What You Need to Know About Retail Arbitrage
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Have you ever sold any items on eBay or Amazon for a profit? In the past, I have sold a few odds and ends online after cleaning the garage or going through the attic. Just some regular used items. I sold these items because I really didn’t want to throw them away and thought someone else could get some use out of them.
I never really thought of selling items online as a way to make extra money. That is until I saw firsthand the profit that could be made through retail arbitrage.
Retail Arbitrage – My Story
Just before Christmas last year, I came across a hot holiday gift item that was temporarily listed at a huge markdown on Amazon.com. It was a toy item that both of my young boys (10 & 6) would have loved to have as a gift. When I saw the deal, I checked out what the item was going for on eBay and was surprised that it was selling for almost double the temporary price cut on Amazon!
I had read about this type of retail arbitrage before but it never really interested me. That was until I saw the toy at one retailer selling for $34.99 with free shipping, while other people were buying the same item on eBay for $60 plus shipping. The entrepreneur in me suddenly became very interested in this possible income stream opportunity.
I decided to buy two of the toys on Amazon for $34.99 each. Since we are Amazon Prime members, the shipping was free. I figured the worst case scenario would be to just give the toys to my boys for Christmas. They both would have been happy and I would have gotten a great deal on a gift.
Instead of giving the toys as Christmas gifts, I listed one on eBay just to see what would happen. Sure enough, within 7 days I had the item bid up to almost $60 + shipping. The very next day, I listed the second item I purchased and ended up getting just under $60 + shipping.
At that point, I was amazed at how much potential there was from retail arbitrage. I had only wished I bought more of the original item to sell and earn more income!
The Downside of Selling on eBay or Amazon
Selling those two toys on eBay for a profit was my first real taste of retail arbitrage. The initial feeling felt great knowing there is money to be made out there from reselling items.
After the initial euphoria died down a little, I figured out that there were plenty of things I didn’t like about reselling these items online.
1. Shipping – I find the whole shipping of the items you sell to be a real pain. Part of the frustration for me was actually getting to the UPS store to drop the items off. I know there are more efficient ways to probably handle this (i.e. printing labels at home), but the packaging and shipping was way too time consuming.
I guess it comes with experience, but I wasn’t prepared with the right size boxes, tape, and labeling materials at home to begin with. I spent way too much time hunting around my house looking for a box that would fit the items. Then found myself finding it hard to get out to the store to actually ship the things. On top of that, it was the holiday season so I needed to fight the long lines of other people trying to get their Christmas gifts out.
2. Fees – I knew there would be fees charged by eBay for reselling my items. However, it doesn’t really hit home until you actual make a sale. And then have fees charged back to you at the end of the month!
For the first item sold, I was charged $9 in fees which really drove me crazy. Instead of making a profit of 71%, I really only profited 46% after fees were taken out! The shipping charged to the buyer was about the same as what I paid to have it shipped – so I didn’t include that in my results.
The bottom line is that the fees charged really took a lot of my profits away.
3. Time – I spent more time than what I would have liked listing the items to sell on eBay, finding a box, packaging the items, and shipping them. I think a lot of this was due to my total lack of experience in selling anything online. However, it is not as simple as finding an item at clearance prices and selling it back. There is a good time commitment involved.
After both items were shipped and the fees charged to my account, I made a total of $26.12! I figured I spent at least 2 to 3 hours on the entire process (probably a lot more actually).
Based on the hourly rate, I would have earned much less than $13 an hour. At that rate I may as well get a part time job and not worry about all the hassles!
Note – I only mention selling on eBay as I have not sold anything yet on Amazon. During my initial excitement of selling on eBay, I actually purchased about $250 in inventory to sell through Amazon’s Fulfillment system. I ran into some other issues with listing my items on Amazon that I will cover in a future post.
I have read many stories about people making 6 figure incomes from retail arbitrage. I am sure these people are great at what they do. However, I am not sure it is for me.
I can probably get comfortable with the shipping aspect of the business overtime with experience. I am sure that I would become more efficient and thus save time in the process.
The one thing that I am not sure I can get past are the fees. I realize that eBay (and Amazon) are offering a service and need to get paid – just not from me. If I ever decide to pursue and eCommerce income stream in the future – it will probably be on my own with a store that I control.
Do you have any retail arbitrage experience? Are the fees that are charged to you worth the time you spend? Do you prefer eBay, Amazon, or another site to sell your products?