Retail Arbitrage Explained in Less Than a Minute
While similar, retail arbitrage is not the same as trading arbitrage—the practice of buying and selling two related stocks or other types of assets in varying markets at two different prices to profit on the differing costs.
How Does Retail Arbitrage Work?
Retail arbitrage requires you to search through many different markets and compare the cost of a certain product. If you find a huge markdown in an unknown place, like a local wholesaler, you can buy a product in bulk, then resell each item for a higher price online. Since not everyone has access to the same local wholesaler you do, you get to take advantage of the deal. Since many retailers only carry a certain amount of each product, many shoppers miss out on heavily discounted items they were looking forward to. Disappointed shoppers head to other websites on the internet to find the items they missed out on, which often happens during the holiday season, only to see them highly marked up. If they really want the item, like a hot new toy or electronic device, they might buy it for a higher price. That’s when you make a huge profit off of retail arbitrage.
Pros and Cons of Retail Arbitrage
There are many people who are professional arbitrageurs, but that doesn’t mean it’s the right move for everyone. Carefully weigh the pros and cons before you start reselling as a side hustle or turn it into a full-time venture.
Pros Explained
Cons Explained
You could lose money: With retail arbitrage, you’re betting that you have a hot enough item that will resell for a lot of money. But if you buy an item (or a bulk amount of items) that isn’t in demand, you’ll have to sell it at a competing price, potentially cutting into your earnings—and possibly costing you money. Also consider fees and the cost of shipping. If you didn’t have a lot to begin with, any loss could be substantial. You’re in constant competition: There are thousands of people who are doing the same thing you are, which doesn’t really make the job special. Unless you have a stronghold in a particular niche or market, most people are trying to sell the same products as you, creating constant competition. Not everything sells: What happens if you bet on a product that isn’t selling fast enough? You’ll either need to hold onto it until the price comes back up or you’ll need to sell it for a loss. It can be time consuming: There’s still plenty of work involved, including sourcing your purchases, finding the best deal, and packaging and selling your items. Even those who do it don’t necessarily earn five figures every month like some do, including a couple from Scottsdale, Arizona, who have their own YouTube channel on the subject with more than 20,000 subscribers. Don’t set high expectations for this job. Go into it with plenty of security and backup plans in case it doesn’t work out.
