What Is Retail Arbitrage?
“Jeff, I love your stuff man, but I have to ask – what IS Retail Arbitrage? I keep hearing about it!”
Check it out. I received this email earlier this week from a reader asking for more info about Retail Artibrage, and figured, why not make an epic blog post about it!
Anyway…Retail Arbitrage is actually a very straight-forward concept.
It involves buying for a relatively low retail price and reselling for a profit.
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Anyway, let me show you with an example
Let’s say that you go to a store and come across a really cool or scary face mask for just three bucks.
Luckily for you, the store is having a clearance sale.
Just out of curiosity, you check the price of the same mask online, which happens to be 9 bucks.
So what do you do next?
Easy, you pick up a dozen or so masks for $3.00 a pop, and sell them for $8.00 online, pocketing $5.00 per mask sold!
Boom!! You just made $60.00 PROFIT in the amount of time it took you to put the masks online.
Sure, there are multiple variables such as cost of shipping, website commissions etc.
Even if you spend 20 bucks on all of these, it is still hard to discount the fact that you made a nice sum of cash without doing anything too special or difficult!
This is retail arbitrage at work in the real world. It involves identifying price differences between markets and cashing in on them.
Let’s look at another example:
My buddy Jim lives out in L.A. He found a nice pair of really cool snow shoes at a big retail store where everybody wears blue. (Rhymes with “Ball-Fart)
If you’re not from So. Cal, you need to understand, we don’t get that much snow here!
Granted, some people go up to the mountains in the winter for Snowboarding and such, but Los Angeles isn’t really the target market for Snow Boots or shoes.
SOOOO… end of Winter, they’re usually up for sale at a discounted price of 129.00 USD.
Now check THIS out, Jim was up in Seattle the week before (true story, this is not just an example) and he came across the exact same pair for 250 bucks.
So he picks them up in LA for 129 and finds a buyer online for 225 bucks. He spends a few bucks on shipping but still ends up with a neat sum of cash.
Now keep this in mind, Retail Arbitrage is not a “conventional business” where a vendor buys stuff at wholesale rates. The purchase price is a LOWER RETAIL PRICE and the seller makes money by selling the item for a higher retail price.
Retail Arbitrage applies SOLELY to the retail prices of the products. It requires the buyer to be savvy and scan different markets for good deals. Many people make a nice side income from retail arbitrage while pros manage to rake in sizeable amounts of cash. We’re talking six figures and higher.
Now – While retail arbitrage seems exciting and pretty damn profitable at first glance (and yes, it definitely has loads of potential), it’s not all fun and games.
Pros and Cons!
- Retail arbitrage requires very little investment. You can start with as little as a few dollars. We all the know the story of the Red Paper Clip, wherein a guy traded it for different items until he landed up with a house! While the Paper Clip experiment didn’t directly involve retail arbitrage, it serves as an excellent source of inspiration 🙂
- The risks are low. Please note that retail arbitrage is centred around the difference in prices across markets. So if you’re buying an item for an X amount of dollars, you’ve probably already confirmed that it’s selling elsewhere for a higher price. In most scenarios, it will be fairly easy to recover at least the base price of the product.
- Retail arbitrage does not involve any hard-to-acquire skills. Yes, it can involve a lot of research and quite a bit of persistence. You’ll also need to up your negotiation, sales and marketing game. However, unlike law, engineering and medicine, you do not need any specialized knowledge to start retail arbitrage. You can begin right now. Even a child can do it. In fact, every child should learn this as an experiment.
- Retail arbitrage can be very profitable if you find the right products and market them to the right people. Many people make hundreds of thousands of dollars per year via RA.
- It teaches priceless lessons about business and life. Just imagine this – even if you’re getting into RA just as a fun experiment, you’ll end up learning so much about listing products online, setting up the logistics and finances (linking bank accounts), getting the necessary permissions, entrepreneurship, keeping books etc. You’ll also garner a lot of info about product photography, videography, writing catchy product descriptions, SEO etc. All this can make you a much better marketer and businessperson.
- There are limitless opportunities for retail arbitrage all around you – no matter where you are located on the map. The world is your playground – literally.
- Most people who dabble in retail arbitrage ultimately upgrade to private labeling as it is a more stable and scalable form of business. Their experience in RA shaves several years off the learning curve and helps them to build a reputable brand of their own.
- Many established brands try to discourage retail arbitrage for obvious reasons. If the product is not packed well or if the buyer finds out that he/she has overpaid for it, they often blame the brand and refrain from buying that brand’s products in the future. They also leave no stone unturned in badmouthing the brand to their friends and colleagues.
- Often, products are selling for a lower price because they have some sort of defect or a newer, better model is being released soon. In such a case, you might not be able to sell them and will have to incur a loss.
- Amazon, which is the number one platform for online sales cares about its sellers. Hence, they have something known as brand registry protection, which prevents unauthorised resellers from selling a particular brand’s items (stuff like Nike, and some HUGE name brands, but don’t worry there’s plenty NOT doing this).
- Many retail products have a limit on the quantity that can be purchased by a single buyer. So, stocking up can be a problem. You’ll probably have to ask your friends to help out so that you can buy the required amount of stock. Sometimes, they’ll ask for a a cut.
- It is difficult to find good products to flip for a profit. Also, there are several limitations to deal with. As discussed earlier, big brands are a no no. Services are also out of the question. Still, despite all the constraints, retail arbitrage does present unlimited opportunities for making money and learning about selling in general.
- You ALWAYS have to be out looking for the best deals, and buying stuff. It may start off just a few hours a day, but it can quickly become a full time (albiet, well paying) ‘job’.
Want to know the KEY to success with Retail Artibrage ?
Here’s the key to success.
Make it second nature. No matter where you are, always be on the lookout for good deals and things to flip.
- Keep an eye on clearance sales. Ask around – store employees have boring routines and are usually up for a quick chat.
- Ask them why the prices have been dropped and if the products have any defects.
- Which items sell quickly and which are a pain to get rid of.
Don’t just go to the obvious places when looking to source products. Change things up – visit street markets, yard sales and seasonal/pop-up stores for some great deals.
I recently heard of somebody buying used shoes for $2.00 at a church rummage sale, and they sold them (used) on eBay for $59.00 or so – so be creative!
Become a master of product photography and videography. You can make high quality photos and videos for FREE using any half-decent smartphone. You can also do a great voice over using a simple lavalier microphone.
Just a 30 to 50 second video explaining all the features can help sell a product much quicker and at a higher price.
Get really good at finding the right people to sell to. Have you watched the TV series Pawn Stars? The pawn shop owners come across some really weird and unusual objects but more often than not, they flip them for a profit as they know how to find the people who’d be interested in buying them. An old, vintage Coca Cola sign is probably useless to a college student but a bar owner will probably pay good bucks for it as it lends a nice touch to the ambience.
Overtime, you will become become known among your friends and family as the person who flips stuff and they’ll call you whenever they come across a cool object or product or if they want to buy something.
Improve your copywriting skills – meaning this:
Every successful business person must be able to sell through the art of the written word
Please take some time to learn more about the Significant Objects Experiment:
- A man bought some cheap goods worth a couple hundred dollars.
- He then approached several professional writers and asked them if they wanted to be part of a cool experiment.
- Each writer wrote a short but interesting story about the items, which consisted of random objects like dolls, idols, paper fans, totems, baskets, miniature items etc.
- The items were then listed online along with the catchy descriptions (stories) and the sales proceedings amounted to a whopping 8000 dollars!
You can learn more about this project at http://significantobjects.com/
The experiment sheds light on how words can affect the perceived value of an object. Every marketer/businessperson needs to learn how to do this.
Want to learn MORE?
Check out this Video from Gary Vee on the very same topic!
Seriously, watch the video – it WILL change your life (if you let it).
Information is power – this is true for retail arbitrage as well as with all other things in life. Speculation is the enemy of success – gather your information from reliable sources and verify every bit of it before committing to a deal. Learn to lock in small profits and develop a system that consistently generates profits.
Don’t be afraid to step out of your comfort zone every once in while and most importantly – be willing to do the things that others aren’t willing to.
Seriously, I guarantee there are HUNDREDS of people reading this very article thinking “wow, damn, this is a great idea Jeff” – but they won’t do any of it because it takes them OUT of their comfort zone.
- What if it doesnt work?
- What if I can’t find good items to sell?
- What if I fail?
Don’t be that guy, get off your ass and make it happen!
Pro Tip: As a beginner, you will sell most of your inventory on Amazon. Soooo, it’s a good idea to get the Amazon Seller App.
It enables you to scan the barcode of items and comes up with a lot of useful info such as the price of that item online, Amazon commission etc, and makes it easy to calculate the ROI!
Also, remember – you’re not just limited to Amazon. You can re-sell stuff on eBay, on Craigslist, even on FaceBook.