Retail Arbitrage. Is it dying?
If you want to skip this article and just trust me, I’ll cut straight to the point. Retail Arbitrage (RA) is NOT dying – it’s going to be with us forever, or at least as long as we have free markets where products can be privately bought and sold.
If you want to hear my reasoning in the briefest possible terms, read on…
First, for the sake of those new to online business, let’s define Retail Arbitrage.
Retail Arbitrage, or RA is the art & science of finding items locally on retail store shelves that you can flip and sell for a profit online (i.e. Amazon, eBay, Craigslist etc.). In “the biz” we call it “RA.”
While RA is just ONE of numerous ways to source profitable inventory (we teach over 50 strategies in our Amazon course for example), the fact remains that RA remains a very popular starting point for many online sellers.
It’s never been necessarily easy to do RA, but it’s always been simple to grasp the concept – which is perhaps why it’s been popular for a couple of decades. It’s also been a viable sourcing option for that same length of time. Along with many other experts in the online selling industry, I believe that RA will ALWAYS be an opportunity as long as there are relatively free markets in operation. I have no hidden agenda or secret reasons to prop up RA. Like I said, we teach 50 strategies for sourcing profitable inventory and RA is just ONE! If I’m wrong, and RA becomes unviable for my business, I’ll confess I was wrong publicly, and easily walk away from it – but I’m nearly positive that RA is NOT going anywhere but UP. I pay a team to do RA for me. The deals are out there and will continue to be.
I’ll make my case for the long term stability of RA below as briefly as I can. If you grasp the basics of economics and free trade (supply & demand etc.) it will really help this article to soak in. If the basics of economics are foreign concepts to you, it might not make as much sense, but I reserve the right to say “See, I told you so” in ten years either way.
First, a bit of history of the retail arbitrage opportunity:
RA first popped up on eBay as a viable way to earn a nice living nearly a couple of decades ago like I said above. Since that time, on eBay, Amazon and many other online selling platforms we’ve seen hundreds of billions of dollars of product move from retail stores to enterprising entrepreneurs like us and then on to Amazon or eBay and then of course finally to consumers.
An example of RA: Let’s say you are out shopping retail for yourself and you notice a large bin of products marked down 80%. You quickly check eBay and Amazon with one of the available apps – many of which are free, and you discover that many of the items are selling quickly online for much more than the discounted price available to you. Next, you buy the products (after asking for a deal of course), and then you flip them for a nice profit.
Sounds simple right? It really is.
There are those in the industry however who are predicting the end of RA as an opportunity, and I’m here to say publicly I think they are quite wrong on that point. Also consider that many experts who are predicting the death of RA have an easily identified agenda behind their premature announcement of RA’s demise. I on the other hand have no vested interest either way in the fate of RA except for the fact that I love free markets and would enjoy preserving that particular stream of income for myself – but I have many other sourcing and product creation concepts I both teach and utilize in my own business.
From where I sit, the only way RA will ever die is if free markets die while consumers are dragged in kicking and screaming at every step.
The supposed threats against RA are as follows:
- Competition: This theory says that so many of us are doing RA that the opportunity will soon die or become unviable. The same argument has been around for about 15 years.
- Grumpy Brands: Brands are being protective of their goods & price points and some are now going direct to Amazon – which they HOPE will make it harder for us as RA sellers to find and sell profitable brands online (aka – cut out the middle man)
- The “new” vs. “used” goods debate: This is a continuation of “grumpy brands” argument. Brands want to force us as sellers (often in cooperation with Amazon) to call otherwise brand new RA products something less than “brand new” once we pull them off the shelves.
Let’s discuss these three faulty theories one at a time as I offer a simple argument against each:
Competition is a reality of any biz opportunity. Of all the rationals given for the demise of RA, this one is the strongest from my vantage point, but on a scale of 1-10, the “competition” argument is maybe a 2 in regards to making me nervous. Free markets correct themselves naturally – and RA is the ground floor level of retail correction. As more people become aware, more competition will be in the picture. That’s how business works. It’s not new, but so few people are willing to do the work and put in the time. The truly motivated among us are a rare breed and they will continue to thrive with this model.
More good news for RA sellers: eBay has been in the picture for 20 years now and you’ll still only encounter a handful of people in your community who “get it”. If you ask 1,000 people on the street if they know how to do RA, you’ll get 1,000 confused looks…or 999 1/2 confused looks. This entire trend is STILL in its infancy – as is “online shopping” which still only represents a tiny fraction of total retail activity. In other words, the hottest trends in retail shopping history are still the equivalent of babies in diapers. Those announcing the “death” of any Internet business trend are almost certainly doing so with an agenda that serves their own purposes.
Further evidence in support of RA is this:
RA is an “entry level” activity for many/most serious online sellers. It’s how you get your feet wet. Those who do it well typically move on…leaving plenty of $10 widgets that can be flipped for $50 on Amazon or eBay. Make no mistake – this can easily put $100K per year in the bank for a part time effort, but still, it’s only a starting point. Serious sellers use RA as a launching point, and then often move on to slightly more complex models like wholesale or private label (both of which we discuss in our courses by the way).
#2 Grumpy Brands
A quick note about brand owners.
Mistakes by brand owners and retail channels are opportunity for RA sellers. Brand owners and retail outlets take on a lot of risk when they make and ship a million widgets all over the retail channels. Inevitably, they make, order or ship too many or too few – almost every time. Inevitably they price the products too high or too low. This “over/under” pricing and ordering game creates massive online opportunity for those of us in the RA game. In spite of Amazon’s attempts to stay on top of it all by getting in the buying game themselves, you still have a massive advantage if you are willing to scan a few prices at local retailer and spot the “winners.” This will not be going away…ever.
Many brands are refusing to allow their stuff online though, or they want to work directly with Amazon and somehow cut out the RA sellers.
That may sound like bad news for RA sellers, but from a big picture vantage point I see nothing but opportunity unless the brand goes ONLY with Amazon and refuses to sell through any traditional retail channels. In that rare instance, the RA opportunities for that particular brand are indeed dead. This model represents only a tiny fraction of Amazon brands however.
Next, the law is on our side. Once you buy something you own it and can sell it. If Amazon or eBay won’t let you for some reason, there will always be other options if the deal is good enough. If a brand sells via retail and you get it for a great price, there WILL be a way to sell it for a profit. Ebay has been fighting and winning battles on this front for 20 years, and now Amazon is in the fight too (to defend RA). Sure there are some exceptions, but in general we are winning (aka Free Markets are being protected). The worst case scenario is that you may not be allowed to call it “brand new” (we’ll address that in point 3), but you can still sell it as “like new.” Remember – shoppers aren’t stupid. If Amazon for some reason sides too often with brand owners on this point and allows ONLY retail level pricing on Amazon.com direct from brand owners, how do you think Amazon’s hundreds of millions of buying customers will respond? The answer: They’ll start shopping somewhere else where they can save some cash – which is exactly where the RA sellers will follow. In other words, the pressure to keep the inventory flowing in at the cheapest possible prices is on AMAZON, not on us. Amazon will never care about what price brand owners want to assign to their products. Amazon cares only about getting as many as possible quality product options at the best possible prices in front of their customers.
If Amazon were to suddenly stop offering this discounted merchandise (which WON’T happen), someone else would fill the gap. The free market will continue to win until laws are passed that shuts it all down (and then God help us all because that’s the death of free markets.) We’ve heard a bunch of these other arguments since the early 2000’s with eBay when it was supposedly going to start preventing retail arbitrage in the early 2000’s. Predicting trends is fun, but right now it’s business as usual from my vantage point.
#3 “new” vs. “used”
This is an easy one to refute. While I could write a lengthy chapter on the topic I won’t.
Again, consumers and free markets save the day and WE (as RA sellers) benefit.
Here’s what I mean. Let’s suppose for a moment that Amazon creates a new product category called “like new/purchased retail” and forces us to use it as RA sellers. Why would they do this? They might do it to make their “brand owners” happy, to guarantee perfect retail boxes as much as possible, and by doing so force RA sellers to distinguish truly “brand new” items from items purchased retail and “flipped”. In other words – the same exact products in the same exact boxes, but categorized differently on Amazon.
This may sound like bad news, but again, supply and demand wins in the end.
Shoppers will find and buy the better deals even if Amazon tries to hide them. Smart shoppers (there are a lot of them) would quickly realize that there is rarely if ever a difference between the categorization of “new” vs. “like new/purchased retail”. They’ll take the better deal.
Don’t believe me? Here’s a test.
You have a chance to buy a bright clean widget in a perfect box for $50 or get one with a dented corner on the box for $30. With all other things being equal EXCEPT the seemingly irrelevant condition category, which price will you choose? Some consumers will pick the higher price -sure. That’s just goofy human nature, but as smart shoppers learn that the category “like new/purchased retail” is just as good as “new”, they’ll begin to go where the deals are. That means WE WIN in the end as RA sellers.
And for the sake of being thorough, let’s assume that Amazon no longer allows brands to be sold on their site unless they are direct form a manufacturer. How long will it take word to spread that the real “deals” are back on eBay or elsewhere? In other words, the pressure is on AMAZON to keep RA alive – and they will do so even if they don’t like RA sellers for some reason. Their buying customers will DEMAND it.
Bottom line: RA is NOT going anywhere anytime soon. Keep on scanning! The same can be said for OA. The deals will always be there for those willing to do the work.