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

April 10, 2023

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 


Retail Arbitrage

Online Arbitrage


Investment required

❌- Low investment 

✅- No investment required

✅- No investment required

Risk Involved

✅- Low risk involved

✅- Low risk involved

✅ - Low risk involved

Shipping & Inventory

❌- Pay for shipping & inventory

❌- Pay for shipping & inventory

✅- No need to - Pay for shipping & inventory

Shipping Time

❌- Slow Shipping unless FBA

❌- Slow Shipping unless FBA

❌- Slow Shipping

Product Supply

❌- Limited Availability

❌- Limited Availability

✅- Limited only by supplier

Listing Process

❌- Keep Listing New Products

❌- Keep Listing New Products

✅- Seldom list new products 

Profit Margins

❌- Low

❌- Low

❌- Low

Quality Control

✅- Some control

✅- Some control

❌- Dependent on Supplier


❌- Not Scalable

❌- Not Scalable

✅- Scalable

Supplier Dependent

✅- No

✅- No

❌- Yes

Difference Between Online Arbitrage and Retail Arbitrage

The key difference between online and retail arbitrage business is the source of the product. For retail arbitrage, you buy the product from a brick-and-mortar retail store, while for online arbitrage from an online store.

This is important because you can list a product that you find in an online store without needing to buy it.

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 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

Low Risk To Start

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.

Quick To Set Up

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.

Search For Products Without Leaving The House 

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.

Don't Need To Buy Products Right Away

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

Retail Arbitrage Uses A Lot of Time and Effort 

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.

Increased competition

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.

Low profit margins

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.

Limited stock

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.

Arbitrage is Not Scalable

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

Don't Need To Pay For Products Right Away

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.

No Inventory Cost And No Packing Effort

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. 

Do Dropshipping From Anywhere. 

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.

Can Sell As Much Product As Supplier Has In Stock

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.

Add Product Listings Sparingly

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.

Scalable and Predictable

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

Cannot Control Shipping Time

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.

Cannot Ensure Product Quality

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.

Low Profit Margin

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.

Not Your Own Brand

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

Spend More Time In Marketing

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.

Dependent on Supplier

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.

What are the different types of dropshipping?

There are new variations of dropshipping that have been enabled by technology. The most popular form of dropshipping is reselling products from a manufacturer or wholesaler. These products are usually produced and ready for shipment already.

A new dropshipping model has sellers creating new product bundles by combining different products together, such as craft supplies.

Another variation is print-on-demand. Sellers can create new designs that suppliers can print on various items and deliver to buyers. This is expected to grow even more with 3D printing technology.

Remember to follow specific platform rules. Retail dropshipping is risky and illegal on many platforms. You can get your account suspended or worse, permanently banned. Wholesale dropshipping is the safer option as long as you follow specific platform rules. For example, on Amazon, you can do dropshipping as long as you are shown as the seller on all receipts and you handle any product returns.

Summary of Retail Arbitrage and Dropshipping

Both models are suitable for beginners who don’t have a lot of capital to invest initially in the business. Retail arbitrage lets you start right away, but it’s not a great long-term model. Dropshipping can take some time to get started, but it’s a slightly better option than retail arbitrage over the long term. 

However, local lead generation is better than both dropshipping and arbitrage. You have less competition because it's not as easy to start and you have insanely good profit margins. Don't waste time and money trying an online business that will just make other business owners rich. Be your own boss and create online assets that will work for you.

Follow Me
Ippei Kanehara

$52K per month providing lead generation services to small businesses is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2024, is to build your own lead generation business.

Leave a Reply

Your email address will not be published.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}