Firstly, what is ‘arbitrage’ and what does it mean for your Amazon business?
Arbitrage is a selling-reselling process wherein a person purchases and subsequently sells commodities from and to distinct marketplaces, in order to leverage on the price differences at the two markets for the same commodities. Or simply put, arbitrage is exploiting the price mismatch of a product between two markets (generally situated cross borders). Under this, it is generally obligatory for the Amazon seller to first research the merchandise sale price inside and out, before purchasing it while also locating multiple sources for that commodity. So if you have just started selling on Amazon or have reached the stage where you want to raise your sales bar, arbitrage could be your ladder.
Now, arbitrage is of two types, ‘Retail Arbitrage’ (the conventional one) and ‘Online Arbitrage’ (the buzz word).
Retail Arbitrage (RA)
Retail Arbitrage, as mentioned earlier, refers to the conventional way of selling. That is, the source of a product is a physical brick and mortar store or outlet, a retail franchise or simply a backyard sale. An Amazon seller purchases an item (or in bulk) if offered a suitable price and then sells it elsewhere (probably at another brick and mortar store) with a margin of profit. Note that here if you make a bulk purchase, you typically will have to handle the transit, storage and delivery functions as well as the customers that throng your store but on the other hand, with retail you can take advantage of clearance and yard sales and also inspect the products personally than relying on the online seller’s words.
Online Arbitrage (OA)
On the other hand, Online Arbitrage is the smarter lad. Here, you find a commodity with price mismatch between two locations but the commodity is sourced online, probably from multiple sellers. So, you can market to and from people, online and simultaneously, with little to no logistics responsibility and expenses. Moreover you get the option to time your orders and buy & sell in more than one market, worldwide than relying on the customers marching into your store.
Which one’s better for your Amazon business?
Arbitraging is the fast becoming a considerable choice of most Amazon sellers. In fact whenever you see different sellers selling product of the same brand then most of those sellers are actually doing RA or OA. Before you read further and deduce which of the two will be your best bet, you must note that Amazon is mostly about OA. Here is why:
While reading about RA and OA, you must have understood that the main difference between the two is the presence and absence of a brick and mortar sources, respectively. The other difference being the ability to save on overhead charges like that on warehousing and shipping in case on OA. Thus, while it’s absolutely fine to go with both RA and OA at the same time, if you choose to follow OA alone, you can get more bang for your buck(s). This is so because you have awesome sourcing options and tools with OA. The best examples being Alibaba, Made in China , Bossgoo etc, where you can find plenty of suppliers, place bulk orders that too at super low prices. Subsequently you get the convenience of selling them on Amazon at great profit margins.
But considering the fact that the prices on Amazon are already moderate, this could be an uphill task. Refer to our earlier blog on ‘how to find the most money making product for selling on Amazon’ for more help on sourcing a product and landing great deals for OA. Though not specifically mentioned as OA, in this link, the steps to find the product are listed in concurrence with OA only.
While many businesses run the retail and online stores simultaneously, not everyone is carved to sail with their feet in two different boats. Mentioned below are a few more reasons for you to choose OA over RA.
1. Abundant Sourcing options
You know that the internet knows it all. It has your Sourcing options too! Some sourcing tools are paid, some free, but definitely aplenty. Plus you can source from across borders without stepping a foot out of the country.
2. Lower investment requirement
The low cost of investment gives an upper hand to OA. You need little investment for buying the stock and save a lot on the warehousing, packaging and other overhead charges as in RA.
3. Time Saver
With online arbitraging there’s a lot of time saved which could have been consumed in physically looking and locating source stores or then waiting for examining the products in your hands.
4. Better use of FBA
FBA takes good care of all the processes on your behalf. From receiving the stock up till the delivery to the buyer, everything will be taken care of by Amazon. A little fee for FBA can be a big boost to your practice.
Moreover, with online arbitraging you don’t need to spend on shipping boxes or the dunnage as they will provided by the sourcing unit and you can have the products delivered directly to the FBA warehouse.
A Word of caution, dear arbitragers!
Arbitraging is a completely legal and sustainable process, but subject to a few conditions you need to be cautious of. Below, we have listed a few.
- When arbitraging, you will be required to present an itemized invoice along with a full manufacturer’s warranty for products sold as ‘new’, instead of the usual bulk invoices.
- Suppliers or manufacturers in order to safe-keep their name in the market, could demand that their products be listed as ‘Like New’ or ‘Purchased Retail’ rather than ‘New’, for the reason that their products could be tempered with by the unauthorized seller (i.e. you) before reaching the buyer.
- A higher risk strategy in arbitraging could land you an ‘ex – Amazon seller’ tag.
- Some manufacturers may also disapprove of the practice of arbitrage and they have all the right to do so with respect to their products. Such manufacturers may get you suspended for the same.
- The product must be shipped, tracked and delivered on time and appear to come from you.
Some tips for RA/OA on Amazon
Retail or online, whichever option you choose for your business, below is a set of advice for all arbitragers.
- On Amazon, a beginner or not, if you are new to arbitraging, start with smaller steps. Keep your investment as low as the loss you can bear. With time and experience as an arbitrager, you will know from where and how to source, and the stock and sales volume you are capable of dealing with. Then gradually increase them with time.
- Products with quick increase in price or demand may look alluring to invest in, but you need to sidestep them as they will also mean lower profit margin.
- Keep in check the rules and regulations of Amazon trading, and be cautious of the situations we shared above.
- Go FBA. Appoint as much staff as you need to carry out all the processes smoothly and under compliance and if it starts taking a toll on your profits, become an FBA merchant. It’s always worth the investment and a huge time saver.
- You must have heard of arbitraging from Amazon to ebay or vice versa. While some may preach it as a get-rich-quick, it is actually a cover practice and there’s a big ‘NO’ from us.
Thus, the more compliant you are, the smoother the sail shall be!
At the end of it all, we conclude that arbitraging is definitely worth a try. Though you must not start arbitraging with the assumption of it being a ‘get-rich-quick’ strategy, you never know it could actually be your opportunity to make a fortune. However if you are unsure to take the lead, feel free to take assistance of an expert to take things even further.