’ve gotten your feet wet in arbitrage and perhaps have some money to reinvest back into your business, follow these steps:
- Monitor retailer discount patterns and sales
- Identify a significantly marked-down item
- List that item on your Amazon Seller or eBay storefront
- Hit multiple store locations and buy the items in bulk (according to your pre-sales)
- Process and ship the items and keep the profits
This means that even if one store (say, Target) sells out of the discounted product, you’ve likely got three to four others within the radius of your city or municipality.
Sign Up For Email Newsletters
The best way to stay informed without wasting precious time is to sign up for your target retailers’ email newsletters.
I know it may not seem appealing to clutter up your inbox with email marketing materials. However, there are ways you can set rules within your email client of choice (Outlook, Gmail, etc.) to automatically forward these emails to a designated folder.
That way, you not only have all your discount data in one place, but you can delineate them from the rest of your inbox.
Batch Retail Arbitrage With Drop shipping
Throughout this post, I’ve mentioned the possibility of utilizing both the dropshipping model with retail arbitrage (someone needs to come up with a name for that. I vote “dropitrage”).
The profit potential is high, and the process is expedient. However, consider this strategy still in the “beta” version, as it’s proven difficult to scale.
Here’s how it works:
- You identify a discounted product on an online marketplace that offers to ship, such as Amazon or eBay.
- You list this product on your own Amazon or eBay storefront at a markup.
- Once a customer purchases from your storefront, you buy the item at a lower price from the platform you found it on.
- You then set the target shipping address to your customer rather than yourself, pocketing the profits.
You can immediately see how appealing this strategy is, especially in a post-COVID world where folks are still wary of in-person browsing (or unable to browse altogether).
At the same time, this process requires a substantial amount of research and work. Additionally, it’s challenging to do this in bulk due to the piecemeal nature of finding items on these platforms.
That said, it’s a pretty innovative (and yes, completely legal) way to make a profit without leaving your couch.
Build a Solid Foundation of Inventory Management
Among all the eCommerce business models, perhaps the most demanding of an organized inventory management system is retail arbitrage. Think about it: you’re dealing with multiple platforms, retailers, and price points. You have to monitor multi-channel sales (should you decide to scale) and manage all your logistics yourself.
SkuVault is designed to equip eCommerce businesses with the inventory management infrastructure they need to succeed. We’ve built our platform to accommodate all processing, shipping, reporting, and logistical needs of small and large businesses alike.
If you’re serious about retail arbitrage and flipping products for a living, we’d love to chat more about how to help you set yourself up for inventory management success. Reach out to our team for a live demo today.