Retail Arbitrage – Shopping for Profit

The field of retail arbitrage allows investors to put their money to work by buying everyday household goods and re-selling them online through Amazon’s FBA program.  You make money by locating products that can be sold for more money at Amazon.com.  Amazon has an app that you can download to get an idea of what something would sell for.

You can scan a product’s UPC code and make sure it qualifies to be sold through the program (certain things like food or medicine do not qualify), and how much you might get after paying their fees.  If you find something that is profitable, you buy the item and ship it to Amazon.  Amazon handles everything from there, including storing, selling, and shipping the product.

Obviously, the key is to find items cheap enough to allow for a profit.  Dollar stores and other big box retailers like Best Buy or Babies R Us are common places to look.  You need to find things that have been heavily marked down.  Walmart’s recent decision to close over 150 stores has yielded this type of opportunity for retail arbitrage investors.

One gentleman named Keith Yaple bought about $12,000 in products that he thinks will generate $8000 in profit on Amazon.  This profit will come from flipping multiple units of security cameras, pregnancy tests, and condoms.

Retail Arbitrage Example

You have to find great deals since you have to overcome Amazon’s commission of around 15% plus storage fees if the items sit in the Amazon warehouse for awhile before they sell.  Using the example of a First Response Rapid Results Pregnancy Test, 2 count, the items sell for about $13.48 on Amazon.com.

However, using the Fulfillment by Amazon Revenue Calculator, Amazon charges you: referral fee of $2.02, order handling of $1.00, pick & pack of $1.06, weigh handling of $0.96, 30 day storage of $0.01.  If you estimate the inbound shopping cost of $0.25 per item, you are looking at total costs of $5.30 per unit.

So you could potentially bring in $8.18 per unit net of fees on Amazon.  You would need to get the pregnancy tests at $6.18 per unit in order to make a $2.00 per unit profit. As you can see, you have to get fantastic deals when you buy the products, in order to earn a reasonable profit.

While there are some people who do retail arbitrage for a living, for the most part you could do this on the side.  It would be one way to earn money outside of your regular job without having to make a large time commitment.

Outside of having some money to invest, you would need to be able to find tremendous deals.  While there are apps that can help you scan items and spot deals, you could end up spending hours wasting your time scanning things that are nowhere close to being profitable.

You can use your time wisely by knowing what to look for and quickly eliminating the majority of items.  You also need to know when to cut your losses to avoid paying storage fees.  At some point, you might have to price at a loss or even throw your items a way rather than storing them at Amazon’s warehouse beyond 6 months or so.