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Retail arbitrage can be a great way to launch your business in the physical product industry. In fact, this business model is so approachable that the vast majority of entrepreneurs use it when first figuring out how to source products.
And don’t get us wrong — like we discussed in a blog post a few months ago, there’s nothing technically wrong with retail arbitrage as long as you’re careful you can stay within the letter of the law.
But if you’re looking to stay in this industry long-term, retail arbitrage is not the best way to do it. Here’s why:
- Brand owners are fighting back. Just take this story, for example. Target is just one of the thousands of brands that are cracking down on resellers purchasing their products.
- The ever growing list of restrictions on selling platforms. Because brands are fighting back, sellers will soon be required to be (or in many cases, already have to be) pre-approved by the owner of the brand. Sellers also have to prove they are buying from authentic sources as a matter of course. What’s more, Amazon, Shopify, and others are demanding a more careful assessment of product conditions. They don’t consider items bought retail and resold to be new, they see them as used. And as of this fall, Amazon is accepting fewer receipts from sellers when a customer files an inauthentic claim. Yikes!
- How will you maintain your value proposition? There are thousands of resellers looking to do the same thing you are. The competition is rapidly becoming more fierce and it’s hard to keep creating unique value propositions to your customers when you are selling the exact same product as everyone else.
- At what point are you just competing on price? When you can no longer differentiate your value proposition from your competitors, the only thing left to compete on is price. And that’s exactly how a majority businesses end up failing. If you truly want to have a successful business, never set yourself up to compete on price!
It’s very hard to scale a business using retail arbitrage. In every business, you will have to grow at some point in order to generate more revenue. Because RA necessitates selling a wide variety of products to generate consistent sales month after month, you will constantly need to be adding new products. How many stores will you be able to run to before your free time is maxed out? How long until you’re exhausted by the non-stop shopping?
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Don’t limit yourself. There are much better business models out there that have higher profit margins with a significantly lower risk than retail arbitrage. For these reasons (and many more), we truly believe that private labeling is a more viable, sustainable business model that you can grow with over time. Some of the things we think you’ll love most about private labeling include:
- You know that you’ll always have your products available for re-purchase from your supplier(s). You won’t need to hunt down deals; you’ll have a consistent and dependable product source to buy from again and again.
- You’ll have more leverage to differentiate your products from other sellers.
- You’ll have more free time to research and analyze new products in order to grow your business and generate more revenue.
- Most importantly, each of your products will have a brand that is a valuable asset to your business. Your brand(s) will create a higher sense of quality and value with your customers (and allow you to have something that you could sell to investors later if you were interested).
Private labeling will give you the opportunity to make your business exactly what you want it to be, and you’ll get to position your product line in a way that allows it to grow exponentially. We also believe you’ll enjoy how much private labeling will teach you about business, trade, and the global economy. In other words, companies like Coca-Cola and Nike have totally shaped economies and cultures around the world. Isn’t it amazing to realize that in their most basic form, those big companies are simply private label brands?!
As we approach the start of a new year, take some time to reevaluate your business and profit margin. Consider giving private labeling a shot in 2017 — we truly think you’ll be amazed by the world of opportunity (and money!) available to you.