Buy things at a discount and sell them at market price for profit! What could go wrong? If the retail arbitrage model of reselling discounted goods at full price seems too good to be true, it’s because there’s more to it than that. Quite simply, a lot could go wrong, such as the 7 common mistakes listed below. Learn from others’ mistakes and resell like an expert, even if you’re just starting out.
1. Return on Investment Too Low
Not all discounted items are worth reselling. To make retail arbitrage work, you have to learn the difference between a profitable item and a waste of time. Even if the profit margin looks good at first glance, you also have to factor in storage, shipping, the amount of time to acquire it, and other costs like transportation (gas money) to and from the different stores.
There are two rules of thumb for retail arbitrage, according to expert seller Ryan Grant:
- resell items with a 50% return on investment or better.
- make a minimum profit of $3 per item.
This leaves you enough to cover all your expenses, and should safeguard your business in case certain products turn out to be duds.
2. Narrow Scope for Sourcing
Product sourcing is arguably the most important aspect of retail arbitrage. You’re at the mercy of whatever stores decide to discount, so you need to widen your net as much as possible and keep your eyes out for new deals. That’s the only way to ensure a steady flow of in-demand products.
Part of it is knowing which stores most frequently sell discounted products (like Walmart or Target, etc.), but if you really want to succeed you have to dive deeper and find the sources other shoppers don’t know about. We’ve already touched upon the advanced methods in our previous guide, Best Retail Arbitrage Product Sourcing Strategies, so check there if you want to learn more.
3. No Hustle!
Retail arbitrage seems easy on the surface, but when you get to the day-to-day management, it’s actually a lot of work. It’s not quite as simple as “buy low, sell high” — you have to spend a lot of time researching, tracking, and just going back-and-forth to stores, not to mention the regular ecommerce duties like marketing and inventory management.
For example, if a chain store like Rite Aid is running a promotion (as it often does), it’s not enough to buy out the stock at your neighborhood store. To maximize profits, you need to go to every Rite Aid within driving distance and buy out their stock, too. You’re not in control of when you restock inventory, you have to take it when it comes — and that means hustle!
4. Discovering Discounts Too Late
The other side of product sourcing for retail arbitrage is knowing when your favorite stores are selling promotions. Discovering sales too late means missing out on lucrative opportunities — a dangerous game when your entire business model depends on them.
It’s best to get as much inside knowledge as possible. Aside from simply checking the retail news, you can also sign up for newsletters, which not only inform you about future promotions but may even offer exclusive deals themselves just to subscribers.
If you favor brick-and-mortar shopping, you can try speaking directly with employees to see if any deals are on the horizon. Some chain stores even run procedural promotions at the same times every week, month, or financial quarter; if you figure out their pattern, you’ll never miss one of their deals again.
5. Unaware of Defects
There are plenty of reasons a store might sell something at a discount, but a common one is that the item is defective. A lot of times resellers get so excited about seeing a popular item on sale, they don’t stop to question why. Often it’s harmless, “too much in stock” or “not enough demand,” but sometimes it’s because the product isn’t fit to be sold at full price.
Always check to see that your products are functioning normally before buying in bulk. Otherwise, you might be stuck with a closet full of dead stock.
6. Not Checking Amazon Brand Gating
Amazon has a counterfeiting problem, and they’ll be the first to admit it. To combat this, they’re using “brand gating” as a way to prevent people from selling a brand’s goods without their permission. While retail arbitrage sellers are hardly in the same ballpark as counterfeiters, Amazon’s brand gating poses a threat to them both.
If Amazon is one of your primary sale channels, you always want to check whether or not you can resell an item there before purchasing them. If it turns out you can’t resell those items on Amazon, you’ll have to find another outlet, which brings us to our final mistake…
7. Only One Channel
One of the biggest drawbacks to retail arbitrage is the lack of control. We’ve already talked about not controlling where or when items are discounted, but that extends to not controlling your target shoppers and where to find them.
It’s best to have extra options available to handle any scenario and mitigate these fluctuations. That typically means a multichannel sales strategy, where you sell from multiple marketplaces. This gives you more flexibility in what you can sell, at what price, and to whom. You can read more tips for maximizing multichannel ecommerce here.
In addition to learning the ins and outs of retail arbitrage, if you want to be successful you also have to master the fundamentals of ecommerce. Take a look at our most popular guides to learn more about every aspect of online selling:
- 2021 Ecommerce Trends: 7 Tips for a Head-Start
- How to Choose Your Ecommerce Niche
- 5 Worst Ecommerce Marketing Mistakes
- Launch an Online Store From Your Retail Store
- The Ultimate Guide to Inventory Management for Multichannel Retailers