Online Retail Arbitrage – Pros & Cons

Four years ago I wrote a short post about online retail arbitrage and now it’s time for another on this subject having taken into account the developments in software and changes in shopping habits since then.

What Is Online Retail Arbitrage?

Online retail arbitrage is the process of buying products online from retailers and selling them for a profit, usually on Amazon but also on eBay and elsewhere.

It’s perfectly legal and no different from buying something at a car boot sale and selling it for profit online or at an auction.

Generally speaking this process is made possible by factors:

1. Retailers sell surplus stock at a discount to make way for new stock or for any other particular reason that suits their business.
2. Amazon’s millions of loyal customers exist because Amazon shopping is based on convenience and trust.  Enough shoppers grab what they want from Amazon’s virtual shelves without checking to see if the same item is for sale elsewhere at a cheaper price.  They know they’re purchase will be delivered quickly and efficiently, and they also know there is no a no-quibble money-back guarantee. They value this convenience over price.

Online retail arbitrage has the distinct advantage of being low risk with low start-up costs making it an attractive business model for anyone looking for a part-time business that they can run alongside their regular employment and which will scale and grow with additional effort – a side hustle as our American friends call it.

Online Retail Arbitrage vs Retail Arbitrage

Online retail arbitrage is distinct from retail arbitrage which denotes the same process carried out by physically visiting stores and shops in order to procure the items to sell.   

As well as bricks and mortar shops, retail arbitrage can include visiting charity shops (thrift stores), car boot sales, auctions, and anywhere else where new stock or used books are offered for sale.  Many of the items may not be available online so some bargains can be found in this way.  Second hand books in particular can be profitable.

On the other hand retail arbitrage takes more time and incurs the additional transportation costs of travel and parking.  When you add the overheads of travelling to the shop, parking your car, finding the items, queuing to pay, and returning home to process them you may have lost any profit they might generate.  

You could still buy them using credit or debit cards that offer cash-back or other rewards but you won’t be able to use any online promo codes and other methods of adding a little to your profit margin.

One of the big advantages of retail arbitrage is the chance of finding rare books that you can sell on Amazon, sometimes at a huge margin.  These might be books that have no barcode but which are rare nonetheless.  Others might be books that have been published in the last two decades and which are therefore barcoded and which are now out of print.  A quick scan of the barcode using a suitable app on your phone will reveal the current price of the book on Amazon. 

Tools For Online Retail Arbitrage

SourceMogul

In order to build your online business empire you’ll need some basic tools. Your first and most important tool will be SourceMogul.

SourceMogul is a browser based software that scans over 80 million products to search for those that might be suitable for buying and reselling at a profit on Amazon.  I first encountered this software several years ago when it was fairly new and operating under the name ProfitSourcery.  The company behind it won a Welsh business award in 2016 and it’s been evolving ever since.  Today, with a new website, tutorial videos, and most importantly of all greater accuracy in the data it presents, it’s better than ever.

It works on desktop, tablet, and mobile devices and costs £77 per month, although at the time of writing there’s a £20 off the first three months making it £57 for the first 90 days or so.

I suggest you visit the SourceMogul website and YouTube channel and take a look at the free training material.  They explain how to use it far better than I can.

Jungle Scout

Jungle Scout is another tool that is well established, that has evolved and improved over time, and which is used by many Amazon sellers for researching products.  Subscriptions include a large amount of training and reliable support. The browser extension enables in-depth analysis of any product viewed in the main screen.

Let’s assume you’re up and running and have made a list of products to buy that will sell at a healthy gross profit.  There will be Amazon seller fees to pay and these will depend on the product size, weight, and other factors.  You’ll have to pay Amazon a fee for each sale and for the processing, handling, and delivery of the items, but if the profit margin is high enough then you’ll still have a net profit after all these fees are deducted.

To help you in this process you might want to try BuyBot Pro. It’s a browser extension that’s available on a two-tier subscription service.  Once installed in your browser it will churn out an estimated net profit for the product you’re browsing on Amazon.  You don’t need it and you could use SourceMogul alone so consider it a second pair of eyes that will either confirm what you’ve already seen or warn you off if you weren’t sure.

Processing Purchased Stock

So far, so good but what about the process of handling, labelling, and shipping all these purchases to Amazon?

Once again you have two choices.  You can either elect to have all your purchases delivered to your home, office, or wherever else you will process the purchases and prepare them for shipping to Amazon, or you can use a prep centre service.

The advantage of the former is that you save on prep centre service fees at the cost of time,  effort, and purchase of materials on your part.  

The advantage of a prep centre is that they handle all that administrative overhead and charge you fees for doing so.

Perhaps your personal circumstances are not ideal for receiving several deliveries per week and/or you don’t have the time to unpack, re-pack, label, and ship goods to Amazon in which case you should go for the prep centre option.

On the other hand if you have the time, space, and inclination to do so you can save yourself the prep centre fees and do it all yourself.

Online Retail Arbitrage – Risks

Buying and selling at a net profit after all your expenses and fees have been paid is mentally satisfying and financially rewarding but the opposite is true if this process fails for any reason.  The risks of it failing and how these risks can be mitigated include the following:

• The products you’ve sent to Amazon don’t sell.  If you’ve done the research using SourceMogul, understood the data, and perhaps backed up your decision using BuyBot Pro or Jungle Scout then you can mitigate this risk significantly.  However, shopping habits can change and new and updated products can quickly become more popular.
• You can’t find any products in the first place. There is a small risk of this happening and you may find yourself going through a dry spell but it’s unlikely to last long.  Press on and keep searching.
• You’re not building a brand.  With conventional retail you gradually acquire a loyal core of customers giving you other opportunities for selling but with this model that’s unlikely since you’re selling such a diverse range of products in a haphazard way.  However, as you scale your business up this becomes less of a concern. 

Advanced Retail Arbitrage

It’s often been said that success isn’t about having a particular skill or ability or even just being lucky, it’s more about the fact that you keep going.

Let’s assume a year from now you’re buying and selling hundreds of products each month and generating several thousand pounds of profit but the daily task for sourcing new products is taking its toll on you mentally.  It’s become a chore and you’re burning yourself out. You worry that if you don’t keep going your empire will crumble through lack of attention.

Perhaps now is the time to invest in a VA – Virtual Assistant.  You can outsource the task of sourcing products to a VA in another country where the cost of living is lower.  It’s an additional expense for you but it frees up your time and relieves the burden of finding new products.  By using an offshore VA you can pay them a fee that is acceptable to them while not being so high that it takes too much of your profit.  

The VA will need to be trained and that’s where a company like FastTrack FBA can help.  They specialize in recruiting and training VAs for this very purpose.  For a one-time fee they will train a VA just for you.  Once the training is complete you take over and deal with the VA directly.

Note: This post contains affiliate links but it’s not another of those posts written just for the purpose of making a quick buck through affiliate sales.  I’ve used most of these tools and tested this method so I know how it works and vouch for the usefulness of those tools I’ve tested.