SkuVault Blog

Tips and tricks to scale your business from the experts in eCommerce

What is Retail Arbitrage and Why Are Brands Fighting It?

Posted by Avery Walts on Sep 29, 2016
Find Avery Walts on LinkedIn

woman buying records for retail arbitrageThe act of retail arbitrage has become an everyday job to some Amazon sellers. Now more than just a hobby, it is a career, a lifestyle, a shopper’s worst addiction. Quite simply, retail arbitrage is the act of buying items at a retail store then turning around to sell them for a profit on Amazon. Whether or not you read that statement as deceptive or smart is the reason some find a problem with this form of shopping. In this article I am going to detail the consequences of retail arbitrage and the steps brands and companies are taking to deter retail arbitrage (RA) resellers.

[Learn how you can decrease fulfillment time by 87%! Try a demo of SkuVault today!]

What is Retail Arbitrage?

Sellers source items at places such as liquidations stores, clearance shelves from big brand stores like Target, items on sale in bulk, and even garage sales. They check an in-store price against the price listed on Amazon to make sure a purchase will be worth the profit later. If an item is more expensive on Amazon than in the store, they are most definitely going to resell it at or near that price.

It’s all a game of who can find something the cheapest and make the highest profit in the quickest amount of time. The ultimate goal is to find something so cheap that you even make a profit after paying Amazon listing fees and shipping fees. It’s easy to understand the thrill of it all, but there are a few consequences to keep in mind before you get the itch to take up RA.

  • Your credibility and brand credibility. When a brand is in control of selling their product they deliver an item untouched. When a seller resells that item the customer runs the risk of receiving a damaged good. This hurts the brand’s reputation and the seller’s reputation, inviting bad customer reviews.
  • Reduce your chance at winning the Amazon Buy Box. By challenging a brand’s price, you’re also increasing the number of resellers against brands, therefore making it harder to win the coveted Buy Box.
  • Selling too fast. If your sales velocity is not supported by buyer feedback or sales history, your account is likely to be reviewed and your selling privileges will be taken away.

So why are stores not selling items on Amazon when Amazon is selling the same items at a much higher or lower price? Wouldn’t stores want to compete in that market as well?

Stores don’t want buyers to think Amazon is the only place to buy things. This loophole creates an advantage for RA shoppers. However, RA occurs with online shopping as well. The only difference is that online resellers can time their purchases and sales more for logistical costs, and they don’t have to house the inventory or ship it to buyers.

How Brands Can Prevent RA

Containing retail arbitrage shoppers may be a feat left undefeated, but brands can enact a few tricks to protect their products. Here’s a few to keep in mind.

  • Limit the promo codes, people. Sure, promo codes are a great way to entice customers, but too many and you’re inviting RA. RA buyers look at promo codes as a way to buy items in bulk at an even cheaper price
  • Frustration-Free Packaging. If you so choose, Amazon will work with manufacturers to box a brand’s products in Frustration-Free Packaging (FFP). This kind of packaging can increase the Buy Box percentage which then reduces the chance of being compromised by unauthorized resellers. Only manufacturers or authorized sellers are allowed to sell FFP products on Amazon.

Amazon’s Fight Against RA

Last month Amazon released a new feature called brand gating in an effort to dilute RA and Chinese counterfeit products.

The feature will affect sellers reselling top brands like Nike, Adidas, and Hasbro the most. Sellers will have to pay up to $1,500 per brand if they want to continue to list those branded products. In fact, Nike said they will no longer sell their products on Amazon. Brand gating was implemented after relentless Amazon sellers have complained about their products being immorally copied by Chinese sellers, and then buyers leaving negative reviews on products that were not actually made by the original seller.

Target’s Campaign Against RA

Last year Target took a significant stand against resellers by banning them completely after Target ran out of an exclusive collection’s items from resellers. They did this, obviously, to ensure future customers would have enough products to purchase. Target employees were schooled on how to detect and deal with potential RA shoppers, such as shoppers purchasing large quantities of items and asking to use special discounts. Target saw this process as a loss to their overall revenue, but RA shoppers could see this as an enhancement to Target’s revenue. Either way, to have a giant retailer such as Target take action at this scale speaks volumes.

Solution

In all honesty, there may not be a real solution to solve the RA trend. But there’s no denying RA can negatively impact a brand’s revenue and credibility in a big way. It’s optimistic to see big companies like Amazon and Target noticing the trend and taking effective action. Like any trend that comes and goes, RA could soon become a thing of the past.

Optimize Your Supply Chain with SkuVault WMS. Request a demo.

Topics: Amazon, eBay, eCommerce Businesses, Marketplaces