Retail Arbitrage: Make Money Reselling New In-demand Products

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Running a marathon is a challenging endeavour. It takes months of preparation and cultivation of the right mindset to actually run one.

The journey to creating a successful business is very similar. It is filled with obstacles and is both physically and mentally draining. It takes a lot of hard work, experimenting, patience, and the right mindset to succeed. Another factor that stops people from starting is capital.

The reality is that starting a business, in any industry, requires a decent amount of money. If you want to make the money you need to start the business you’ve always wanted, or just an additional income stream, the Amazon FBA Retail Arbitrage (RA) business model might be for you.

Combined, the RA and FBA Bookselling business models helped us kickstart our Amazon FBA wholesale business. In this guide, I’m going to go through the steps involved in a retail arbitrage hustle and how you can get started.

But first, let’s build some context…

The Amazon opportunity

As you know, Amazon is a household name and has become the go-to place for shoppers. And their introduction of the Prime service further compounded the change in consumer behaviour and preference. Most buyers who shop on Amazon prefer, among other benefits of the Prime service, convenience.

Later, Amazon introduced Fulfilment by Amazon (FBA) to give third-party sellers the opportunity to use their logistics and, in turn, increase the breadth of products available on their platform.

The FBA was really a great invention: all you have to do is send your inventory to Amazon and they’ll take care of everything, from finding your orders to following up with customers.

The FBA programme takes a huge weight off the shoulders of resellers: the fulfilment part. I can tell you this from experience. I used to have an Ebay business and I fulfilled every order myself. I hated it and I was put off from reselling online. So I was very glad when I learned about Amazon FBA.

About retail arbitrage

The convenience that Amazon Prime provides combined with impatient customers with money to spend makes Retail Arbitrage a viable opportunity. The idea behind this model is simple: buy discounted products at physical retail stores and resell them at Amazon for a profit using FBA.

Retail arbitrage is not as easy it sounds. It takes a lot of work because not all discounted products are profitable.

So how do you go about scouting the right products?

Finding products 

From my experience, I’ve found that some kinds of products are more profitable than others. More specifically, products that:

  • have low average Amazon Bestsellers Sales Rank (BSR). This is a metric used to measure the frequency of sales of a product. The lower the average BSR of a product, the higher the number of sales.
  • are small and lightweight. The smaller and lighter the items, the cheaper the inbound shipping cost, the cost of sending inventory to Amazon.
  • retail for £15 or more ($20 or more). Products with higher selling prices mean they have smaller Amazon fees; more profit for us.
  • have several or more positive reviews. The number of reviews a product has is a good indicator of its popularity. We want our stock to move as quickly as possible.

You also need to make sure that:

  • you’re allowed to resell the product. Some categories are gated, meaning that you need to prove to Amazon that you and your suppliers are legit. You can get ungated in some categories by just applying but for others, you will need to provide more information.
  • the product is not hazmat. Make sure the products you source are not considered as hazardous material – make sure to research and understand what makes a product hazmat.

The unicom 3 W extreme cree spotlight

One day, after spending the whole day sourcing books, we decided to do some retail arbitrage. We went to Homebase, a household retail chain here in the UK, and found that most of their stock was on clearance as this branch was acquired by a company called Bunning Warehouse.

The store was full of opportunity. So we started scanning and soon found a goof ‘flip’.

One of the products we found was the Unicom 3 W Extreme Spotlight. It was on clearance sale for £7.99 each and was going for £19.99 at Amazon.

But before purchasing, we had to do some further analysis.

Estimating demand

At first glance, it seemed like it was selling well. It had 25 positive reviews and had a Best Sellers Rank (BSR) of 15,000 in the ‘lighting’ category. But the BSR is deceiving and not a reliable indicator of demand because it’s a snapshot of demand at a moment in time.

The BSR of a product over time in the past, however, is a better and more reliable measure of demand. You can view the BSR history of a product using web browser extensions such as Keepa and CamalCamalCamal.

Here is the BSR history of the Unicom 3 Spotlight using Keepa.

The green line shows the BSR over time and spikes down represent sales. You can see that this product had sold about 12 times over the last three months, or 4 sales a month — not the greatest of sales rate. In general, you should look for products with a lot higher demand.

To view the BSR history of a product on your phone, you will need to go on on Keepa (or CamalCamalCamal) and look it up using its ASIN number.

Here’s how to find the ASIN number of a product on your phone.

Here’s how to view the historical BSR of product using Keepa.

As for competition, there were only one FBA seller and Amazon selling the product. So we decided it was still a good opportunity. FBA is our secret weapon, so the lower the number of FBA sellers on a particular product, the better.

You can also use Jungle Scout’s free sales estimator to get an estimate of the number of units a product sells per month. I don’t usually do this for retail arbitrage but it could prove useful to you. On Jungle Scout’s sales estimator page simply select a marketplace and category. Then enter the rank of the product to get a monthly sales estimate.

As you can see from the screenshot, this product sells about a four per month. We only bought enough units for the month because it’s slow moving.

It’s always a good idea to do the further analysis so that you don’t buy too many of a slow-moving product.

Calculating profit

Next, we needed to calculate if we could actually make money.

This is easy to do on the Amazon Seller application on your phone. Here’s how to access the FBA calculator on your phone.

According to the calculator the shipping cost of this product from an Amazon warehouse to a customer (outbound shipping cost) was estimated to be £4.39.

This fee isn’t accurate though as it doesn’t include other some other costs such as:

  • VAT (Value Added Tax)
  • Selling on Amazon fee
  • Inbound shipping

VAT

In the UK if you are not VAT registered, you have to pay input VAT on goods you buy and services you use. Since we are using Amazon’s platform to sell our goods, we have to pay VAT on Amazon fees. If, however you’re VAT registered, Amazon won’t collect VAT from you but then you would have to collect VAT for every product that you sell.

Anyway, I was not VAT registered at the time, so the accurate outbound shipping cost was £5.27 (4.39*1.20) instead.

Selling on Amazon fees

The other cost that I have not accounted for is the Selling on Amazon fee. In this case, it came to £0.75 + VAT.

There are two ways you can sell on Amazon. Either on a Basic account or a Pro account. The former, which I was using for this flip, is a pay-as-you-go account: you pay a fixed fee (£0.75 + VAT) when you sell an item. The latter is monthly and is cheaper if you sell 40+ units a month.

The Selling on Amazon fee becomes negligible when you starting selling a large number of units per month. On our bookselling business Amazon account, we sell about 800 units a month. So we pay about £0.03 per item.

Inbound shipping cost

Inbound shipping cost is the cost of shipping inventory to an Amazon warehouse. It cost us £5.03 to send these units to Amazon FBA, or £1.25 per unit, a lot higher than we expected.

Therefore the total cost per unit came to:

  • light: £7.99
  • Outbound shipping + VAT: £5.27
  • Selling on Amazon fee: £0.75 + VAT
  • Inbound shipping: £1.25

Giving a grand total of £15.41, again higher than we expected.

We sold the four units at £16.99, a lot lower than Amazon’s price because it was a slow moving product and we just wanted to liquidate. Anyway, that’s a whopping £1.58 profit per light, or about £2.50 if we reduced the costs of sell on Amazon and inbound shipping fees.

Preparing FBA shipments

Preparing and shipping inventory to Amazon FBA includes four parts:

  • Listing
  • Creating a shipping plan
  • Packaging
  • Shipping

Listing

Listing product on Amazon is easy. Amazon already knows the dimensions and details of all the products list on their platform. All you have to do is find your product and list it.

To do this, hover over “Inventory” and click on “Manage Inventory” from the drop-down menu.

Then click on the “Add a product” button.

You will then land on the “Add a Product” page. On here and under “List a new product”  look up the ASIN of the product you want to list in the search bar and hit “Search”.

Doing this will find the product you want to list. Then click on “Sell yours” button.

Then fill out the required information and click on “Save and finish.”

That’s it.

Creating a shipping plan

Next, we have to let Amazon know of all the products we want them to fulfill on our behalf.

To do this, check all the products you want to send to Amazon on the “Manage Inventory” page. Then click on the “Action on xx selected” button and select “Send/replenish Inventory” option from the drop-down menu.

Next, click the “Convert & Send Inventory” button.

Then select “Add dangerous goods information.”

Provide all mandatory information and hit “Submit.”

Follow the instructions and then you will finally land on the “Send/Replenish Inventory” page.

On here, check “Create a new shipping plan” button and “Case packed items” as our shipment contained many units of same product. Then click “Continue to shipping plan.”

On the first section, enter the quantity of every product in the shipping plan under the “Unit” column.

Next, on the “Prepare Products” section decide whether you want to label yourself or if you want Amazon to it for you. I recommend labelling yourself if you’re in this for the long-haul. It falls a lot cheaper.

Then download and print the labels by selecting label size (I use 63.5 x 33.9 mm labels) and hit the “Print labels for this page” button.

Now that you have your labels, it’s time to print them. To print labels, I use the Dymo LabelWriter 450. It’s expensive but well worth the investment as it doesn’t require ink and labels are cheap.

Once you’re ready, open the labels document and click on “Edit” and then “Take a Snapshot” from the drop-down menu.

Then highlight the entirety of a label, right click and select “Print.”

Select the DYMO LabelWriter 450 and enter the number of labels you want to print and hit the “Print” button.

Finally, label every unit in the shipment, making sure to cover any existing barcodes if possible.

Packaging

This part also proved easy for us as we have all the resources we needed. But you only need the essentials, which include double walled cardboard boxes and brown tape.

Grab a double walled cardboard box, and reinforce the seams and edges of the bottom of the box with at least two layers of brown tape.

Then just fill in the box with your inventory and fill any space with bubble wrap or kraft paper.

Finally, reinforce the top of the box, ready for shipping. Oh…make sure to measure and weigh your shipment as you need the dimensions and weight of your shipment to ship it.

Shipping

We now have to get a pre-paid UPS (deeply discounted) shipping label. So back to Seller Central.

On the “View Shipments” section, click “Work on shipment.”

Then follow the instructions below and proceed. It’s straightforward from here on.