When it comes to meeting spending requirements on credit cards, I’ve had to get a bit creative. I have yet to dabble in manufactured spending, mainly because I don’t feel like driving all over in search of gift cards and money orders so I looked to reselling as another option. By reselling, I can actually make a profit rather than taking a small loss with MS. When I heard about Fulfillment by Amazon (FBA) and the crazy profits some people earn through retail arbitrage (RA), I decided I wanted to give it a try. This is not a post going over the ins and outs of all things RA, but I wanted to share some examples of how this model can work and things I’ve learned so far. I’m by no means an expert and this has been more of an experiment for me rather than a real business.
What is Amazon FBA?
Amazon is always expanding. One way of being able to offer more products is by allowing third-party sellers to list items on Amazon. Some people do this by packing the product and shipping it to the buyer themselves. This process is called merchant fulfillment. If you want to sell on Amazon but don’t want to worry about shipping costs, packing supplies, and handling your own customer service, Amazon makes it easy with the Fulfilled by Amazon option. For a fee, Amazon will store, package, and ship your products so you don’t have to worry about anything but finding products to sell and shipping them to Amazon’s warehouse.
What are the pros and cons of FBA?
There are benefits and drawbacks to using FBA. A benefit is that your products will be listed as Prime eligible which makes them more attractive over the same product that is merchant fulfilled. People love their two-day shipping! It’s also cheaper to ship products in bulk to Amazon than individually to customers. Amazon has a pretty sweet deal with UPS. When I send in packages, I tend to spend less than $0.50 per pound. The main drawback to FBA is the fees. You can expect to give about a third of your profit to Amazon for their various fees. Even though you are paying Amazon to do something you could do yourself, this allows you to continue sourcing products quickly since you are not limited by the time consuming process of actually fulfilling those orders yourself. Another con is that if someone returns your item to Amazon (they have a very forgiving return policy), you have to eat the cost of the FBA shipping fees. If the item was damaged by the customer, you lose out on the original cost of the item as well since you can’t resell it.
If you want to know more about selling products through FBA, I highly recommend this post by FrugalHackMe.
What is retail arbitrage (RA)?
Retail arbitrage (RA) is a method for sourcing products for resale that focuses on buying low and selling high. Essentially you are looking for clearance items in store that you can flip on Amazon for a profit. A few good rules of thumb:
- Look for products that cost at least $10
- Use the Amazon Seller app to check sales rank and ensure that you can take home a profit after inbound shipping costs and FBA fees
- Don’t pick items that a lot of FBA sellers are already selling
Where can I find items for RA?
You can source items from pretty much any store if you find a good deal. This includes big name retailers like Target, Kohl’s, and T.J. Maxx. Some stores like Target frown upon reselling so don’t fill your shopping cart with too many of the same item. I’ve had the best luck at T.J. Maxx and Marshall’s because their inventory varies store to store. When a big store like Target has a clearance sale, all of the Target’s in the U.S. are also having this sale so you will have more competition. Smaller specialty stores with clearance sections are good options too. Since you are selling these items as new, it is important that they are in perfect condition. Some people source from Goodwill and sell the item as new if the package is sealed. You will get the biggest profits this way but it’s technically not a new product and you could face repercussions from Amazon down the line. Download the Amazon Seller app and start scanning!
Why would anyone buy it from me if they could go to the store and get it themselves?
RA works for several reasons. First, Amazon is a huge marketplace that people treat as a one-stop shop. It’s easier to buy something on Amazon than hunt around in person or even on other websites. The two-day shipping with Prime makes it even more lucrative. Secondly, some products are regional so while it’s easy for you to find it in store, someone across the country may not have easy access to it. Lastly, RA works because you may have access to a deal that someone else doesn’t. Say a store in your town is closing and liquidating all of their inventory, this is a great time to buy low and sell high!
Can I buy items online to sell on Amazon?
Following the same basic principles of RA is a sister-sourcing tactic called online arbitrage (OA). Instead of going to the store, you can hunt websites for good clearance deals. You will get the best deals with the following steps:
- Find clearance items with good sales ranks and profit margins
- Find a cash back portal and buy a gift card from a website like raise.com for extra savings
- Look for coupon codes or Amex Offers to further decrease your costs
- Make your purchase using a cash back portal
It’s tempting to use a points or miles shopping portal but I think it makes sense to get cash back in these scenarios to make sure you are maximizing your profits. Kohl’s is a good site for OA since they often have sales with a coupon code, Kohl’s cash, and their regular store rewards program. Beware if you try to return an item to Kohl’s after using Kohl’s cash since they deduct the Kohl’s cash from the money they’ll return to you. You can get store credit the first time, but they’ll take down your information to ensure you don’t abuse it.
I’ve had some success with OA but I find there is much more competition because it’s easier for other people to stumble upon the same deals as you. If they do a better job with the couponing aspect, they may be able to sell at a lower price. They also may be more comfortable with smaller margins which can further drive down the price. If you source through OA, send your stuff to Amazon ASAP so you can flip it quickly.
What are some examples of products that will sell?
Here are two examples of products that I sourced through RA and OA and sold at a profit on Amazon.
Example 1: Retail Arbitrage
I found this pool float at T.J. Maxx in Boston. It was in the children’s clearance section selling for $12.75 with tax. This same item was previously sold by Saks Fifth Avenue for $70. Given the good margins and the high sales rank on Amazon, this one was an easy decision.
I ended up selling it on Amazon for $58.99. After fees, I made a profit of $32.04.
- Purchase price: $12.75
- Amazon sale price: $58.99
- FBA fees: $14.20
- Profit: $32.04
You can see how this could be really profitable if you could find multiples of this item. OA makes it easier to buy in bulk, but you have to be careful because stores like kohls.com have been known to ban customers for suspected reselling.
Example 2: Online Arbitrage
I bought this Paw Patrol alarm clock on kohls.com. It was on clearance for $11.99. Through a combination of buying a gift card on raise.com, using Kohl’s cash, using a 15% off Kohl’s coupon, and getting cash back from Ebates, I paid $7.82 after taxes.
I’m still new to this so I only chose to buy three. A more confident buyer may choose to buy more if they think they can reliably sell the product. I ended up selling the first one for $20.35 for a profit of $7.43.
- Purchase price: $7.82
- Amazon sale price: $20.35
- FBA fees: $5.81
- Profit: $7.43
As more of these hit Amazon, the price started to drop. To stay competitive, I lowered my price and sold the other two for $18.65 for a profit $4.88 each.
Is RA ethical?
I grappled with this when I started reselling. Technically RA is fine because you are selling a new product. Retail stores and online merchants have to get their products from somewhere. Once they buy from the supplier, it doesn’t mean that the product is no longer new. With RA, the store you buy your products from is like your supplier. However, there is room for counter-fitting with this model. Amazon has been cracking down more and may ask a seller for proof of where their products came from. They’re becoming more strict and sometimes will not accept a retail receipt as proof. Amazon is really looking for an invoice from an actual supplier or proof that you are a certified reseller.
Some products have warranties when they are bought in-store. By buying it, you are making this warranty void for whoever buys it from you. It’s important to avoid products such as these since a buyer has a right to the warranty on the product they bought.
Knowing that something I buy on Amazon could be coming from a random person that bought it at Target makes me a little uncomfortable. This is one of the reasons I won’t be pursuing it full-time. You can identify FBA sellers because the product listing will say sold by ___ and fulfilled by Amazon. If you ever ordered something like batteries and wondered why they came loose in a bag, that’s because an FBA seller is buying them at a low price, bundling them, and reselling them.
Some people’s entire livelihoods are based on RA and bundling. I wouldn’t be surprised if Amazon cracks down more in the future because a few dishonest sellers can do a lot of damage to Amazon’s reputation. As more people realize that most of the stuff they are buying from Amazon is not actually sold by Amazon (only fulfilled by Amazon), I think Amazon will be getting a lot more complaints.
Reselling on Amazon can be lucrative if you are able to source good products through RA and OA and reinvest any returns to keep growing your inventory. Given the ethical considerations and the fact that Amazon is starting to crackdown, I think RA and OA may have seen there heyday. I personally won’t continue sending in items once my “experiment” is done, but it has been a fun experience and I can see how people can turn this into a profitable business. I’ll be sharing my “results” soon so stay tuned!