Online Arbitrage vs Retail Arbitrage on Amazon
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This guide will help you get started, understand the basics of Amazon selling, and explain in simple words how it all works.
Arbitrage on Amazon is a riskless business model by definition because merchants immediately resell products they buy with a margin. However, this doesn’t mean that there are no challenges in it.
Many sellers on Amazon start their business with arbitrage. You can follow one of the two models. Retail arbitrage is a classical (or conservative) model, whichever definition you prefer, while online arbitrage is a virtual trade. You can earn with either of them or both with the right approach.
Keep reading to find out the difference between online and retail arbitrage on Amazon, why sellers fail with arbitrage, and how to succeed in selling on Amazon with these models.
What is Arbitrage on Amazon?
Arbitrage is reselling products for a profit on Amazon.
Arbitrage is a legal business model with low entry barriers and almost no upfront investment. You don’t need a license to start it. You don’t have to be a company, either.
There are two types of arbitrage models on Amazon – retail and online arbitrage.
Why is arbitrage possible?
Arbitrage is possible because of the price difference between the suppliers and in various markets. You can buy low in one place and resell high in another.
Arbitrage on Amazon is possible because many Amazon customers prefer to buy on that platform and nowhere else, never mind the higher price. Moreover, they can even start their product search on Amazon, not Google. There are many reasons behind it – easy Amazon’s return policy, fast delivery, payment security, and more. If the prices on Amazon are higher, there is room for a profit margin.
Retail Arbitrage – Definition
Retail arbitrage is a business model when a merchant finds discounted or cheaper-priced products in brick-and-mortar retail stores or liquidation stores and resells them on Amazon for profit.
Online Arbitrage - Definition
Online arbitrage is a business model when a merchant finds lower-priced products in online stores, discount aggregator websites, or elsewhere online and resells them on Amazon for profit.
Online Arbitrage vs. Retail Arbitrage on Amazon – What’s the Difference?
Similarities of online and retail arbitrage
- both are reselling models;
- both involve buying cheaper-priced products and selling them for profit;
- both require a lot of time and effort to select profitable products;
- both don’t need essential upfront investment;
- both have short startup time.
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Difference between online and retail arbitrage
Platform
- with online arbitrage, you find products on the internet;
- with retail arbitrage – in the brick-and-mortar (offline) stores.
Product
- with retail arbitrage, you always know exactly what the product you buy is;
- with online arbitrage, it might look different in the picture; you never know until you order.
Skills
- with online arbitrage, you need to be a computer-minded individual and learn how to use product research tools;
- with retail arbitrage, you don’t need much computer literacy, but you need to know the retail business.
Mileage
- with online arbitrage, you don’t need to drive around physical stores;
- with retail arbitrage, you must go to brick-and-mortar stores to find discounted products.
Convenience
- with online arbitrage, you can work from home; it can be a part-time job;
- with retail arbitrage, you must dedicate much time to traveling between physical stores.
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Pros and Cons of Online Arbitrage
Though online arbitrage is a popular and market-proven sales model on Amazon, it has both advantages and downsides. You can start this business quickly at almost no cost, you just need internet access and product research knowledge.
Pros
Fast, easy, and cheap to launch
One of the main advantages of this model is that you can start it in a few weeks. You register an account on Amazon, find a profitable product, select a supplier, and start selling. You don’t need much money either. Many sellers started online arbitrage businesses having $500 in their pocket. The key to success is a profitable deal.
No need to physically travel to brick-and-mortar stores for deals
Unlike retail arbitrage, online arbitrage sellers find their products online. You can use discount aggregators like Brickseek, Slickdeals, or RetailMeNot; ready-made ratings; review sites; search internet directories, or any other product source. Just make sure the supplier is reliable.
It’s a work-from-home business
Naturally, you can make money sitting at home by the computer or tablet with online arbitrage. It can also be a part-time business if you use product research tools.
Diversity of product ideas
The Internet offers you plenty of profitable deals. However, you need to check all product metrics before making a purchase. You should check that Amazon doesn’t sell this product, its BSR, the number of sellers in the listing, and other parameters that will tell you how the item will sell and the expected competition level. Also, don’t forget to check product restrictions and other account health problems; otherwise, you may end up in account suspension.
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You can combine online arbitrage with other business models in your Amazon store
Many sellers use more than one business model in their stores. For instance, wholesalers who typically buy products in bulk may use online arbitrage to test specific product demand before purchasing big batches. Online arbitrage is good both as a single model and as a complement to other models.
Helps learn how to sell on Amazon
This model implies low risk. Therefore, if you fail with some products, you will not lose much money but will learn your lessons. Typically, using seller tools available in your Amazon Seller Central and third-party seller tools will lower the risk. Also, don’t forget that Amazon offers beginners many education materials and online training options you can sign up for. It will be a good idea to go through them before you start selling.
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Cons
Product research takes time and effort
A profitable product is the key component of the online arbitrage business. Finding it consumes hours because of the high competition on Amazon. Using product research tools makes it much easier, but it’s still a task for sellers.
Unstable profitability due to constant price changes on Amazon
Due to intense competition, prices on Amazon go up and down all the time. They can change essentially over time, also considering that many sellers use repricing tools. Therefore, it’s difficult to estimate profit margins long-term, especially for products with high competition.
Not high margins after Amazon fees
Online arbitrage doesn’t earn higher margins than private label or wholesale models. Therefore, you need to account for all costs very accurately. FBA&FBM calculators help you solve this task.
You can’t resell certain products or need approval
There are specific restricted categories and brands on Amazon. That means you need to get approval from Amazon to sell them. Not always are you eligible to sell the product. Check it in your Seller Central first or with Seller Assistant App Restrictions Checker.
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The items you find may look different from what’s listed on Amazon
When you compare the items listed on Amazon and those you found, they may look the same in the picture. However, when the product arrives, you may find out that it looks different. Thus you can’t sell it on the listing you’ve chosen. This sometimes happens with the goods sourced from China.
Pros and Cons of Retail Arbitrage
Retail arbitrage is the traditional reselling model. It’s easy and inexpensive to start; however, you have to go around brick-and-mortar stores to find a product to resell, which takes a lot of time.
Pros
Fast and easy to set up
To start retail arbitrage, you must register an Amazon account, find a discounted product on sale or in a liquidation store, and list it on Amazon. You can start selling inventory as soon as you purchase it.
Low startup cost
You don’t need much money to launch this business. You can start with $500 and up.
Low entry-level
There’s no need for special knowledge to start retail arbitrage. Unlike online arbitrage, retail sales don’t require advanced computer skills, though they will be a plus. Also, as said, you don’t have to invest much.
Complete control of the inventory and sales process
With retail arbitrage, you are in full control of your logistics. You purchase products, deliver them to Amazon (if you use Fulfillment by Amazon) or to your stock (if you use Fulfillment by Merchant) and fulfill orders as soon as the customer orders your product. You can easily see where the product is in the sales and delivery process and if there’s any problem with it.
Small risk
With retail arbitrage, you don’t need to invest much money upfront. There are no minimum order quantities. Also, you typically aim to resell a product that’s already popular on Amazon. Therefore, you already know its sales history and will not select an item that doesn’t sell.
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Cons
Time-consuming model
It takes time to do product research. However, with retail arbitrage, the time is doubled because you need to visit offline stores to get products to resell physically.
You have to restock inventory physically
From time to time, you need to replenish your inventory. You need to go to the physical store to get more inventory with retail arbitrage.
Low-profit margins
Due to high competition on Amazon and not big sales volumes, the average profit with this model is around 10%.
It takes time to get real profit
With the low-profit margins and small initial investment, it will take time until you get real money. It can take more than a year until you get a decent income.
You have to drive from store to store to find discounted products
Mileage is one obvious disadvantage of retail arbitrage. Going from store to store consumes time and fuel.
Finding a profitable product is challenging
Finding discounted products in the stores is a matter of luck. It takes a lot of time as well.
This model is not a passive source of income
That is because it’s time- and effort-consuming as said above. Therefore, looking for a profitable product will hardly allow you to combine it with any other job.
It’s difficult to scale
There are two reasons for that. First, your order is limited to the quantity of items available in the store. Second, small investments and margins result in low Return on Investment (ROI) and limited possibilities for dedicated funds for growth.
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Why Do Sellers Fail with Online and Retail Arbitrage?
Challenges of online arbitrage
- inadequate product research;
- growing sales and revenue, not profit;
- not optimizing sales processes;
- not using specialized seller tools;
- not verifying the supplier;
- inopportune inventory management;
- not accounting for all expenses and fees accurately;
- insufficient investment;
- lack of learning.
Challenges of retail arbitrage
- insufficient return on investment (ROI);
- narrow scope for sourcing;
- finding discounts too late;
- ignorance of product defects;
- not checking product condition;
- not verifying Amazon brand and product restrictions;
- not reviewing a product for IP claims;
- not analyzing scalability options.
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How Can Seller Tools Help Avoid Mistakes with Arbitrage?
Nobody doubts that seller tools save time and effort. On top of that, they help avoid sad mistakes with product selection, both for retail and especially for online arbitrage.
Seller tools help arbitrage sellers:
- find a profitable deal;
- do thorough product research;
- check product sales history;
- verify BSR and Buy Box dynamics;
- find out product restrictions;
- price and reprice the items;
- select product suppliers.
There are seller tools that help you with the majority of these tasks. Seller Assistant App is one such tool. It’s a powerful product research instrument for arbitrage sellers that can help you see all essential product metrics right on the Amazon search page and save results to Google Sheets. It also enables you to estimate product profitability, Amazon fees, check product restrictions and more. It will definitely help you select the right product.
How to Choose Between Online and Retail Arbitrage?
Since the world increasingly shifts online, online arbitrage is growing. At the same time, retail arbitrage is still a viable business model.
Therefore, the choice depends solely on you. As a seller, you should carefully consider each model's pros and cons and select the one that suits you best.
Moreover, you can combine both models in your Amazon store.
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Final Thoughts
Both online and retail arbitrage have their advantages and disadvantages. You can leverage them if you’re aware of their pros and cons.
Luckily, you have sellers tools that back sellers in their sales process and reduce the risk of making mistakes. They help you handle deal hunting, product research, and the right supplier.
Seller Assistant Аpp is one such tool. It’s an all-in-one app that incorporates the features vital for product research. Advanced IP Alerts can immediately tell you if a product has any sales restrictions or has led to problems with account health in the past. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.
Try Seller Assistant Аpp now. Register for our 14-day trial. Grow your Amazon business with confidence.
