retail-arbitrage

What is Retail Arbitrage?

Retail arbitrage is the act of buying products from a retailer and selling them on another marketplace for a profit. Retail arbitrage is the act of making a profit from selling a product that was purchased from a brick-and-mortar store. 

Understanding retail arbitrage

Retail arbitrage can be rather lucrative in some circumstances. In a video uploaded to YouTube in 2018, a user known as “Bearded Picker” visited several Walmart stores to purchase 182 copies of the Monopoly for Millennials board game for $19.82 each.

Less than 24 hours later, he had sold 131 copies on Amazon for $77.29 each which netted a profit of $2,500 once overheads were deducted.

While Amazon is one of the more popular choices to resell purchased items, other marketplaces such as Facebook Marketplace, eBay, Jet, and Craigslist are worthy alternatives. 

When effective, retail arbitrage is a low-cost and low-risk way to sell items online.

Users can purchase a single item to test the waters or make it their full-time job. In any case, sellers avoid the expense of marketing, operating a physical shopfront, or purchasing bulk stock from a wholesaler.

They can also leverage the brand equity associated with well-established items.

The retail arbitrage process

The following steps show how the retail arbitrage process plays out.

Bargain hunting

For many individuals, the process starts by pouring over newspapers, brochures, magazines, and websites to find coupons and promotional codes.

Some also make use of services such as BrickSeek which collates deals from various retail chains.

Scanning products

Once in store, sellers redeem any coupons or discounts and may purchase items in bulk.

Many will also use app-based scanners to read shelf barcodes and determine which products are potentially most profitable.

The Amazon Seller app calculates various fees and estimates profit, while others such as Keepa and Jungle Scout provide more advanced analytics and historical sales and revenue data.

Targeted store visits

New resellers may be tempted to hit as many stores as possible or blow their entire budget on a single product, but seasoned individuals take a different approach.

With experience, they’ve learned to study discount patterns and clearance schedules of various stores and use aforementioned tools such as BrickSeek to monitor product specials in real-time.

In some cases, these sellers will access distributor apps or databases to ensure a particular item is in stock before they leave home.

Creating an online store

Fulfillment by Amazon (FBA) is arguably the most popular choice because sellers can leverage Amazon’s brand trust and take advantage of the company’s “done for you” fulfillment. 

However, as we noted before, there are a plethora of choices with respect to where one can sell retail arbitrage products.

Some of these will likely feature much less seller competition and may be better suited to smaller or one-time orders.

Retail arbitrage best practices

To conclude, let’s take a brief look at three retail arbitrage best practices:

  • Exhaust each store before moving on – some sellers visit as many stores as they can in a day, but a better approach is to spend an hour or two in one store and conduct a methodical search. Indeed, it is better to exhaust one store each day as opposed to a superficial look of 10 stores where bargains could be overlooked.
  • Look for ranks and reviews – while scanner apps show the potential profit of a product, what they sometimes omit is market demand. Thus, it can be useful to assess the item’s  Amazon Best Sellers Rank (BSR). Specialized calculators help sellers better understand how sales revenue correlates to popularity and, even if not selling on Amazon, BSR gives sellers a general idea of an item’s popularity.
  • Develop relationships with employees – this may seem a waste of time, but often, employees are the first to know when a certain product will be marked down for clearance. Some whom a seller has built rapport with may even be willing to bring stock out from the storeroom which has not yet been put on public display.

Key takeaways:

  • Retail arbitrage is the act of buying products from a retailer and selling them on another marketplace for a profit.
  • When effective, retail arbitrage is a low-cost and low-risk way to sell items online. Users can start small and avoid most of the expenses associated with owning or operating a traditional brick-and-mortar store.
  • Some retail arbitrage best practices include exhausting one store per day before moving on, understanding the relevance of BSR, and developing relationships with store employees to get first access to discounts.

Connected Business Model Types

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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