Retail Arbitrage vs Dropshipping (Which is Better in 2024?)

If I were to choose only between retail arbitrage vs dropshipping in 2024, I would go with dropshipping because it won't take up a lot of your time, you can do it anywhere and it's better long-term.

Online and retail arbitrage are similar to dropshipping in some beginner-friendly aspects such as not much capital needed to start and not a lot of risks involved. But they lose to dropshipping because they require a lot of time, you always have to look for new products, and they're not scalable.

Both retail arbitrage and dropshipping have intense competition and low-profit margins. It's hard to build a big business because there are so many ways you can get your store closed down and fail. E-commerce platforms like Amazon and eBay have put up so many policies that limit what you can do in arbitrage. They have also raised their fees by a lot. Amazon now grabs as much as 50% of the revenue on a sale. Only the platforms and suppliers get rich.

Fortunately, there are other options. A more viable business model is local lead generation, where you have better control over your business, you don't worry about competition because the market is not saturated with competitors and you can scale the business massively.

Pros and Cons of Online / Retail Arbitrage and Dropshipping 

Is Retail Arbitrage the Same as Dropshipping?

Retail arbitrage is not the same as dropshipping. With retail arbitrage, you must buy the products from a retail store then put it up for sale in your online stores. With dropshipping, you can list the products even without buying the items.

There is where you find key similarities between dropshipping and online arbitrage. Since both of them don’t need to buy the product, both can list the items without buying and so don’t have a required initial investment. Second, both of them carry no inventory risk, because you don’t need to have the products in your inventory.

But while the supplier can directly ship the products to the buyer with dropshipping, you can’t do that with online arbitrage. You have to buy the product first and then ship the product. Most online platforms already ban this practice. Amazon and eBay no longer allow this and you can get your account permanently suspended if you get caught.

Dropshipping from Walmart.com to your customers in other channels is also against Walmart policy. However, dropshipping from suppliers to your Walmart customers is fine.

Pros and Cons of Online / Retail Arbitrage 

Pros of Online / Retail Arbitrage

You can start with any amount and even sell things that you already have. If you are an Amazon retail arbitrage seller, you can use the Amazon seller app to scan the products and determine if they are profitable.

No need to wait for approval from suppliers to sell their products. All you need to do is open your store, buy products, and list them on your store. With online arbitrage, you don't even need to buy the products, just list them. It’s the fastest way to experiment and get your feet wet in e-commerce.

You don’t have to drive around scanning at top stores for retail arbitrage sourcing because you can use software like Source Mogul. Staying at home can save you time, gas, and effort. It feels more like a proper online business compared to retail arbitrage.

You can list the products first, then when someone buys, that’s the time you buy the product. This lowers the risk of your capital being stuck on products that won’t sell right away.

Cons of Online / Retail Arbitrage

Doing product sourcing, even if you follow the top retail arbitrage sourcing tips, is a pain. There's no escaping it. And you have to do it regularly. It's slightly better with online arbitrage because when you can use the top online arbitrage websites but that leads to its own problem.

The product search software doesn’t give unique recommendations per user. The more people use the same software, the more arbitrage sellers you will have to compete with. It’s the same with retail arbitrage. Every year, new sellers come and try it because of all the Amazon FBA retail arbitrage courses and online content that say how easy it is to start.

As more competitors enter the space, it’s a race to lower prices which squeezes everyone’s profits. You can use coupons and store credit cards to help reduce your price and increase your profits. You also earn points that you can use to buy additional products to sell.

You can only sell what you are able to buy from the retailers. They’re not obligated to restock those clearance shelves with new underpriced items. Once you sell everything, you have to find new products to sell.

There’s no feasible way to grow your business. You’re always changing products, always hustling, and hoping to get lucky. Getting lucky is not a scalable business strategy. It’s a great way to start, but at some point, you have to switch your business model like check wholesale vs private label.

Pros and Cons of Dropshipping

Pros of Dropshipping

You just list the products and pay for them when someone buys similar to online arbitrage. This saves your capital so you can focus on other important things like marketing.

It is unnecessary for you to pack items and pay for a warehouse. You need to pay for shipping and handling, but it’s a cost that you can usually pass on to the buyer. The important thing here is you don’t need to spend time and effort to do these things although Amazon FBA will give the Amazon seller the same advantage. 

You can be on a beach sipping pina-colada while your store and suppliers are working hard for you. All you need is a laptop and an internet connection and you're in business.

You’re not limited to the products that you buy on the clearance shelf. As long as your supplier has the inventory, you can keep selling the same item over and over again. You don't have to look for new products to sell.

No need to list products often because you're selling the same products. You're not buying new products every time. Just need to update stock which is automatic if you are connected to the supplier's system.

It’s mainly a marketing numbers game. You just need to drive traffic to your store. Since you can buy traffic, you just need to make sure that the amount you spend on traffic is recouped by product sales. If you can find that winning combination, your dropshipping store can run with minimal input from you and you can focus on growing your business.

Cons of Dropshipping

If your supplier is overseas like Alibaba, then shipping will be slow. You can lose sales just because you can’t ship the product quickly even if you have the lowest price.

You can’t do any quality controls. You can’t check the packaging if it’s done correctly or check products for any defects. Just hope that your supplier does everything well which is risky because one bad batch of products can cause you a wave of bad reviews which can shut down your store.

Since you’re not buying in bulk, your supplier cannot give you the absolute lowest price that they give to wholesale buyers. Then you have to compete against these wholesalers. In fact, dropshipping becomes unprofitable if there are too many sellers focusing on the same product. This happens often because the barrier to entry for dropshipping is very low.

When you compete with other sellers, you can’t differentiate yourself, so you can only compete on price, which wrecks your profits.

The low profit margins may limit your ability to advertise because it's expensive to advertise in established marketplaces so you need to test other platforms like Tiktok dropshipping.

Your business absolutely needs suppliers to be reliable. If your supplier messes up product quality, delivery, or packaging, then you can get a lot of returns and that can destroy the reputation of your online store. Meanwhile, your supplier is not affected because they will just look for new dropshippers to carry their products.