Retail arbitrage is allowed on Amazon in 2024. The company does not have rules against practicing retail arbitrage on their platform. However, several factors make Amazon retail arbitrage a challenging business venture to pursue.
Retail arbitrage involves buying cheap items and reselling them online at higher price points. Quora user Vera Janie confirms that product reselling is allowed on Amazon. According to her, she scours local stores, clearance sales, and online sales to find items she can resell on Amazon. This strategy in itself can be time-consuming. Besides, you'll have to constantly monitor physical stores for possible items to resell.
Meanwhile, Thomas Parkinson of FastTrackFBA emphasizes that compliance to Amazon's guidelines is important. Arbitrage sellers who violate existing regulations may be suspended or banned from Amazon. For example, inaccurate listings and copyright law violations can get sellers in trouble. “If you are going to create a listing with Disney on it and you haven't got their permission, then obviously that's going to be against their IP,” adds Thomas.
Young entrepreneur Stephan Yaz also shares that he has tried retail arbitrage for 30 days and made over $4,000 in revenue. In his YouTube video, he specifies that his overall earnings per hour was “pretty underwhelming.” Moreover, he points out that a big issue with retail arbitrage is “scalability.”
Currently, there are 1.1 million active Amazon sellers in the United States alone. Seller App also reports that 89% of online shoppers prefer Amazon over other sites when purchasing online. While retail arbitrage can prove profitable, you'll have to learn how the business model works and how to navigate the Amazon marketplace.
We'll discuss the 6 reasons why Amazon doesn't like retail arbitrage, although it's legal on the platform. We look at the pros and cons of doing arbitrage. Finally, we tell you whether it's still worth it or not in 2024. As an online entrepreneur for over 10 years now, I also share my #1 recommendation for those looking for a great online business to build and grow.
1. Amazon Retail Arbitrage Sellers Need Approval From Brand Owners To Sell Gated Products.
Amazon requires arbitrage sellers to obtain brand owner approval before they can sell gated products. This can be a problem because retail arbitrage is literally all about buying and reselling discounted branded products.
For example, you may purchase 5,000 branded hair clippers intending to flip them. If you get blocked due to brand gating, you'll end up with 5,000 products that cannot be sold on Amazon. Gated product categories are much more difficult to get past through. Amazon restricts specific categories, such as:
- Automotive & Powersports
- Collectible Coins
- Fine Art
- Jewelry
- Music & DVD
- Major Appliances
- Watches
Your best bet is to offload them on eBay, which also opens up a plethora of new issues. Besides, eBay provides a smaller profit margin and sales volume compared with Amazon. Here are a few statistics that back this up:
Also, sellers have to note that eBay does not permit Amazon to eBay arbitrage. This 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 will usually cost around $1,000 to $5000. As such, it can be very expensive and can quickly deplete an Amazon seller’s profits.
2. Amazon Brand Registry Restricts the Products You Can Sell Through Retail Arbitrage.
Amazon Brand Registry can restrict retail arbitrage sellers from selling specific products. This resource serves as a layer of protection for registered brands. It helps them combat counterfeit products and product hijackers.
If you post a product listing that belongs to a registered brand, you be prevented from selling the items. Moreover, you will also be at risk of being flagged as an unauthorized seller. This can potentially result in penalties, account suspension, or indefinite banning.
In addition, Amazon has become extremely airtight when it comes to brand registry regulations. Each year, they've become more strict by enforcing rules against intellectual property infringement, product review manipulations, violations against trademarked products and brands, and more.
Here are a few examples of brands being protected by Amazon Brand Registry:
- P&G (Procter & Gamble)
- New Balance
- KitchenAid
- Levi's
- GoPro
- Makita
- Casio
3. Retail Arbitrage Limits Your Interaction With Your Customers.
Retail arbitrage limits your direct interaction with your buyers. Amazon handles customer complaints, refunds, and all other aspects of customer service. While this may seem convenient for most people, it quickly raises a handful of issues.
Case in point, you lose the opportunity to build long-term relationships with your buyers. Since Amazon handles customer interactions, you do not have full control over your customer's experience as they buy from your store. This can be a huge drawback for arbitrage sellers aiming to grow and scale their business.
On Amazon's Seller Forums, one FBA store owner shared about encountering a refund issue. According to the post, the refund was “processed without any apparent reason.” This led to confusion since fees were “charged both ways by Amazon FBA services”
In response, Ezra_Amazon clarified that Amazon does handle every aspect of the customer service process. This includes “dealing with inquiries, refunds, and returns.” The Amazon representative also reminded that the platform credits accounts for returned items “if the report doesn't indicate that the product was returned to a fulfillment center within 45 days.”
4. Sudden Price Changes on Amazon Can Affect Your Retail Arbitrage Business.
Sudden price changes on Amazon can have an impact on your earnings. This is because the ecommerce giant has a complex algorithm known as dynamic pricing. The system monitors competitor pricing, analyzes market demand, and adjusts prices in real-time. As such, Amazon buyers can benefit as they get access to competitive pricing. However, this method poses significant difficulties for retail arbitrage sellers.
Moreover, unexpected price drops can lead to seller vulnerability. It can mean lower profit margins since they do not have full control over their pricing strategy. Sellers have to adapt quickly to maintain profitability and maintain consumer interest.
“Price tanking is part of the retail arbitrage game,” says FBA seller and YouTuber Zach Rosas. “There's nothing you can really do to control it.”
In his experience, Zach found an item that was initially priced at $45 on Amazon. Days later, the cost went down to $28.94. This significantly reduces your possible profits. Plus sellers may end up with expensive unsold inventory. So imagine spending hours and days sourcing products only to realize you're not going to make any money. “You could be stuck with a bunch of worthless items,” adds Zach. “Personally, that is a massive reason why I don't play the arbitrage game anymore.”
5. Amazon's Free Return Policy Can Hurt Your Retail Arbitrage Business.
Amazon has a free return policy that can hurt retail arbitrage sellers. In fact, their website boasts "free easy returns on millions of items." Most items bought from Amazon can be returned for up to 30 days after purchase.
This free return option is available for eligible items if they are:
- No longer needed
- Item does not work
- Bought by mistake
- Better price available
- Item arrived too late
For the most part, Amazon's focus is to make sure customers are happy when they buy from the platform. However, the return policy creates a complex and challenging scenario for third-party sellers. Arbitrage shops are directly affected because they have to provide refunds. Plus they have to deal with selling the returned products again. Despite this, they have to play by the company’s rules to maintain their presence on the platform.
6. The Payout Schedule Can Be a Challenge for Amazon Sellers.
Amazon's payout schedule can be a stumbling block for many sellers. Many sellers report that it can take a month or more for their earnings to be released to their Seller Central account or Amazon Seller app.
Retro Gaming Guy considers the payout schedule as his main issue with Amazon. The YouTuber used to sell gaming items and consoles on the platform. According to him, he didn't like Amazon's policy of releasing funds to sellers 30 days after a sale. This extended payout wait can be problematic for sellers. Besides, the 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. In comparison, eBay offers a much faster 2-day payout.
On Reddit, someone also complained about not receiving their payout for "being unable to reverify" their seller account. Despite repeated attempts to resolve the problem, they remained unpaid after 4 weeks. Moreover, their team "discovered inconsistencies" with their earnings from Amazon sales.
What is Retail Arbitrage?
Retail arbitrage is the process of buying cheap or clearance sale products from physical stores. Arbitrage sellers then make a profit by reselling these products online for a higher price. Usually, retail arbitrage is done via Amazon or other ecommerce platforms. A typical FBA (Fulfillment by Amazon) seller uses retail arbitrage as their go-to-strategy. In many ways, retail arbitrage is much simpler and requires a lower barrier to entry than doing Amazon private label or wholesale.
To succeed in this business model, a retail arbitrage business owner needs to:
- Be adept at identifying profitable opportunities
- Understand current market demands
- Observe Amazon's marketplace rules
Today, retail arbitrage remains a popular entry point for many aspiring Amazon entrepreneurs. It offers a hands-on learning experience in how to do online selling the right way. However, those who embrace this business model need to be aware about both its advantages and disadvantages.
Is Amazon Retail Arbitrage Profitable?
Retail arbitrage is profitable if sellers can:
- Find and sell unique, discounted items.
- Check ahead if the said products can be sold on Amazon.
Of course, it's important to verify Amazon selling eligibility before purchasing anything. However, the challenge lies in the slim profit margins. Retail arbitrage sellers often compete with thousands selling the same products. This can make the business model challenging and tricky. But with strategic marketing, it's possible to stand out and make money from doing retail arbitrage.
What are the Top Amazon Retail Arbitrage Items for Beginners?
Some of the top Amazon retail arbitrage items for beginners are:
- Home and Kitchen
- Beauty and Personal care
- Clothing, Shoes, and Jewelry
- Toy and Games
- Sports and Outdoor
- Pet Supplies
Can You Sell on Amazon Outside The U.S.?
You can sell on Amazon outside the United States. In fact, over a million of Amazon’s third party sellers live outside the country. Amazon allows selling in 102 countries worldwide and has stores in over 16 countries around the globe. These are:
Asia Pacific
Americas
Europe
Middle East
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 customer base, 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:
Pros & Cons of Amazon Retail Arbitrage
Pros
Amazon retail arbitrage is easy to start because it has a low entry barrier. All you have to do is find the right product. You can then buy these products and resell them at a higher price. Retail arbitrage only requires that you source from clearance sale retailers. In comparison, doing private label or wholesale requires you to source products directly from a supplier or manufacturer.
Since you're selling branded products, you won’t have to work hard marketing them. Buyers usually prefer buying established brands. These products come with built-in consumer recognition and trust. This can lead to quicker sales.
Amazon retail arbitrage is not as risky as other Amazon business models. For the most part, it only requires at least 5 products to get started. In short, you're only spending a small amount of money to start your business. You also don’t have to worry about inventory management. Instead, you can begin with a few products and gradually work your way up.
Cons
You do not have any control over your supply as a retail arbitrage seller. Your business heavily relies on sourcing products from local and online retail stores. You also don't have the power to dictate the prices of your products. That factor depends on the prices set by the retail store you’re sourcing from. This could be bad news if they suddenly decide to increase their prices.
Retail arbitrage sellers have a hard time building loyalty among their customers. Amazon handles customer service and those who practice arbitrage are practically just resellers. They do not have their own brand and can't build a customer base around their business. Establishing a strong online presence is difficult since there are thousands of other sellers offering the same products online.
An Amazon retail arbitrage business is impossible to scale. You’re subjected to a variety of factors that are out of your control. You may chance upon a viral arbitrage opportunity but that's it for the most part. Expanding can be hard since you're constantly on the lookout for the next cheap item to resell. Profit margins are usually slim, plus the online marketplace is generally competitive.
Is Retail Arbitrage Still Worth It Even Though Amazon Does Not Like It?
Retail arbitrage is still worth it even though Amazon does not like it if you take a strategic approach. Successful arbitrage businesses focus on finding and selling unique discounted items that offer good profit margins. They also ensure compliance with Amazon's regulations.
Of course, you'll need to take certain disadvantages into account when you pursue this business venture. Case in point, Amazon has strict guidelines that can be disadvantageous to retail arbitrage sellers. They’ve become extremely customer-centric, which has created a challenging environment for sellers.
Furthermore, Amazon has become saturated in the last 5 to 6 years and isn’t showing any signs of stopping soon. More and more sellers are joining the e-commerce game. Products are becoming cheaper and margins are becoming slimmer.
You also have to consider the fact that Amazon favors bigger and more established brands. Naturally, this isn’t particularly exciting news for aspiring retail arbitrage sellers.
On the other hand, local lead generation eliminates these issues and more. In fact, it gives you greater control over your business. With lead gen, you are building and developing websites focused on specific niches and locations. Using SEO tactics, your goal is to dominate Google search results. That way, your site can attract organic traffic and leads you can sell to local business owners.
Local lead generation also requires little to no maintenance. Once your site achieves top Google ranking, you won't have to do much to maintain that. Plus since you are not selling physical products, you won't have to worry about having unsold inventory. Moreover, you don't have to compete with thousands of sellers. With lead gen, you're just competing with a few local businesses targeting the same keywords.
Simply put, this business model provides a more stable source of passive income than retail arbitrage. You can earn $500 to $3,000 per month from a single client. You can easily scale operations by building and ranking more business websites. I've been doing this since 2014 and now I make a monthly income of $52,000 providing lead gen services to my clients.
