If you’ve decided that you want to start an online business, chances are, you’ve come across the concept of retail arbitrage. As an online business owner myself, I am often asked, “is retail arbitrage legal?”
I decided to create this blog to answer this question and help you decide whether this is the route you should take.
Retail arbitrage is a fairly straightforward concept. You purchase a product from retailers and sellers at a discounted rate and sell it at a higher price online. But, just how legal is this?
Is Retail Arbitrage Legal?
Reselling low-cost products at a higher price is not illegal. However, some due diligence on brands is required to make this process legal.
Basically, you want to stay away from brands that only sell their products through authorized retailers. The bigger the brand, the higher the chances you shouldn’t be reselling their products.
Once you do find the right products at the right price, though, retail arbitrage can generate generous profit margins.
Most entrepreneurs considering retail arbitrage plan to sell their products on Amazon leads me to the next question.
Is Retail Arbitrage Legal on Amazon?
Legally, once you purchase an item, you have the right to resell it, which means nothing prevents you from reselling on Amazon. If you want more details on the legalities, you can read through the first-sale doctrine.
Again, the only time you may encounter problems is if you try to sell popular, big-name brands.
In fact, Amazon has a list of restricted brands that you can’t resell. They have never published this list, but you only need to consider the brand’s size to determine whether it’s restricted.
In short, retail arbitrage is legal on Amazon.
If you want to sell a product on Amazon, I’d suggest trying to create a listing for it first, Amazon will usually tell you there, and then you can go ahead and sell it.
Although sometimes they’ll contact you at a later date to request additional documentation, you should also be aware that Amazon can change their rules at any time.
Can You Still Do Retail Arbitrage?
Yes, retail arbitrage is still a viable way to earn an income online, both full and part-time.
Many people refer to it as online flipping or just flipping; it’s all the same thing.
The Amazon seller app makes retail arbitrage that much easier by allowing you to scan products while you’re in a retail store. Once you scan the item, the app will show you listings and sales rank, helping you determine whether it’s a viable opportunity.
If you want to understand how to read the Amazon sales rank (or Best selling Rank), click here to read my article explaining it.
You can even enter the buy cost to determine profitability.
Once you have an Amazon seller account, you download the app and log in to get started.
The only thing left to do is determine where you will start sourcing products to resell and whether you want to take advantage of Amazon’s FBA program.
If you’re new to FBA, I recommend reading my beginners guide here.
Is Retail Arbitrage Worth It?
It is possible to generate decent profit margins using retail arbitrage. However, if your goal is to build a scalable business that you can later sell for profit, retail arbitrage is not the best strategy (in my opinion).
Let me take you through some of the pros and cons you should consider.
- You don’t need large amounts of capital to get started as a retail arbitrage seller. In fact, you could probably get started with just a few hundred dollars. Just don’t forget to consider your Amazon fees.
- Retail arbitrage is an ideal way to move into private labelling gradually. Once you understand how Amazon FBA works and which products are the most profitable, you can shift to a more stable and scalable business model.
- With retail arbitrage, you can’t guarantee you’ll resource the products you are selling; this puts a limit on future potential profits for each product. Many retailers have limited stock of a particular product. This means sourcing more of the same could become an expensive exercise (if it’s possible to source more at all).
- Retail arbitrage requires more time than online arbitrage or private labelling because you need to travel to physical stores. There is also no guarantee that a particular store will have what you are looking for.
- Then there’s the issue of the brands and products you’re allowed to sell on Amazon. You may find a potentially profitable product, but this doesn’t mean you will be able to sell it on Amazon.
- Profit margins are much lower with retail arbitrage, especially if you end up having to deal with recall issues or returns.
There’s no denying that retail arbitrage is simple, but it does require a lot of hard work, especially in the beginning.
The main reason I decided to move away from retail and online arbitrage is that I prefer to have more control over the products I am selling. I also wanted to take on a scalable business model that I could sell later on if needs be.
Watch the below video to find out more about why I made this shift:
If you want to earn some extra money in your spare time, retail arbitrage might be the right fit for you.
But in terms of building a profitable online business that you can turn into a full-time endeavour later down the line, I’d prefer private labelling, but that’s just me!