- Brandon Checketts
- On February 20, 2014
- 0 Comments
Selling on Amazon using FBA is as easy as sourcing your product, shipping it to Amazon and letting the world’s e-commerce leader handle the rest. Product sourcing, the first step in this process, involves finding an item that you will be able to sell on Amazon for more than it cost you to buy. A common, easy, and entertaining way to product source is through a process called retail arbitrage. Retail arbitrage provides a simple path to understanding the ins and outs of sourcing inventory, selling costs, and the workflow of your budding Amazon selling business.
What is it and why does it work?
In finance and economics, arbitrage is “the practice of taking advantage of a price difference between two or more markets”. Instead of taking advantage of differing exchange rates in India and Denmark to make a profit, retail arbitrage capitalizes on the price differences between products sold in retail stores and online marketplaces compared to Amazon. What creates this price difference you ask? There are many reasons but they all boil down to Amazon clientele and their customer loyalty. Compared to ebay users who are scouring for a deal, Amazon customers don’t care as much about price as unparalleled customer service. They know what they want and want it now, and are willing to pay for that convenience. Listing products on FBA makes this possible as Amazon handles customer service and makes your inventory eligible for Amazon prime and its two day free shipping, which will further inflate the price of your product. Instead of leaving their house to drive to a Toys r Us and risk not finding anything for their children’s birthday party in three days, a parent can find exactly what they’re looking for on Amazon and have it delivered in time all from the comfort of their couch.
How do you do it?
While arbitrage may sound like espionage, the actual process is in fact very simple. Go to any retail store such as a grocery store, pharmacy, toy store, or big box store such as Walmart, Target, and Home Depot and find a product that interests you. Scan said item with a scouting app on your smartphone to show what it’s selling for on the Amazon marketplace. If the price in the store is less than on Amazon, you buy the product and follow FBA’s steps to send it into an Amazon warehouse. From there, Amazon handles the rest and will alert you when a customer buys your product. You’ve just engaged in retail arbitrage.
What do you need?
To get started creating your Amazon business, you will need a few key resources. First, you will need a bank account and some capital to purchase your inventory, usually around a few hundred bucks depending on how much you are willing to invest. Next, you will need a smartphone and a scouting app to easily compare retail store prices with those on Amazon. There are plenty of these applications on the marketplace with improvements and upgrades imminent that will only make your job easier. Lastly, an Amazon FBA account is needed to take advantage of Amazon’s world class customer service, as well as its Prime service and A-Z guarantee. With these resources and an insatiable drive to create your own online business, you could become the next Amazon tycoon.