Retail arbitrage is near to my heart because it was the first business model that really worked for me. It worked so well that I could quit my job and do it full-time way back in 2014.
My goal in this article is to provide an answer key for every one of your retail arbitrage-related questions for 2022 and beyond.
I wrote this post with questions flowing in a logical order, starting with the most fundamental questions and working my way out from there.
If you're brand new to Amazon retail arbitrage, I suggest reading all the questions in order.
Of course, if you'd like, you can jump to specific questions using the table of contents below as well.
Are you ready? Let's begin.
What Is Retail Arbitrage?
Retail arbitrage is the process of buying products from 3rd party retail stores and then selling them on another marketplace at higher prices. The difference in the higher price and the lower price is kept as a profit.
In almost all cases, and in this article, the marketplace is Amazon. That's why we will refer to it as "Amazon Retail Arbitrage."
However, you can also do retail arbitrage on eBay, Walmart, or any other similar online product marketplace. You will want to focus on Amazon though, so you can leverage their FBA program (more on that later in this article).
The term "arbitrage" has its roots in the financial space and refers to buying assets in one market and selling them simultaneously in another. Amazon sellers like my good friend and mentor Chris Green hijacked the term for Amazon purposes, and we are forever grateful.
What Does Retail Arbitrage Actually Look Like?
We know that it's buying low from retailers and selling high on Amazon, but I want to go even deeper and show you literally what the process looks like.
Step #1 Person creates an Amazon professional seller account.
Step #2 Person installs the free Amazon seller app or installs a different mobile scouting app of their choosing.
Step #3 Person goes to any retailer or brick and mortar storefront of their choice. They will typically start by navigating toward the clearance section(s).
Step #4 Person opens their app and uses the camera on their phone to capture the barcode of items they think might be something they can resell.
Step #5 The app gives them information about the item, its sales rank, and more.
Step #6 Person enters the item's buy cost into the app and checks to see if it makes a profit or not. Preferably, it makes at least $4 profit (net) and has a profit margin over 30%.
Step #7 If the product would be profitable, the person goes deeper into analyzing the price, offer history, and sales rank. They use this information to decide if they should buy the item, and if so, how many.
Step #8 They repeat the process many times until they are happy with their finds.
Prepping and Shipping to Amazon FBA
Step #9 Person logs into seller central and lists their products.
Step #10 Person receives packaging information from Amazon. They segregate and package the items as requested and append labels that they have printed onto the boxes.
Step #11 Boxes are dropped off or picked up.
Step #12 Person ensures that the items all arrive at their respective Amazon fulfillment centers.
Step #13 Person monitors the listings to see if they sell as expected. If items do not sell as expected, the person may lower the cost, or, in the worst cases, create a return order and have the product shipped back to them to avoid paying storage fees.
Step #14 After items sell and are shipped, the seller will be paid. They will receive a payout from Amazon (at designated intervals), and they will reinvest the funds into more inventory and/or take a profit.
Why Is Retail Arbitrage Possible?
Retail arbitrage relies on market inefficiencies. Products are available at certain prices in one area and not available at all or at the same prices in another.
- Regional inefficiencies. Someone from Ohio who moved to California and is craving Skyline Chili would pay a premium price if it wasn't available in local retailers.
- Human error. For example, a local store puts Cheerios on sale for 75% off because the rookie manager purchased 200 instead of 20 boxes for restocking.
- Item discontinuation/updates. Older items are replaced all the time with new models. When this happens, stores need to quickly liquidate their existing inventory.
- Going out of business. Retail stores liquidate their products when they go out of business (although retail arbitrage and liquidation sourcing are not the same thing).
- Demand shift causes people to pay over MSRP (suggested list price). Many items that are sold through retail arbitrage are actually bought at MSRP, if you can believe it. While retailers regularly list above MSRP, Amazon sellers do and buyers regularly pay over MSRP when they really want something.
- Opportunistic deal stacking. We can combine things like coupons, cash back credit cards, rebates, and more to create profitable opportunities others might miss.
The long story short is that arbitrage is possible, and it always will be possible as long as we live in a free market economy.
Why Don't Retailers Just Sell the Items on Amazon Themselves?
Most brick and mortar stores have no interest in this, and it's not just because they are unaware of the potential. Usually, they'd prefer to not deal with the hassle of creating an account, listing and shipping the items just to make a little extra cash. Also, most retailers are managed by hourly or salaried employees who simply don't get paid enough to worry about how to create more work for themselves to potentially make a Fortune 500 company like Walmart a few extra bucks.
Why Would Amazon Customers Pay More Instead of Just Going to the Retail Stores Themselves?
The biggest reason is convenience. We shop online for convenience. Is it really worth getting in the car and driving to Target because they MIGHT have an item cheaper than Amazon?
The next reason is access to products. What is available in one region may not be available in another. That is the "inefficiency" that arbitrage is solving.
Is Retail Arbitrage Legal?
Retail arbitrage is perfectly legal in the United States, Canada, and the United Kingdom. Admittedly, I am unfamiliar with the legality of other countries such as Japan, India, etc., but I have heard no one suggest that it is illegal in any free market anywhere in the world.
You have the right to resell items that you've purchased. The only exception, of course, is the reselling of counterfeit or inauthentic goods.
Now, when we start selling on Amazon, we move away from the traditional legal system and into their business terms and conditions. It is their sandbox, and we have to play by their rules, even if what we're doing is legal otherwise.
Amazon can shut sellers down if they are selling goods that are not as advertised or inauthentic. Also, many brands don't want their items sold on Amazon or want to be the only ones selling them, so they can file intellectual property complaints (IP Complaints) against sellers. Amazon might require the seller to remove themselves from these listings, but in 99.99% of cases, this does not grow into a legal issue.
Does Amazon Ban Retail Arbitrage?
Amazon frowns on selling used items as new or inauthentic items. If you are buying brand new items or used items and listing them as used, you will be absolutely fine. Yes, many sellers get suspended, but it isn't because of the retail arbitrage. It's because they are not inspecting their products before shipping them or slipping in some other areas.
The true litmus test for how Amazon feels about retail arbitrage has been how they treat retail receipts. Amazon has consistently accepted receipts from major retailers when verifying product authenticity.
For example, from 2015 to 2019, I worked with 100s of suspended Amazon sellers. This was a big part of my business model. Many clients were suspended for "used sold as new" or "inauthentic" items. Amazon requests purchase documentation for these cases. I was able to get sellers back countless times with invoices from major retailers like Target, Walmart, Walgreens, CVS, and Dollar Tree. Amazon knew where these sellers bought their items and didn't care.
How Difficult Is Retail Arbitrage?
First, it's obvious that making money outside of a traditional job is inherently difficult. If it weren't, we'd see many more people doing it.
However, Amazon selling business models (wholesale, private label, and online arbitrage) relative to all other make-money-from-home businesses is perhaps the most viable, and retail arbitrage is by far the easiest. If you're committed to making money on your own, outside of a traditional 9-5, retail arbitrage is my highest recommendation for getting started. Keep in mind, this is coming from the guy who has income streams in most of the other major models, such as affiliate marketing, eBooks, merch, services, and software. I have a lot of experience and can attest to the fact that retail arbitrage is absolutely the best place to start a make-money-online journey.
Expensive to Start
No (But Also Yes)
Takes Time to See Profits
Need to Build a Brand
There are far fewer barriers to entry when getting started with retail arbitrage.
#1 Credibility and Resume Not Required. Unlike wholesale, you won't need to work to prove to companies that you are a good fit to promote their products. Many suppliers don't even consider brand-new, unestablished Amazon storefronts.
#2 Massive Amounts of Capital and Risk Are Not Required. The private label and wholesale models can require a good amount of capital to get started. You will need to place large orders in most cases, and if the products tank, you are immediately in trouble. This isn't the case with retail arbitrage. We simply walk into local retail stores and buy as many items as we can afford. We will talk about how much it costs to start retail arbitrage in a minute.
#3 Large Facilities Not Required. Thanks to the Amazon FBA program, you will not need to store huge amounts of products long term. You can ship your products the same day you purchase them, and Amazon will fulfill them (ship and pack) to Amazon customers when they order. You pay Amazon fees for this, but those are calculated into our buying decisions and are well worth the cost. Someone who lives in a studio apartment could sell on amazon doing retail arbitrage with no issues.
#4 Brand Building Not Required. Many make-money online business models take a tremendous amount of time to see results. My first Amazon product sold within hours of creating my first listing. In almost all cases, Amazon customers are simply looking for the best products at the best prices. You can compete with more established storefronts if you price your items right.
How Much Can You Make from Retail Arbitrage?
A survey we took of 300+ mostly arbitrage sellers showed that the average full-time seller reported earning $119,174 per year in profit, while the average part-time seller reported earning $33,791.38 per year in profit. (source)
This sounds like a cop-out answer, but the truth is: as much as you want.
I've met sellers who have scaled their retail arbitrage businesses into 8-figure yearly profits. This requires building, paying, and training a team and growing your access to capital for reinvestment.
Cracking seven figures in yearly revenue is very common, and most retail arbitrage sellers see margins at the end of the year in the 20%-30% range. Selling $1,000,000 in revenue at 20% margins is a cool $200,000.
If your goal is a small side hustle to pay off debts, save for retirement, or to have some extra spending money, retail arbitrage is an absolutely perfect business model for you. Making an extra $1,000 to $2,000 per month is absolutely possible and common.
Don't let the nay-sayers on Reddit and Twitter bring you down.
Yes, keep in mind that many sellers make nothing or even lose money. While many sellers fail (usually because they give up too soon), the potential is absolutely there for anyone who will put in the work and effort required.
How Much Does It Cost to Do Retail Arbitrage?
You will have several fixed costs, but most of your operating costs will be what we call "variable costs." Fixed costs will include:
- Your Amazon Pro Seller Account ($39.99/month). This is not an optional expense. You absolutely need an amazon professional account to make any real amount of money with retail arbitrage.
- Any 3rd party software you choose to buy. ($0 to $1,000+/month). There is no shortage of 3rd party tools for Amazon sellers, but all of them are optional. These include your retail arbitrage app (if you choose a premium one instead of Amazon's free app), repricers, and inventory management or accounting software. We will talk more about these tools soon, but just know that you can and should start with just the free Amazon scanning app and add-on tools as you scale.
Your variable costs will include:
- Inventory ($100 to ∞). Your first goal is to break even and offset the fixed costs of your Amazon seller account monthly fee. So, you will want at least $100 or a secret stash of brand-new items you can sell on Amazon immediately to have a shot at recouping this investment. However, the more you can spend on inventory, the more you will make. You WANT to spend as much money on inventory as possible as long as your items are selling quickly and providing you with good net profit margins (more on profit and margins soon).
- Fulfillment Fees. These vary depending on the item size and weight. The best way to keep up with the fees is to check Amazon's website here.
- Amazon Storage Fees. Items that are stored at Amazon fulfillment centers will be charged monthly fees. The rates go up during the 4th quarter on Amazon and increase if the item is considered a "dangerous goods product." Check the storage rate card below to see the most recent storage fee costs per square foot. Note, there is an aged inventory surcharge for items that have stayed at Amazon fulfillment centers for longer than 271 days ($1.50 per cubic foot) and a higher rate for items stored longer than 365 days ($6.90/cubic foot or $0.15/unit, whichever is higher).
- Miscellaneous Amazon Fees. It's annoying, but there will be a lot of little charges such as refund administration fees. Don't panic though, they aren't going to add up to too much.
- Labor. Many experienced retail arbitrage sellers hire help for sourcing, prepping, and shipping items. This is, of course, optional, but as you scale, it is extremely helpful to bring on a team.
- Gas and Travel Expenses. Retail arbitrage requires that you drive around. Side note, log your miles and gas expenses. You can often deduct them if your vehicle is used primarily for your business. But please, ask an accountant.
What Are the Best Products to Sell with Amazon Retail Arbitrage?
First, let me share the most popular ungated categories Amazon sellers reported in our survey.
- Toys & Games (36%)
- Home & Garden (22%)
- Books (14%)
- Sports (7%)
- Tools & Home Improvement (7%)
- Office Products (5%)
- Consumer Electronics (3%)
- Video Games & Consoles (1%)
No other ungated category received a vote.
The most popular gated categories to sell in were:
- Health & Personal Care (22%)
- Beauty (19%)
- Grocery & Gourmet Food (19%)
- Clothing (16%)
- Shoes, Handbags & Sunglasses (8%)
- Video, DVD & Blu-ray (4%)
- Automotive (3%)
- Industrial & Scientific (2%)
- Watches 1%
No other ungated category received a vote.
Let's go deeper than this and explain all the considerations when finding items to sell.
I wish I could just say, "whatever makes money." Unfortunately, there is more to it than that. Here are some important considerations that go beyond profitability (which we will discuss shortly).
Consideration #1 Not in a Gated or Restricted Category
First, when you start selling on Amazon, you will be gated in certain brands and categories. This means you can't sell them without going through an approval process. The process varies for each category or brand. Some are very easy to get ungated in, while others can take a good amount of time.
How do you know if you can sell an item on Amazon then? Don't worry, the Amazon seller app (and most other retail arbitrage apps) will let you know if something you scan is a brand restricted product or is in a gated category.
Consideration #2 Size
In a perfect world, you would sell only small items. That's not always possible and is harder to scale. Amazon has an "oversized" category that will cost more to sell. Typically, we avoid oversized items when possible. If you want to sell an oversized item, consider using the merchant fulfilled option (we will talk more about that shortly).
Consideration #3 Expiration
Some items are perishable, and we have to treat them differently than other products. Here's a great article that explains how to sell items on Amazon with a shelf life. Just know that Amazon destroys items long before their expiration dates (50 days before expiration at the time of writing), not after. So, you will need to ensure you have plenty of time to sell your items before they expire.
Consideration #4 Seasonality
Some items are selling well today, but they might drop dramatically after they go out of season. Christmas ornaments, for example, will not sell in February like they do in November and December.
Consideration #5 IP Complaints
Unfortunately, brands are filing intellectual property claims against 3rd party sellers. Most brands do not do this, and fortunately, tools like IP Alert help us know which brands to avoid that do.
Consideration #6 Refund Rate
Amazon has a buyer friendly return policy. This can frustrate sellers, of course. Keep in mind, it's things like their refund policy that keep loyal customers coming back and buying from us!
Some categories receive higher refunds than others. Shoes and clothing are the biggest culprits for returns. Also, items that have low average ratings (>3 stars is my rule of thumb) will have a higher chance of being refunded.
What Is a Good Profit Margin for Retail Arbitrage?
Jungle Scout reports that Amazon sellers have net profit margins between 18% and 28%. When you factor all sellers, that sounds about right. However, retail arbitrage is a unicorn for net profit margins.
A retail arbitrage business will usually see the highest profit margins of all the Amazon sourcing models. Many sellers aim for profit margins in the 30%+ range.
Also, a net profit of at least $4 is recommended. This gives you some wiggle room if a product tanks, and you need to lower your price to compete for the buy box.
The key here is to know that if you have less money to spend on inventory, you will aim for high profit margins. When you need to spend a lot of money on inventory, you will settle for lower profit margin items more often. Scaling requires lower profit margins. This isn't a bad thing, though. Your net profits are what you want to monitor. Are you making more money month after month? If so, rock on. You're doing it right.
What Is a Good Sales Rank for Retail Arbitrage?
Sales rank (also called best seller rank or BSR) is a number assigned by Amazon that explains how popular an item is in a specific category. This sales rank can give us an idea of how often an item is selling. This is critical when we're sourcing products. It lets us know how many of an item we should buy. If an item isn't selling, no matter how great of a deal we got on it, we will be stuck with storage fees and tied up capital
This is a loaded question though because there is so much more that goes into deciding if an item is worth buying than just sales rank.
First, there is no universally "good" sales rank number. It varies by category. An item ranked 100,000 in toys, for instance, will sell more often than an item ranked 100,000 in the arts, crafts & sewing category.
Some sellers suggest sticking to items that are in the top 1% of their category. Although this is not a terrible rule of thumb, it's incomplete and can be misleading.
One thing truly matters: How many sales can YOU get.
Sales rank won't show us this. An item with a sales rank suggesting that it is selling 10x per month doesn't mean we will get 10 sales per month. That means all sellers combined will.
Note: The buy box on Amazon refers to the default offer that is shown when a customer browses for an item on Amazon. If they click "buy now," the seller with the buy box will get the order. The buyer would have to navigate and choose a different offer (seller) if they have any concerns about the buy box owner (time to ship and condition are the two big factors that would lead someone to not purchase the buy box offer). It's estimated that about 85% of all sales go to the buy box owner.
Therefore, sales rank means nothing if we can't get the buy box. So, a "good sales rank" is relative to the buy box ownership.
An item selling 10 times per day that has a buy box dominated by Amazon 99% of the time is not as valuable to us as an item selling 1x per day that we can own the buy box 100% of the time.
The best rule of thumb is to buy as many of an item as you can sell within 30 days. If an item is selling 20x per month and you think you can own the buy box 20% of the time, you can expect 5 sales per month.
What Factors Go Into the Amazon Buy Box?
Now that I've opened the buy box can of worms, I should explain how Amazon chooses who gets it.
Unfortunately, there is no perfect formula available to us lay people that tells us what Amazon wants to see in their buy box offer.
We can, however, use some basic information to understand how and if we can own the buy box.
Buy Box Consideration #1 Price
The biggest factor is the price. Price includes shipping costs, so you can't try to be sneaky and charge $10 for a $50 item and then charge $40 of shipping 🙂
If you can meet or match the current buy box owner's price, you have a good chance of getting a share of it. Unless Amazon is on the listing and in stock, that is. Amazon does not share the buy box as much as we'd like.
Buy Box Consideration #2 Is a Prime Offer
Buyers prefer to use their Prime benefits for free shipping. Non-Prime offers will struggle to beat out Prime offers for the buy box.
Buy Box Consideration #3 Condition
The buy box typically goes to new offers, but sometimes Amazon will put a used item in the buy box.
Buy Box Consideration #4 Seller Rating
All things being equal, a storefront that has a higher overall rating will rank above one with a lower rating. This is far from a heavily weighted factor, though. Brand new stores with low ratings regularly win the buy box over established stores with higher ratings if their price is more competitive.
Which Retail Stores Are the Best for Arbitrage Sellers?
The beauty of retail arbitrage is that there is no real restriction on where you source your products. Any retail store that sells items you can list on Amazon is fair game.
The big players are (in no particular order)...
- Target, Walmart, and Any General Retailer
- Kohls, Marshalls, TJ Maxx, and any Clothing Retailer
- CVS, Walgreens, RiteAid, and Any Drug Store
- Kroger, Publix, and Any Grocery Store
- Ollies, Goodwill, Dollar Tree, and Any Major Discount Store
You can find great products outside of the major retailers, though. Some of the best products I've found came from small regional stores. Retail arbitrage on Amazon is completely limitless with where you buy your items.
Keep in mind, although retail arbitrage is legal, retailers have every right to ask you not to do it in their store. Most stores don't care at all. This is the exception rather than the rule, but be mindful that doing retail arbitrage can cause the employees to be a bit confused.
Pro Tip: Retail stores often run promotions that leverage something called "loss leaders." These are items that are so discounted that a store will either not make a profit at all or actually lose money. They sell these to get customers in the door. If you come in and buy out all of their loss leaders, that can lead to issues, and you will probably be asked to return the items and possibly to stop reselling their products.
How Is Retail Arbitrage Different from Online Arbitrage?
This article is focused entirely on starting a retail arbitrage business, but the model works just as well shopping from online storefronts. For example, a retail arbitrage seller might go into Target to buy an item to flip, but an online arbitrage seller might go to target.com to buy an item to flip.
The beautiful thing is that you can do both! In fact, I recommend that retail arbitrage sellers also do online arbitrage, and that online arbitrage sellers also do retail arbitrage.
The beautiful thing about online arbitrage is that you're not limited by the time of day like you are with retail arbitrage. Websites are open 24/7.
There are also several powerful 3rd party tools such as Tactical Arbitrage that make it possible for us to automate our product sourcing research and find items to sell quickly.
Are Yard Sales (Garage Sales) a Good Place for Retail Arbitrage?
They are not my favorite. Items purchased at garage sales have a couple of problems for retail arbitrage.
Problem #1 is that we do not get an itemized invoice. If someone complains about our products and Amazon asks us for validation from our supplier, we will be in deep trouble.
Problem #2 is that I like to sell new items on Amazon. Garage sales rarely have items that are unwrapped and in their original packaging. You can buy these items and list them as a condition other than new, but I'd suggest avoiding that in most cases.
Are Clearance Sales the Best Place to Find Retail Arbitrage Deals?
Yes, they can have a ton of great, profitable products in them. Most retail arbitrage sellers navigate first to the retail store's end caps (where clearance sale items are typically) and scan those products first.
However, these are far from the only place to find retail arbitrage products to sell. You can find tons of items, often ones that aren't on sale or clearance, that sell for big profits on Amazon.
There are other methods as well that can help you go beyond the clearance sales to find products for your Amazon retail arbitrage.
- Create a listing for an item that isn't on Amazon yet
- Find or create bundles
- Stack coupons
- Use cashback credit cards (1%-2% added right to each purchase profits)
- Find sales that others overlook like BOGOs and rebate offers
- Purchase discounted gift cards to the stores you source retail arbitrage products with a site like GiftCardGranny.com.
Clearance is awesome but think outside the end caps and discounted products to truly level up your retail arbitrage sourcing.
What Is the Best Retail Arbitrage App?
There are several 3rd party apps for scanning items (we call it "scouting" or "sourcing"). However, the free Amazon seller app is fantastic and almost just as powerful as the other paid alternatives.
The other big name apps available include...
- Scoutify 2
- Profit Bandit
- Seller Tool
- Scoutly (Formerly FBA Scan)
- Scout IQ
- FBA Toolkit (not recommended)
I polled my Facebook group FBA Today, and the free Amazon seller app was the most popular tool reported.
Features you will miss if you don't pay for a premium tool like ScanPower would be the ability to identify brands that file IP claims (Amazon doesn't let us know that, obnoxiously). Other reasons for using a tool like ScanPower or Inventory Lab (their mobile app is called Scoutfiy 2) is because they have inventory management functionality. Using them together is like how I buy an iPad because I have an iPhone. Continuity is just nice.
I write at greater length here about all the available Amazon seller apps.
Do I Need an LLC to Sell on Amazon?
First, I am not an attorney, but this question is asked a lot, so I'm going to stick my neck out and answer it. The answer is no. You can sell under any business type, including sole proprietor, which is the default you will have as an individual seller who has not set up any sort of legal business entity.
Don't let the details impede starting. I can only imagine how many people didn't get started simply because they felt like they needed to create this business entity first and found the process to be too overwhelming.
How Do Taxes Work with Amazon Retail Arbitrage?
I wasn't an attorney, and I'm also not an accountant. So, the short but sweet answer is that you will be liable for taxes on any Amazon earnings.
There was a horrendous rumor that "unless you sold over $20,000, you don't need to report your earnings." That is categorically false. No matter how much you sell, legally, you need to report it.
The technical aspect of that is outside the scope of this article. Hire a good accountant, track all of your expenses (retail receipts especially), and understand that Amazon will provide you with the tax reports you need at the end of the year to properly file.
This article will be updated regularly as things change. Likewise, we will continually read the comments below to answer any additional retail arbitrage related questions. So, ask anything about retail arbitrage below, and we might end up adding it to the next update of this article!