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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
What Is Retail Arbitrage?
The basic concept of retail arbitrage is that you buy a product at a lower price and sell it for a higher price, and enjoy the profit. The idea is that, using this strategy, you should sell a lot of products at a steeper cost and, as a result, earn a lot of money. While it sounds really simple, it is actually not. While it’s not a fool-proof business model, there are lots of aspects you need to keep in mind if you plan to earn money based on retail arbitrage.
The key differentiator between regular retail and retail arbitrage is that in regular retail, a person or company buys from a wholesaler or manufacturer and sells it for a profit. In retail arbitrage, an individual or company buys from a retailer or vendor and sells the goods for a profit. The typical process is that a large amount of goods is bought from a retailer at a discount price (these could be during clearance sales, seasonal sales, etc.) After a while, the buyer then resells the same products at a price that is a dollar or two lesser than the actual value. So, in essence, the buyer buys the products at a discounted rate and resells it at a price close to the full price of the product, thereby making a sizable profit with every product sold.
You might be thinking, “hmm… this seems too good to be true, there must be a catch.” Well, yes, the catch is that such a business model is not really predictable. You don’t really know if the product is defective or just does not sell well in that particular store. The amount of legwork and research you have to put in is also a lot. This is by no means a way to get rich quick, but rather a slower approach to short-term earnings that is supported by diligent hard work and intelligent decisions. Although, if done well, there are ways to earn good amounts of green and maybe even require a freight run as you increase the number of products. Many people who find success with retail arbitrage usually turn to private labeling and building a brand.
When sourcing goods to sell on a retail arbitrage basis, here are some important tips and tricks to follow to ensure you buy the right products at the right time.
1. Look out for discounts:
While it might be a bit obvious, looking out for discounts of any kind (seasonal, clearance, festive, etc.) is the best way to source quality products at lower rates. Often, many resellers buy products very close to MRP and price it higher when selling them. This makes you lose out on customers and you also register a much lesser profit at best or a loss at worst. Remember to keep a sharp eye out in retailers with both physical stores and online marketplaces.
2. Keep an open mind and a close eye on popular items:
The whole concept of a gut feeling is that it’s subjective. Just because you won’t buy a particular product doesn’t mean someone else won’t as well. Take an objective view of all the products in the clearance section and remember that if a product doesn’t sell well in that store doesn’t mean it won’t sell elsewhere. On the other hand, stay close to popular goods that approximately sell well enough to turn a good profit.
3. Check the products:
Sometimes, items don’t sell because they are generally unpopular or have some manufacturing defect. And if the manufacturing date is a few years back, that is a big red flag. Before buying anything, have a thorough look at every product individually to find any dents or damage of any kind. If you can, search about the products you are interested in buying on the internet to figure out whether if customer reviews point to a faulty or controversial product to begin with, or if the company had recently received any bad press. These aspects directly affect your sales and could blow a hole in your wallet if you are not careful. On the flip side, if the product or company has been praised, it is likely a good buy that will sell very well.
4. Compare the same discounted product across multiple stores:
Okay, so you have got the product you want, but do not buy it just yet! Stop to compare the discounted prices from one store with another store’s prices. Don’t forget to look online for similar products and see if you can get a better deal. Also, before swiping your card at the counter, remember to verify the discounted price with an employee from the store to avoid any confusion due to wrong placement of the product, price stickers being mixed up, or the end of a sale.
5. Have some favorites:
While you need to check as many places as possible, it is practically impossible for you to check in almost every place. Especially since sales don’t really last too long, you would probably have very little time to spare. While this automatically comes by spending a lot of time in sourcing, it is always a good idea to maintain a friendly relationship with the manager or some employees of a few stores. They could let you know about an oncoming sale, show you some extra stock that would be stored in the back room or just help you out with your purchases.
While it really isn’t a long-term business model, retail arbitrage is something that could support your current earnings or your business strategy. Sure, it needs a lot of research and hard work but once you know what to do, retail arbitrage is an interesting way to turn a profit and have fun doing it. The best way to start is with a small sum of money – find a few products at a sale, sell it online, and enjoy the spoils. The sooner you start, the better. Good luck!
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