Retail arbitrage. The term can stoke some confusion. In fact, when I first started, it was confused a lot with flipping. While many use the terms interchangeably, I definitely feel like there’s a difference between the two.
I’ll start with a short story. When my son was in 8th grade, he confessed something to me. “Dad,” he said, “I go to the corner store on the way to school, I fill up a cooler full of Arizona Ice Teas for a $1 each. Then I sell them at school for $4 each.”
“That’s against school policy isn’t it?”
“Yeah, but the teachers are my best customers. The school vending machines don’t sell them and they don’t have to leave campus to get one.”
My son ran a retail arbitrage business right under my nose so he could build his Magic the Gathering deck.
Retail arbitrage: what it is
Merriam-Webster defines arbitrage:
the nearly simultaneous purchase and sale of securities or foreign exchange in different markets in order to profit from price discrepancies.
This mentions securities or foreign exchange (stock market or FOREX), but the meaning with selling on Amazon is similar. One difference is the buying and selling aren’t simultaneous on Amazon, but pretty close.
Retail arbitrage, then, happens when a person buys a product from a retail store and immediately sells that product for profit. There are two keys:
- Buying the inventory from a retail store
- Selling the product quickly
There’s also online arbitrage, which is the same as retail arbitrage except buying products on a retail store’s website.
Retail arbitrage is not these things
First, retail arbitrage is not buying wholesale. Merriam-Webster defines wholesale as:
to sell (something) in quantity usually for resale
Keywords: quantity and usually. Quantity in this case means multiple; retailer customers usually buy one quantity of each item. Though, I’ve been known to buy out a whole flavor of ice cream, so customers will occasionally buy more than one. So, wholesalers typically have minimum order quantities (MOQ’s) or minimum dollar amounts to order. They profit through volume sales, so expect to buy dozens, hundreds, or thousands of units of one product at a time.
Second, retail arbitrage can be flipping. Wikipedia says:
Product flipping entails buying products at a low price and selling it at a higher price for profit. Products can be new or used items. Many times, product flippers buy products at dollar stores, thrift stores, garage sales and estate auctions and resell them at a higher price on online marketplaces or locally.
But, arbitrage is probably a subset of flipping as it focuses on new products only.