How Much Can you Make with Retail Arbitrage?
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Here at The Money Sprout, we are always exploring new and exciting opportunities to earn side income. Ways to earn extra money that are legal, interesting, and have the potential to be residual have always been exciting to us.
Retail arbitrage is the latest money experiment that my wife and I are giving a shot. Now I will say that unless we decide to hire a bunch of employees to do the work, it is certainly not a passive form of income. It seems to take a lot of work (at least initially) to get going.
Read more about retail arbitrage below and our first real experiment selling on Amazon.
What is Retail Arbitrage?
Retail Arbitrage is when new items are bought at deeply discounted prices at a local store and then are resold (usually online) at a much higher price. The concept is no different than buying and selling currencies or commodities in different markets in order to take advantage of pricing differences.
So let’s say I go into our local pharmacy and find a shelf of clearance toys from last Christmas marked 50% off. I purchase one or more of the item and then turn around and decide to sell it online. Online stores or marketplaces like Amazon and eBay have made it very simple for me to quickly turn around and sell the item back to another customer. In many cases, the new sale price is well above the price I paid for the item.
Basically, at a high level it seems like everyone wins in this scenario. The local store wants to clear shelf space in their store. I have the potential of making a profit. Amazon or eBay collects fee’s for allowing me to sell the item. And the new customer saves time in their schedule and buys an item online and has it shipped.
My wife and I have dabbled briefly with retail arbitrage in the past as an income stream. Most of our previous experience was selling items on eBay. With the potential to make good money, we decided to give Fulfillment by Amazon (FBA) a try. Details of our first shipment are below.
Fulfillment by Amazon Income Stream
Just like eBay, Amazon offers sellers (like you and I) a platform to list and sell new items. One option is to use their fulfillment application, which we recently took advantage of.
Earlier this week, I sent in our first Fulfillment by Amazon shipments, which accounted for 3 boxes in total. All of the items that we are trying to sell have been sitting around in our office for over a year now. Everything that was included in the shipments was brand new, unopened, and purchased with the intent to resell eventually.
A couple years back we thought about starting a retail arbitrage income stream but just never seemed to get it up and running. That is where all of the inventory came from that we are now trying to sell through Amazon.
We did have some success recently with selling a few items on Amazon as a Merchant (where we handled the shipping to the customer). There were a few items also listed on eBay that we were able to sell for a slight profit.
Of all the different ways to sell (FBA, Amazon Merchant, eBay, etc.), I think FBA is probably the best way to make decent income.
Here is a breakdown of our FBA shipments from earlier this week –
- 3 different items being sold for a total of 11 units
- 3 different shipments with a package going to CA, NJ, and TN
Item #1 – Craft/Toy
The first item included in our FBA shipment was a craft/toy product we originally purchased at Big Lots on clearance for $3.20 per unit. In total we bought 8 of these for $25.60 (including tax).
- 8 units @$3.20 cost for each – selling for $9.50 each on Amazon
- Total Cost = $25.60
Item #2 – Board Game
The second item in our FBA shipment was a board game that we actually originally bought on Amazon half off a while ago. We paid $10 for 1 of the board games with free shipping.
- 1 unit @$10 cost – selling for $19.99 each on Amazon
- Total Cost = $10
Item #3 – Electronic
The final product in our FBA shipment was an electronic piece that is a collector’s item. We purchased 2 of these units on Tanga for $6.99 each with free shipping. For these pieces, I guess this would be considered online arbitrage!
- 2 units @$6.99 each – selling for $34.99 each on Amazon
- Total Cost = $13.98
As we are still new to FBA, I decided to pay the extra $.20 per item to have Amazon do the labeling. If we ever decide to make this a full time venture, then I would think we would do the labeling on our own. The total labeling cost came out to $2.20 in total.
Total Cost for Inventory = $51.78
We spent almost $52 on inventory to sell through FBA. Another cost involved (as well as time spent) is on the shipping of the inventory.
As we prepared our FBA inventory to sell and ship, we were directed to split our 11 units up into 3 different shipments. This is where selling a lot more inventory would come in handy with the shipments I must say. With only 11 smaller units to sell, it seemed like a ton of waste to package and ship everything.
Here are the shipments we made with the total cost and state they are being sent to –
- Shipment #1 – 2 items sent to CA for $4.91
- Shipment #2 – 5 items sent to NJ for $4.29
- Shipment #3 – 4 items sent to TN for $3.41
Honestly, I felt the packing and shipping of our inventory to be a little stressful and very time consuming. Part of it is the unknown factor of something new. Going through the shipment process and figuring out how to package everything took a bunch of time. I am sure this would go much smoother after a couple of shipments.
Total Cost for Shipping FBA Inventory – $12.61
We were fortunate enough to have extra boxes laying around to use with our first FBA shipment. We also had some packaging tape on hand to use, although we had to run out to the store and buy another roll to finish up for a total cost of $2.42.
As we are still just experimenting with all of this, we opted to print out all of our labels using the printer and ink cartridges we already had.
Total Cost for Shipping Materials – $2.42
Overall, I didn’t really enjoy my first experience sending in FBA inventory – which is probably why I was putting off doing it for over a year. We bought most of our inventory well over a year ago and it had been just sitting in the office at home.
Part of the frustration was learning something new and the unknown factor. I would think this would eventually ease some as we learn and send in future shipments.
Our total inventory, shipment, and material costs came to $66.81.
If all of our inventory sold for the listed price, it would bring in $165.97 before any Amazon FBA fee’s. Add in the FBA costs and we are not looking at much profit potential at all.
This first shipment of items to Amazon is not really to earn a profit. Actually at this point, I would love to just break even. Instead, we are testing out the waters so to speak to see if retail arbitrage is a viable income stream using Fulfillment by Amazon.
At this point, it is way to early to tell how much we can make through retail arbitrage. I have read many success stories of those who make a full time living selling on FBA. I am sure with a lot of hard work and time it can be done.
I plan to post future updates about our first shipment and will include the pros and cons of retail arbitrage.
Have you sold on FBA? What has been your experience (good and bad)?