Retail Arbitrage is allowed on Amazon and is practiced by thousands of third party Amazon sellers across the country. Amazon does not have any regulations in place that restrict individuals from practicing retail arbitrage on their platform.
However, there are a variety of reasons showing that Amazon does not favor retail arbitrage or Amazon FBA.
Aspiring arbitrage sellers are subject to a handful of guidelines that not only prevent sales and revenue from coming in, but also puts them at risk of losing a lot of money and suffering from lots of emotional stress and anxiety.
Read on to see actual evidence and real-life stories that show the horrors of selling with retail arbitrage on Amazon and the negative effects it has caused to thousands of online entrepreneurs.
Local Lead Generation might be a better option for you if you’re looking for a more significant source of passive income.
Unlike retail arbitrage that puts you under threat constantly, it gives you full control over your business and allows you to make all the decisions and changes you want for your company.
Ultimately, Local Lead Generation eliminates almost every problem Amazon FBA and retail arbitrage poses, while also providing more financial security and stability.
6 Reasons Amazon Doesn’t Like Retail Arbitrage
Retail Arbitrage is not prohibited on Amazon. There are thousands of FBA sellers that use this method and have even found success. This method of Amazon FBA, however, is directly affected by a handful of guidelines on Amazon.
Apart from the costly Amazon fees and minimal sales tax you receive for each product sale, here are 6 reasons that prove Amazon does not like retail and online arbitrage, even though it’s legal.
1. Gated Products
A gated product is a product listing that requires approval from the rightful brand owner before being sold on Amazon. This is a problem arbitrage sellers because retail arbitrage is literally buying a branded, discounted product from a retail store and selling it on the Amazon marketplace.
For example, if you buy 5,000 branded hair clippers intending to flip them and they get blocked due to brand gating, you now have 5,000 products that cannot be sold on Amazon.
Your best bet is to offload them on eBay, which also opens up a plethora of new issues since eBay provides a smaller profit margin and sales volume compared to Amazon. Here a few statistics that back this up:
Amazon to eBay arbitrage, however, is banned on the eBay platform, which means you will have to transfer your inventory from an Amazon warehouse to a new location.
Requesting for approval could be an option, but fees usually cost around $1000 to $5000, which can be very expensive and can quickly deplete an Amazon seller’s profits.
You may also encounter a gated product category, which is much more difficult to get past through since Amazon itself restricts specific categories. Some of these include:
2. Brand Registry
If you thought gated products were bad enough, Brand Registry may be even worse for an arbitrage seller.
Amazon Brand Registry serves as a layer of protection for registered brands against counterfeit products and product hijackers. Here are a few examples of brands being protected by the registry:
If you post a product listing that belongs to a registered brand, not only will you be prevented from selling, you are also at risk of being flagged as an unauthorized seller.
Being flagged as an unauthorized seller can ultimately lead to your account being suspended or banned indefinitely.
To add to that, Amazon has been extremely airtight when it comes to brand registry regulations as the years go by.
Each year, they've become more strict by enforcing rules against intellectual property infringement, product review manipulations, violations against trademarked products and brands, and many more.
Simply put, Amazon and its registered brands will always have the final say.
3. Uncontrollable Customer Service
One of the biggest pitfalls waiting for arbitrage sellers is the not being able to directly interact with their customers.
Amazon handles customer complaints, refunds, and everything else that involves customer service. While this may seem convenient for most people, it quickly raises a handful of issues.
Not only are you entrusting the reputation and quality of your customer service to Amazon, you’re also preventing yourself from building a direct relationship with your buyers.
One of the most essential aspects of running a successful business is being able to interact with your customers and establishing a good rapport with them. Amazon, however, does not allow you to do this.
4. Price Changes
Amazon has a reputation for changing product prices, even products that belong to retail arbitrage sellers, just to match the prices of its competitors.
They have full control over every listing posted on their platform, which allows them to manipulate prices posted by third-party sellers.
The company uses a complex algorithm, called the dynamic pricing process, that studies competitor prices and adjusts accordingly.
Amazon charges as much as it can in order to maximize profits, but tries not to charge too much so as not to scare away potential buyers.
This is beneficial for a customer buying on Amazon, but not for a retail arbitrage seller.
Retail arbitrage sellers will be shocked to find out that Amazon has full control over their whole business, which subjects them to sudden price drops.
5. Amazon is Customer-Centric
Keep in mind that Amazon, just like retail arbitrage sellers, is running a business model for sales and profit. Their focus is to make sure customers are buying and purchasing products from their platform.
In treating Amazon arbitrage sellers, however, it’s a completely different story. Thousand of arbitrage sellers are at Amazon’s mercy, which means they have to play by the company’s rules in order to keep their business afloat.
Amazon has a handful of customer-centric regulations that hurt retail arbitrage sellers on a massive scale, one of which is their free return policy.
Amazon offers free returns for most products, which means a customer may use a product for an extended period and have it refunded despite it being used and damaged.
This largely affects arbitrage sellers because not only do they have to provide refunds, they also have to deal with used products and try to sell them again.
6. Month-long Payouts
According to other sellers who stopped selling on Amazon, payouts usually take over a month before being released to your seller central account or Amazon seller app.
This payout schedule not only hinders you from enjoying your hard-earned funds, it also limits your ability to re-invest your earnings in order to grow your Amazon business even further.
What is Retail Arbitrage?
Retail arbitrage is the process of buying a cheap, discounted product, usually from a retail store with a clearance sale, and selling it for a higher price.
There are others who practice online arbitrage, which is purchasing products from online platforms such as Alibaba and flipping them on marketplaces such as Amazon.
A typical Amazon FBA seller uses retail arbitrage as their go-to-strategy instead of doing Amazon private label or Amazon wholesale because of how straightforward it sounds.
You simply purchase a low-cost, profitable product and sell it at a higher price.
Pros & Cons of Amazon Retail Arbitrage
1. It’s easy to start
Amazon retail arbitrage is easy to start since all you have to do is find the right product and sell it at a higher price.
Using a private label and wholesaling requires you to source products from a supplier or manufacturer. Retail arbitrage, on the other hand, only entails purchasing products from one of the top stores for retail arbitrage sourcing and flipping them on Amazon.
2. There’s no need to market the product
Since you’re buying products that are branded, you won’t have to spend any time or money on marketing the product anymore.
Products from established brands are more likely to sell, since they already have a strong marketing campaign and have developed brand awareness within its customer base and the public.
3. The risk is low
Launching an Amazon arbitrage business requires as little as 5 products to get started, which means there is a very low risk since you’re only spending a small amount of money to get started.
You also don’t have to worry about inventory management, since you can start with a few products and gradually work your way up.
1. No control
The whole concept of retail arbitrage relies heavily on the availability of products in a retail store or an online marketplace like Alibaba, which means you have no control over your supply chain and the product itself.
You cannot order directly order from a manufacturer once your inventory runs out since you’re sourcing products from a retail store only.
You also have no power to dictate the prices of your products. That depends on the prices set by the retail store you’re sourcing from, which could be bad news if they decide to increase their prices. You can only try to maximize your profits when you follow these top retail arbitrage sourcing tips.
You also have no jurisdiction over the quality of your products. Some retail stores have damaged or broken products in their inventory, and you might end up receiving them without your knowledge.
Once a damaged product reaches a customer, there can be very little that can be done on your end.
2. Non-existent customer loyalty
Individuals who practice Amazon retail arbitrage are practically just Amazon resellers of established brands, which means their Amazon store itself does not have a loyal customer base.
Brands with a loyal customer base are often focused on developing a single product or category.
Retail arbitrage, on the other hand, prioritizes finding discounted products and selling them for a higher price, which eliminates any chance of establishing a strong brand presence.
In addition, thousands of other Amazon FBA sellers are doing the same thing you are, which means potential buyers have a vast array of sellers to choose from.
3. Impossible to scale
Retail arbitrage is basically finding cheap products and reselling them for a higher price - but that’s all it’s going to be.
It is impossible to scale a retail arbitrage business because you’re subjected to a variety of factors that are out of your control.
Apart from the risks stated above, you also have to deal with Amazon seller account issues, winning the buy box, sales rank, maintaining a substantial profit margin, and so much more.
Retail arbitrage is simply not a business model you can develop into a large-scale enterprise. Comparing Amazon retail arbitrage vs wholesale, the latter is easier to scale.
Can You Sell on Amazon Outside The US?
Yes, you can. Over a million of Amazon’s third party sellers live outside the United States.
Amazon also allows selling in 102 countries worldwide and has stores in over 16 countries around the globe. These are:
Amazon, however, does not ship to these countries, nor do they conduct business with any of them because of legal and political reasons.
Given that the US is Amazon’s biggest client, it is advisable to start an Amazon business there than in any other country or region.
Here are some key stats to back it up:
Conclusion: Is Retail Arbitrage Still Worth It Even Though Amazon Does Not Like It?
Retail arbitrage is a business model that has made a handful of online entrepreneurs rich. Despite the all the doubt and negativity surrounding it, it’s hard to ignore that a handful of Amazon arbitrage sellers have been successful.
This, however, isn’t the case any longer. Amazon has enforced strict guidelines that are disadvantageous to both current and new retail arbitrage sellers. They’ve become extremely customer-centric and have neglected the welfare of their sellers.
To add to that, selling on Amazon has become completely saturated in the last 5 to 6 years and isn’t showing any signs of stopping soon.
As more and more sellers join the e-commerce game, products become cheaper and margins become slimmer.
You also have to consider the fact that Amazon favors bigger and more established brands, which isn’t particularly exciting news for aspiring retail arbitrage sellers.
Local Lead Generation, on the other hand, is an online business that eliminates these issues. It gives you authority over your business, allows you to rank and develop your own site organically, and provides a more stable source of passive income.
All you have to do is rank your website under Google’s algorithm using SEO tactics and allow local companies and businesses to generate leads through your website.
Local Lead Generation requires little to no maintenance. While companies are using your website to generate leads, all you have to do is watch as the sales come in.
To learn more about the differences between Local Lead Generation and Amazon FBA Retail Arbitrage, read our breakdown of Local Lead Generation vs Amazon FBA.