Is Retail Arbitrage on Amazon Dead?

Retail and online arbitrage has been a successful selling strategy for Amazon sellers for years. It’s not uncommon to hear about someone earning ridiculous amounts of money in a short amount of time doing it. But retail arbitrage is facing more challenges than ever, like increased competition, inability to scale, and increased pressure from Amazon to prove supply chains. With the odds stacking up against retail arbitrage sellers, many of them are probably asking themselves, “Is retail arbitrage on Amazon dying?” And like many sellers, we’re asking ourselves the same question.

Our Hypothesis

In the next couple of weeks, we are going to be discussing this topic further. We’ll be doing retail arbitrage for Amazon. Our goal is to decide if you can you still make money doing retail arbitrage on Amazon? Do we want to know if it’s still considered a viable method to build capital to start a private label business? We’ll be documenting our journey through blog posts and YouTube videos.

A Little Background

We’ve heard a lot of chatter at conferences and on the internet lately about retail arbitrage dying. And this caught our attention because we know many sellers use this sourcing strategy to make a living, and others use it to fund their private label aspirations. Naturally, we had to say something about it.

Our friend Cynthia Stine has written two a great article about whether or not we’re facing the end of retail and online arbitrage and Amazon gating certain brands. If you’re not familiar with her, she’s a leading Amazon third-party seller expert on suspension prevention and account reinstatement. I’ll be referring to her article throughout this piece.

Most retail arbitrage sellers rarely ever have issues with being flagged as selling counterfeit products or incorrectly marking goods, but it’s a thought that lingers in their minds. Typically, a seller doesn’t have to provide proof of supply chain to Amazon Seller Performance unless they get a complaint of inauthenticity. If this happens, a seller has to submit their receipts to prove they purchased the product from a reputable retailer. The seller will then have to remove all of the inventory associated with the inauthentic claim until it has been resolved.
Amazon has started aggressively gating brands from resellers who don’t have permission to list on a popular detail page. This is particularly relevant because it prohibits arbitrage sellers from hopping onto a listing unless they have been approved to sell a brand. However, on the other side of the argument, this is great news for brand owners and manufacturers because it will decrease the number of counterfeit products being sold on high-ranking listings. It appears Amazon won’t let sellers who don’t have permission from a brand or manufacturer to sell anything.

Why Would Amazon Stop Retail Arbitrage Sellers?

Amazon has many reasons as to why it would want to prohibit retail-arbitrage sellers from its platform. It is probably one of the most customer-centric companies around. And this plays to the advantage and disadvantage of arbitrage sellers. Here are a few of them:
Advantages

  • Retail arbitrage adds selection to Amazon that may not be available on the site through traditional supply chains.
  • Amazon earns a commission off of every item sold by a third-party seller. More sellers equal more revenue.

Disadvantages

  • Uncertainty about what’s being sold on Amazon, as in the condition and origin of a given retail arbitrage product.
  • Higher likelihood of inauthentic or counterfeit claims, resulting in unhappy customers.

The basic takeaway as to why Amazon would refuse to let retail arbitrage sellers push their goods onto its platform is simple: If it diminishes the customer’s shopping experience in any way, it’s bad for business. This is especially good news for manufacturers and private label sellers who have spent a lot of time and money developing, and getting into Amazon’s Brand Registry program. The ability to gate re-sellers and counterfeits from their listings will massively increase their profits.

Retail Arbitrage Isn’t Really Dead

Amazon isn’t the only place to sell online; it just happens to be the biggest. Depending on what steps the online retail giant takes in the next few months, the industry could see a huge exodus of retail arbitrage sellers going from Amazon onto other platforms like eBay, Jet and Craigslist. The third-party market will always exist in one form or another but it may not exist how and where sellers would like it.

Moving Forward

Instead of speculating, we’re going to discover for ourselves if retail arbitrage on Amazon is dead or not. We went to our local Toys R’ Us to conduct some retail arbitrage. We armed ourselves with the Amazon Seller smartphone application and scanned through every aisle of the store in search of profits.

Our strategy was to buy products on clearance to maximize our profits on Amazon. We’ll be sending our products into FBA next week and tracking them with the Seller Labs Pro Performance Center to see if we’re profitable. You can do the same with your products. Sign up for your 30-day FREE trial of Seller Labs Pro today.

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