Want to start selling on Amazon?
Many people start with retail arbitrage (RA), which to a beginner might sound like a good way to produce reasonable income. Take it from us: it’s not. When you look at the time invested and the headache of managing a very unorganized Amazon seller’s account, it presents more trouble than it’s worth.
If you’re unfamiliar with RA, here’s a quick definition:
Retail arbitrage involves purchasing a number of items at a discount, then selling them on Amazon at a profit.
Sounds pretty simple, right? Think again. Let’s take a look at a few reasons why retail arbitrage is a bad idea for your online business.
Retail arbitrage is incredibly time-consuming.
When you consider the about time you’ll spend searching for inventory, researching brands, calculating profit margins on multiple items, and trying to stay organized, it’s overwhelming. Plus, you’ll have so many SKUs in Amazon Seller Central that your account will end up being a complete mess. That much information is just too tedious to manage. Profit margins won’t be high at all. In fact, compared with the amount of time spend managing retail arbitrage, you won’t be making money. Your time is worth much more than that.
You’re building other companies’ brands.
Buying a product doesn’t give you complete control of it. That company’s brand belongs to them, and they hold ultimate control over what you can do with the items and how you price them. This gives you absolutely zero control over the products, profits, and listing. In fact, many brands are cracking down on the reselling of their inventory and may eventually take action against you.
Your inventory will be inconsistent.
It’s impossible to predict what items you’ll have and when they’ll be available. You may find a product once and then never find it again. This is especially true for discontinued or liquidated items. You’re also more likely to get stuck with inventory that you cannot flip.
Competition is everywhere.
When you participate in retail arbitrage, you’re one of many who have had the same “bright” idea. Add to that the fact that you’ll be sharing listings with the brand owner and others who are selling the same item, and the competition is just too much. Again, your time is worth more than just taking a leap of faith that your listing will be among the first ones buyers see.
You limit your growth potential.
Retail arbitrage is just not sustainable. The RA business model relies on you being able to find enough in-demand items at a discount on a regular basis. To us, it seems that luck is a key ingredient if you want to be successful at RA. As you might guess, we don’t recommend using luck as a building block for a sustainable business. There are much better business models out there—Private Labeling, for example—that have higher profit margins with a significantly lower risk than retail arbitrage. To see any growth in revenue, you’ll have to sell a wide variety of products for consistent monthly sales. As we’ve stated above, that’s just too much to manage to be profitable.
We cannot recommend enough that you stay away from retail arbitrage when starting your online business. If you decide to try RA anyway, please consult a lawyer to get legal guidance on whether what you plan to do is legal. Use it as a method to learn how to sell on Amazon so you can move into Private Labeling as quickly as possible.