Retail Arbitrage - Sourcing Inventory for Amazon GuidelinesBrandon Checketts
The key to successfully completing retail arbitrage is finding goods at your local retailer selling for much higher prices on Amazon. However, this is not as easy as walking into any store and buying a random item hoping that Amazon’s price will be higher. As you probably know, most of the time Amazon will offer the product at a lower price than most retailers. Here are some guidelines that may help you in finding great inventory.
The profit margin for an item that you are looking to sell on Amazon is an indicator for whether or not you should buy said product. To make the purchase worthwhile, a rule of thumb to follow is to look for products with a profit margin of at least 50%, but this is a guideline rather than retail arbitrage law. Reasonable profits can be made by buying large quantities of a particular item with low margins if you know the product will fly off Amazon’s virtual shelves.
Most items listed on Amazon are given a sales rank that is updated hourly in their given category based on historical and recent sales data. No one knows everything about sales rank except for Amazon, but typically items with lower sales rank will sell faster than that of an item with a higher sales rank. Every category has a different size. For example, toys may be larger than health and beauty, but books is larger than toys. This means a sales rank of 10,000 represents different things in different categories. If you look for items with a sales rank lower than 100,000 you will probably be ok. Items with very high sales ranks can be slow moving and are often listed on Amazon for months at a time until being bought. This is not a preferable scenario if you’ve bought a large quantity of said item. An item with a low profit margin but a very low sales rank may be a better purchase than an item with a much higher profit margin but a very high sales rank.
Before purchasing an item for retail arbitrage, in addition to sales rank and margins, evaluating your competition on Amazon is necessary to make a quality purchase. It’s usually a bad idea to sell an item that Amazon is selling unless your margins are really good, because Amazon will opt to sell its own item first and will usually have a lower price than you. It can also be hard to compete on an item with a ton of FBA sellers. This competition will drive your selling price down and could make it harder for you to move your inventory quickly enough to validate the purchase.
Coupons and Clearance
Retail stores offer plenty of discounts and clearance items. Buying items on clearance at a retail store will also increase your margins as these temporary savings may not be reflected in the Amazon price. You may also take advantage of the rewards programs that several retailers offer. You can often get extra savings by building up points and using other loyalty programs.
Exclusive items, those that can only be sold at a certain retailer, also prove to be successful items for retail arbitrage because of simple supply and demand. Because there is only one retailer and Amazon cannot sell the item itself, the supply is limited driving up the price on Amazon. An example of an exclusive item would be Ridgid power tools sold only at Home Depot or certain Nerf items that are only sold at Toys R Us.
Items based on popular trends/media such as current Disney movies are also good products to look for at retailers. These items will often have very low sales ranks, subtracting the need for extremely high margins. Parents are often also willing to buy these items for a higher price on Amazon than in stores, especially with Prime, to satisfy their kids’ needs without having to deal with the time and effort of retail store shopping.
Seasonal and Out of Season items
Because many retailers do not want to have Christmas or other holiday items on the shelves year round, you can buy these items on clearance a few days after and then list them on Amazon all year round. Prices on Amazon tend to be higher for these items because of the limited competition as no one is selling Christmas items at retail stores in the middle of February.
Products suitable for retail arbitrage are not limited to these guidelines; the world is full of opportunities. However, these suggestions will help limit the time you spent wandering aimlessly through your local retail establishment scanning every item to see its respective price on Amazon. With this knowledge, time, effort, and common sense sourcing your inventory to sell on Amazon should become a rewarding experience rather than a time-wasting chore.
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