Updated: Aug 23, 2022
Retail arbitrage means buying products cheaply and selling them at a higher price. Retail arbitrage takes advantage of the fundamental truth that price is not always essential in decision-making. People tend to buy the most readily available product rather than search for a cheaper alternative.
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What is Retail Arbitrage?
So, you have decided to set up a retail arbitrage business. Good for you! But you’ll still need to choose your product(s), find suppliers, open an online store, and secure a merchant account with Amazon before you’re ready to start earning real money
Don’t worry, though; we’re about to cover all of that and more!
Now, if you are reading this article, then you are probably someone who does their research and is maybe considering setting up an arbitrage business.
If that is the case, keep reading.
While running an arbitrage business, you have to be vigilant about many things. The most important thing to remember is that it is hard to make money in an arbitrage business. To make money, you need to sell stuff at a high markup. This task becomes somewhat challenging because you need to source the product somewhere that will provide you with a discount.
Fortunately, the rise of wholesale search tools like Alibaba and AliExpress has made finding inexpensive overseas suppliers as easy as doing a Google search. Plus, manufacturers in China make a point of catering to American expectations.
I highly recommend taking a look at what’s available on these platforms.
Any supplier you find on AliExpress will also offer dropshipping.
We’re not going to focus on dropshipping in this article, mainly because we’re already written extensively on the topic; so if you want to learn more about dropshipping, be sure to read: How to Make Money Dropshipping on Shopify
What to Look for in a Good Retail Arbitrage Opportunity
Retail arbitrage can work for almost any type of business. The fact that customers don’t always focus on price means that retailers can sell their products with the promise of competitive prices and high quality.
On top of that, retail arbitrage is relatively low-risk. Most product costs are low, so the risk is relatively small.
The main drawback to retail arbitrage is that the products have to be bought and resold quickly. If the product is seasonal, then wholesale prices may be cheaper.
However, for businesses selling products that do not have a long shelf life, retail arbitrage can be an effective way of increasing profits.
If you are thinking about starting your own retail arbitrage business, then there are a few things that you need to consider.
Finding Cheap Products
The easiest way to find cheap products is to search for cheap product brands. To search for cheap product brands, you can use tools like Google Trends. If you look at Google Trends, you will see that Google generates graphs based on search queries.
Another great way of sourcing cheap products is by going to Alibaba or AliExpress. These websites allow you to search for product manufacturers overseas and source your products directly from the factory to maximize your profit margin.
You can also walk into any Walmart, flea market, or swap meet and look for deals.
Once you find the product, you will need to consider whether or not there are any barriers to you selling it.
For example, some products have seasonal demand. Such products include winter clothing or BBQ grills. Note that these two particular products are in demand at opposite times of the year.
Anyone looking for opportunities in seasonal products should always have a diverse collection of products (such as winter clothing & BBQ grills). Diversifying your catalog helps minimize risk and helps ensure a steady stream of consistent income throughout the year.
Once you have found the product, you will need to determine its ideal sale price. To do this, you will need to do a little bit of research.
The first thing you will need to do is decide what the product is worth on the open market. The wholesaler or manufacturer will not sell their products at the same price as the retailers.
Therefore, you will need to decide what price the product is worth to the consumer.
The best way to do this is to do a Google search for the product. You can do this by typing the product into the Google search bar and typing “price” afterward. Google will automatically provide you with a list of retailers selling the item.
For more information on finding high-demand products that you can buy cheaply and sell at a high markup, read: 5-Step Guide to Selling Trending Products on Amazon.
Retail Arbitrage on Amazon with Shopify
Historically, people have been selling things on peer-to-peer marketplaces such as eBay.
However, with the rise of online selling, the retail world has changed. Now, people are selling stuff on more reputable sites such as Amazon.
However, one eCommerce platform will allow you to sell your retail arbitrage products on Amazon, eBay, and other online marketplaces, all from a single online store.
That platform is Shopify.
Shopify is perhaps the most versatile and capable eCommerce platform ever conceived. It’s a one-stop-shop for all your eCommerce merchant needs.
The Shopify app store has over 2,500 apps that add an endless range of capabilities to your online store. With the help of the Shopify app store, you can:
Find products to sell
List your inventory for sale of external sales channels (i.e., Amazon, Walmart, Etsy, etc.)
Design Print-on-Demand merchandise (more on that later)
Design a professional storefront
Outsource your warehousing and fulfillment operations
Create an affiliate program
Develop your own mobile app
Manage customer service tickets
Interface with shipping companies (USPS, FedEx, UPS, DHL, etc.)
Shopify also makes it incredibly easy to scale your business. You can sign up for a basic plan and then add additional features as you need them. Plus, Shopify manages all of the technical details like security updates and software patches so that you can focus on making sales and running your business.
In addition to your Shopify subscription, you’ll also need to register for a Merchant account with Amazon. You’ll need a separate merchant account for every different marketplace in which you intend to participate. They typically cost anywhere from $40-$50 per marketplace.
Visit Amazon Seller Central to register for your merchant account.
Earning Passive Income with Retail Arbitrage
You can use Retail arbitrage to build up a passive income. A passive income is a stream of money that you generate without active participation. Usually, you will be paid monthly or quarterly for the products you have purchased.
You can use retail arbitrage products to diversify your income.
For other ideas on how to earn passive income, be sure to read: 21 Brilliant Ideas for Earning Passive Income.
Advantages of Retail Arbitrage Products
The most significant advantage of retail arbitrage products is the potential for a return on investment. If the price goes up, the profit increases. If the selling price of the product goes down, the profit does too.
Disadvantages of Retail Arbitrage Products
The primary disadvantage to retail arbitrage products is the potential risk of loss. Even if the product’s price goes up, it is still a loss until you make a sale.
Most retail arbitrage products do not come with any warranties or guarantees. The products purchased may not sell right away.
However, you must sell the product to see a return on your investment.
However, if you watch what retail arbitrage products are selling, you will see a market for them.
Alternatives to Retail Arbitrage
Another inexpensive way to break into the clothing industry is through Print-on-Demand clothing.
For example, let’s say you have an idea for a T-shirt design. The Shopify app store has several different apps that will allow you to design your T-shirt and list it for sale.
When a customer places an order, the Print-on-Demand company prints your design onto a blank T-shirt and ships the finished product directly to the customer. I recommend the Printful app for this task because it has a vast range of products.
For more information about how you can make money with a Print-on-Demand business, check out the Shopify webinar: “How to Quickly Start a Profitable T-Shirt store.”
Tips for Building a Successful Retail Arbitrage Business
To run a successful retail arbitrage business, you must know your way around the internet. Many different applications can help you run your business. Still, there are also several things you can do yourself. Here are a few tips that can help you explore the world of retail arbitrage.
Make sure that you include the correct product information when uploading the products. For example, make sure that you have the product title, product short description, and product price.
Ensure that you include any images you would like displayed in the product listings.
Make sure that you include variant-specific information about the products you are selling. For example, if you are selling clothing, you ‘ll need to include sizes.
Advertise your store. Consider setting up a social media profile for your retail arbitrage business.
Conclusion: Retail Arbitrage Can Be a Great Business
If you are confident and diligent in your efforts, retail arbitrage products can be a great way to build up a passive income. However, it is essential to do proper research, not just on the product you are buying but the industry you are joining.