By now you’ve heard there’s money to be made in these online streets with an ecommerce store. You want to get started, but how? And where do people get the stuff they sell? One of the common sources for products for a new online store is through retail arbitrage.
What is retail arbitrage?
Simply, retail arbitrage is the process of buying products cheap in retail stores, and then reselling them on various online marketplaces (Amazon, eBay, Poshmark, Mercari) or on a self-hosted ecommerce store (WooCommerce, Shopify).
Is retail arbitrage legal?
Yes! Once you purchase a product it is yours to resell, give it away, throw it away or light it on fire if you wish, this is the First Sale Doctrine. However, reselling certain brands on marketplaces can be troublesome, as some brands have agreements with the big marketplaces to restrict sales of their brands to only authorized resellers, to protect brand integrity, quality, and most importantly, price. Nike doesn’t want a bunch of resellers flooding eBay and Amazon with brand new clearance find sneakers at $29 a pair when they’re still selling the same or similar sneakers online for $59.
How to start a store with retail arbitrage
Retail arbitrage is one of the easier ways to start an ecommerce store. Browse the clearance, buy cheap stuff, list online, sell, ship, and profit! Seems simple and easy, right! Yes…but no. Stocking your store with clearance finds has a bit of a learning curve and requires a chunk up-front cash and time. It’s not hard, but it takes patience. Here’s a handful of tips to get you started:
I would advise starting off small on one of the more “forgiving” platforms like Poshmark, Mercari or eBay. On those platforms, you are less likely to get your account frozen or a cease and desist (C&D) from a brand in your first month for newbie mistakes. Leave Amazon until you have more experience. The last thing you want is to get kicked off a marketplace or your listings removed by a C&D when you’re sitting on hundreds or thousands of dollars of merchandise.
Pick a single marketplace to start your first store. Use it to gain experience on pricing, following marketplace rules, shipping, customer service, inventory and time management. After a while, you can branch out and launch on a second marketplace to gain more exposure and sales opportunities for your items.
Starting small will allow you to gain experience and profits that you can use to expand your inventory and build a nest egg before you move on to your own self-hosted store and/or Amazon.
Use your smart phone
Your phone is your most valuable business tool. It’s your camera, and your pricing tool.
Use your phone in-store while shopping to price compare. That $25 clearance drill set, is it worth buying? Check the online prices before you buy to ensure there’s enough profit in the purchase. Don’t forget to factor in your time, shipping costs, packaging, marketplace fees, possible return costs, and possible sales or haggling room. If that $25 drill set is only going for $39 online, forget it. If it’s going for $129 online, buy 3, and then go to the other store near you and buy 3 more.
Don’t use stock photos
You’re excited from your first clearance haul, 10 brand new Adidas sweatshirts. You can’t wait to get them listed. So, you look them up online and find nice stock photos. Stop. Break this habit before it starts. On some marketplaces, especially eBay and Amazon, stock photos are a no-go unless you’re an authorized reseller. Some brands troll marketplaces looking for resellers listing their products. They can’t legally stop you from reselling a product you own, however, if you use their stock photos, they can have your listing removed. Too many remove requests on some marketplaces will put your account in jeopardy.
Instead, take your own photos. Show the product in the box from all sides, or if it’s clothing, show it with the tags intact (don’t show the price!). This shows potential buyers that the item is new and unused.
Some brands are known to be particularly a pain about stock photos. If you feel tempted to take a shortcut, don’t with these brands: Nike, Zara, Michael Kors, Adidas, Walmart, Norelco, North Face, Patagonia. That’s a short list of common complainers that target resellers. So stay safe, use your own pics.
Don’t sell knock-offs
It may be tempting to buy a bunch of faux Coach wallets for $5 each and then sell them for $20. Don’t. It can be way more trouble than it’s worth, and can get you booted off even the more permissive marketplaces like Poshmark and Mercari. Then your fledgling reseller hustle will die before you even recoup your initial investment.
As a new seller, try to stay away from designer goods until you have a good seller reputation and a good eye for spotting fakes (yes, even retailers sell fakes sometimes because of fraudulent returns, etc.). As a new seller, listing 20 Tory Burch handbags or 15 Black & Decker drills will make you a target for scammers and unwanted scrutiny from the marketplace.
As a new seller, there’s some risk. The products you select may not sell, or take a long time to sell. Reselling may not be something you’re good at. Don’t risk too much upfront. Don’t invest $10,000 in inventory right from the start. Stock your first store with 50 – 100 items and then expand as you sell.
Also, in the beginning, resist the urge to buy a pallet of anything, no matter how cheap. As a newbie, you will probably lack the resources, business reputation, and patience needed to move that quantity of merchandise. You will lose money, and your peace of mind if you do.
Be a smart shopper
As you make the rounds to your favorite clearance shopping spots, be a smart shopper. Be friendly to the store employees. If you make casual friends with them, they can alert you to the store’s clearance markdown schedule, and will look the other way as you clear the shelf of those newly marked down headphones.
Manufacturers often have agreements with stores stating they should not sell their products “at wholesale or for resale”. Because of this, stores may police the quantity of items you buy, sometimes outright refusing to sell you the quality you want. How strictly stores stick to these policies varies between retailer and between store locations. So, be a smart shopper. If you see a rack of sweaters marked down to $3, don’t grab the entire rack of 20. Take 5 or 6, then go to another location and grab 5 or 6 more.
And don’t whip out your phone at the checkout and price check items for online value. Do that discreetly in the aisles.
In short, be friendly, and don’t look like an obvious reseller.
Don’t give up after 2 weeks. Things often take time to sell. Those clearance items you just purchased for $3 each? There’s a reason they were on clearance, likely because they weren’t selling fast enough. But fast enough for a big retailer that has to move stock quickly to be profitable, is very different from you, the private reseller. You can wait. And often you will wait. Sometimes months and months. Sometimes you will compete with other resellers or the weather, or the market demand for the item. But, rest assured, the item will sell eventually. Keep your store fresh with new inventory, market your store, and price competitively, and your items will sell.
Where to shop
Depending on the type of products you want to sell, you should shop everywhere and anywhere.
Major retailers like Target, Walmart, Lowes, and Home Depot are good sources for a wide variety of products. Both their online and brick and mortar presences work well for snagging clearance deals.
Outlet malls. If you are fortunate enough to live near an outlet mall, you will have an excellent source for products year-round. Outlets have clearance sales constantly, and especially at the end of season and holidays.
Discount retailers like Nordstrom Rack, Off Saks, Marshall’s, TJ Maxx, Burlington, Ross sell discounted overstock, made for outlets, imperfect and flag store overage goods. Their clearance racks are an excellent source of products. Be sure to check all sections of the store, not just their clothing sections. Many killer clearance deals can be found in their home goods and health and beauty sections as well.
Pro tip – be careful with health and beauty items. These items lose their effectiveness and/or freshness over time. Clearance health and beauty items may already be “old” before you buy them, and holding them for several months as you wait for a sale may be too long and give your customer a negative experience. Examine the items before you buy. Does it have an expiration date or manufacture date? If the date is not acceptable, don’t buy.
What to buy
For new resellers, I recommend sticking to these categories to start. There are other profitable categories as well, but some, like toys and games are thick with fierce price competition and are not as recession proof as the categories listed below.
Clothes, shoes and accessories
This is one of the easier categories for new resellers. Most people are familiar with these types of items, so the learning curve is lower. You may already have a few new with tags items in your closet ready to list for sale. Plus, clothing always sells. No matter the weather, even in a recession, clothing sells.
Home decor items like towels, rugs, and knick knacks can be profitable. If you find a unique item, people will pay a premium for it. Be careful however, larger items can suck up profits with expensive shipping costs.
Tools and home maintenance items are another popular category for resale. These are in high demand on marketplaces like eBay, Amazon and Mercari. Careful however, with shipping costs as some of these items can be heavy and awkward to ship.
Health and beauty
This category can be a winner for a newbie seller. These items are welcome on every marketplace, they’re usually light and easy to ship, easy to store in large quantities, and are in demand year-round.
This all sounds like a lot of work. However, you can create a sustainable and profitable stream of income from retail arbitrage. Many Amazon, eBay and Poshmark sellers make full-time level income on those marketplaces, and many more make very good part-time level income. So don’t be discouraged, get hustling.