What Is Retail Arbitrage? Everything You Need to Know in 2023
This article is part of a larger series on Retail Management.
Retail arbitrage is when a business purchases products at a discount and then resells those items with a markup for profit. You might also hear a channel-specific version of the phrase, such as Amazon retail arbitrage, Walmart retail arbitrage, eBay retail arbitrage, etc. Retail arbitrage is a low-risk and affordable way to start a retail business.
Is Retail Arbitrage Right for Your Business?
The most successful retail arbitrage entrepreneurs have dedicated a significant amount of time to their businesses. They’ve sought out the hot spots for discounted products and even forged relationships with those stores to get early access to new deals.
Such is the case for Nate and Alysha Jackson, a couple focusing on Amazon retail arbitrage. They have developed close relationships with some of their local Kohl’s store managers, who give the pair of resellers a heads-up when they get new shipments.
But this business model isn’t right for everyone. Here are the pros and cons of retail arbitrage to help you determine if it’s a fit for your business goals.
| PROS | CONS |
|---|---|
| Low startup cost | Difficult to scale |
| Quick way to start selling | Inconsistent product availability |
| Capitalize on seasonal trends | Difficult product sourcing |
| Great side gig or part-time job | Unpredictable pricing |
| Low profitability | |
How to Get Started With Retail Arbitrage
Step 1: Find Products
Sourcing products for retail arbitrage is different from the traditional route. It’s a more manual process with a lot of research. Look for discontinued, seasonal, or limited edition products, especially if you can buy them in bulk at a discount.
Brick-and-mortar stores are great places to find discounted items. Find out if the following retail arbitrage product sources are in your area:
- 99 Cents Only, Dollar General, Dollar Tree, Family Dollar, and other dollar stores
- Aldi
- Bargain City
- Bed Bath & Beyond
- Best Buy
- Big Lots
- BJ’s Wholesale Club, Sam’s Club, Costco, and other wholesale membership stores
- Burlington (formerly Burlington Coat Factory)
- CVS, Rite Aid, Walgreens, and other pharmacies
- Dick’s Sporting Goods
- Five Below
- Grocery stores
- Home Depot, Lowe’s, True Value, and other hardware stores
- Homegoods
- Kmart
- Kohl’s
- Lowes
- Marshalls
- Meijer
- Menards
- Office Depot, Staples, and other office supply stores
- Ollie’s Bargain Outlet
- Ross
- Shopko
- Stein Mart
- Target
- TJMaxx
- Tuesday Morning
- Walmart
You can also use these coupon and deals sites to help source products:
In terms of what types of products to look for, the possibilities are quite broad. According to data from Influencer Marketing Hub, most retail arbitrage sellers on Amazon focus on home and kitchen (47%) or kids’ toys and games (41%). Other popular categories include books (34%), cosmetics and personal care (33%), and grocery or food items (27%).
Step 2: Compare Prices
Once you find items you think you’d like to purchase, check to make sure you’re getting the best deal. You might be able to find products elsewhere for less, increasing your profitability. Check out price comparison sites like CamelCamelCamel and Keepa.
You might also be able to find additional discounts via promo codes. Search sites like RetailMeNot, Honey, and Rakuten to do your due diligence.
Beyond the prices you’ll have to pay, look up the prices you might be able to sell the products for to ensure you make enough profit, ideally 10%–30%. To do this, physically scan items in stores with the Amazon app and see what they go for online, then use those prices to calculate your own markup.
Step 3: Purchase Products
Once you know what you want to purchase, you’ll need to determine how much. It can be next to impossible to forecast if you’re just starting out, so it’s a good idea to start small.
Starting with a small inventory requires minimal investment and lowers your risk, but it also offers the opportunity to start collecting some baseline data. You can also work out the kinks without becoming overwhelmed.
The right amount of product really depends on your personal risk tolerance—as well as the space you have available to store the items.
Step 4: Sell Your Products
Once you have your products figured out, it’s time to promote and sell them. You’ll first want to come up with a pricing strategy—enough to make a profit, but not so much that people can buy the item elsewhere for less.
Beyond your pricing, you’ll also want to think about how you display the products. We have tons of resources available to help you organize your retail space and merchandise your products:
- 27 Best Retail Store Design Ideas to Increase Sales
- 12 Visual Merchandising Strategies to Improve Your Store
- 16 Tips for Creating Stunning Store Window Displays
- Set Up Your Cash Wrap to Drive Sales in 5 Steps
If you also want to sell online via your own store, check out the following:
- How to Start an Online Store in 8 Steps: A Beginner’s Guide
- 6 Best Ecommerce Platforms for Small Businesses in 2023
- How to Take Quality Product Photos at Home in 7 Easy Steps
- How to Write a Product Description That Sells [+ Worksheet With Template & Examples]
Many retail arbitrage entrepreneurs sell products on Amazon or Walmart Marketplace—either in addition to or in lieu of their own online store.
Amazon is a great channel for retail arbitrage because it doesn’t require as much brand-building as selling products from your own ecommerce store. With Amazon, you can simply focus on optimizing listings for views and conversions and focus on delivering top-notch customer service to rack up lots of positive reviews to even further boost your listings’ visibility.
Retail Arbitrage FAQs
Yes, retail arbitrage is legal. However, you must obtain the goods legally and resell them legally. Some retailers prohibit the resale of their items, and others have specific requirements you must meet to be eligible to resell their items. It’s always important to check with your supplier before purchasing.
No, retail arbitrage is not the same as dropshipping. Retail arbitrage involves purchasing products from a merchant, marketing and reselling those products to your own customers, and managing order fulfillment. With dropshipping, you market and sell products to a customer but use a dropshipping supplier who has the physical products and handles order fulfillment on your behalf.
Bottom Line
Retail arbitrage is a great strategy to start your own retail business. If you have access to great deals on products with high demand, you can resell them at a profit—no product development necessary. Retail arbitrage isn’t the best route for everybody, but it can be an effective way to start a new business or boost an existing one.
