Retail arbitrage is a great source of inventory for those seeking an alternative to traditional reselling methods. As the buying and selling of items through online marketplaces continues to grow, so do the opportunities for resellers to purchase items at reduced prices and re-sell them on platforms such as eBay, Poshmark, and Mercari.
By taking advantage of lower prices in stores, such as Marshalls, TJ Maxx, Big Lots and Ross, you can still make profits on resale sites while leveraging discounts. Now on the surface, retail arbitrage is straightforward. All you have to do is buy cheap products at retail stores from the clearance section and sell them on online marketplaces at a higher price.
However, there are several potential pitfalls to be aware of when it comes to retail arbitrage to avoid losing money. To help you navigate these challenges, this blog will provide 10 essential tips to get started in retail arbitrage.
1. Start Small
Starting small is an essential strategy for beginners in retail arbitrage. It can be easy to get carried away and take on too much at once, but it's important to take things slowly and gradually increase your efforts as you become more comfortable and confident in the process. By starting small, you can avoid overwhelming yourself and set yourself up for success as you learn the ropes of retail arbitrage. You’ll want to learn what brands are worth it, along with styles that perform well for your audience, understand your margins and more. As you gain more experience and knowledge, you can expand your efforts and take on bigger opportunities. So, starting small and gradually increasing your inventory is always advisable.
2. Research Prices
Researching prices is a crucial step in the retail arbitrage process. It is important to have a good understanding of the value of the products you're considering purchasing. This means looking up the prices of the product (or similar) on eBay, Poshmark, etc.. to see the average sold price and how many are available in the marketplace (don't forget to check Amazon!). You'll also have to estimate how much shipping will cost you, even if you don't offer free shipping.
Pro Tip: Are you a Vendoo user? Use the Sellhound tool available to all Vendoo resellers to check comps across multiple marketplaces!
Here is an example:
You found Nike sneakers for $29.99 and 10 other eBay resellers are selling the same shoes for $49.99 with free shipping. If you are to price match the $49.99, below is an estimate of how much your profit would be:
Listing Price: $49.99
- $6.49 (13% eBay fees)
- $12.00 (USPS shipping)
- $29.99 (cost of goods)
= $1.51 profit
This step may take some time to learn (i.e. estimating how much an item weighs without using a scale), but it's essential for maximizing your profits and minimizing your risks in retail arbitrage.
3. Look For Clearance Items
Clearance sections are often filled with discounted items that can be purchased for an even lower price. However, it's important only to consider buying things that are still in good condition. If an item is damaged or defective, it may not be worth the investment, even if it is heavily discounted.
Pro Tip: Become familiar with the store layout and find "hidden" sections where competitors may try to hide items. Also, check out the end caps.
Pro Tip #2: Look on the top and bottom shelves as they may contain neglected items that are more likely to be on clearance.
By regularly checking clearance sections and looking for products that are still in good condition, you can potentially find great deals and increase your margin.
4. Check For Defects
Not only is this standard practice, but some stores do not accept returns on clearance items (aka final sale)! This includes looking for holes, stains, and missing pieces. Oftentimes, products end up in discounted stores like Nordstrom Rack because they were part of a bad batch of defective items. Women's tops are often victims of makeup stains in the neck area after a customer has tried them on. Or a missing button on a button-up shirt. By carefully checking for defects, you can avoid having to go back to the store to make a return (wasted time and energy!) or, worse, sell it for less!
5. Visit Your Local Retail Stores
Regarding retail arbitrage, there are many stores to choose from. It can be overwhelming to decide where to start. My suggestion is, to begin with, the store closest to you and you have the most accessible access. This will make your first trip more convenient and allow you to learn the ropes of the process. As you gain more experience, you can branch out and try other stores.
Out of the many options available, there are 14 stores that I have personally found to be particularly good for retail arbitrage:
Bed Bath & Beyond
You might also be interested in 10 Great Marketplaces Every Reseller Should Consider
6. Sales, Coupons & Loyalty Programs
Sales, coupons, and loyalty programs are all great ways to save money when shopping. Many stores offer loyalty programs that give customers access to special discounts and promotions. These programs are often free to join and can provide significant savings in the long run. In addition to loyalty programs, sales and coupons can also help you save money on the products you purchase. You can find coupons in a variety of places, including store flyers, online, and in your mailbox. Don't be afraid to take advantage of these opportunities to save money and get the best deal possible.
Pro Tip: Stay up to date with store policies! Some stores, such as Best Buy, will allow you to price-match their competitor.
7. Memorize Store Markdown Schedules
Learning individual store markdown schedules can give you a competitive edge. Knowing which days stores discount certain items allows you to plan your shopping trips accordingly and be more likely to find the best deals. In addition to markdown schedules, it is also helpful to understand how each store handles clearance items. Some stores will further discount items the longer they sit on clearance, while others may have a set markdown schedule. Don't be afraid to research and ask employees about the store's markdown policies. This knowledge can be extremely valuable in the world of retail arbitrage.
Pro Tip: Learning how to read Target clearance tags can help you save a lot of money!
8. Stay Organized & Track Expenses
It is essential to stay organized and track your expenses when doing retail arbitrage. This can help you stay on top of your purchases and profits and ensure that you are making the most of your opportunities. Consider using a spreadsheet or other tracking system to record your purchases, sales, and profits. And yes, this includes gas and food while you are out shopping! This can help you identify which products are performing well and which ones may not be worth the investment.
Pro Tip: Did you know Vendoo offers comprehensive analytics for your reselling business?
Pro Tip #2: Log your vehicle miles by using an app or simply write it down in a log book.
9. Separate Business & Personal Accounts
Having a separate bank account or credit card for your business expenses will make it much easier to track your income and expenses and stay organized. This is especially helpful when you need to report your business income and expenses during tax season. In addition to making it easier to manage your finances, having a separate business account can also help you see your monthly revenue progress more clearly. By keeping your business and personal finances separate, you can better understand your business's financial health and make more informed decisions about how to move forward. Overall, separating your business and personal accounts is a key step to take for any business owner, and it can significantly benefit you in the long run.
Pro Tip: You don't need an actual business account yet. To get started, simply open a free (personal) checking out with your existing bank and use that account as your dedicated business account.
Pro Tip #2: Use a credit card that offers cash back or points to make any business-related purchases.
10. Don't Make Assumptions
It's important to remember that everyone has different tastes and values, and what may not seem appealing or valuable to you may be exactly what someone else is looking for. By making assumptions about an item's potential value, you could miss out on an opportunity to make a profit. Also, it's important to always double-check prices before passing it off, as it's common for prices to be displayed incorrectly. This can happen for a variety of reasons, such as a pricing mistake by the store or a sale that has ended but the price tags have not been updated in the system. Or simply because the employee assigned to switch out the price tags is lazy.
Based on my experience, these are the following stores that have a habit of not changing out price tags:
image source: CNET
So, it's definitely worth the extra time to scan the item to see if there are any discrepancies! Retail stores such as Walmart and Target offer a mobile app for us to conveniently check the price tags without having to bother an employee.
It is important to have a budget and stick to it when you are doing retail arbitrage for the first time. This will help you avoid getting carried away with excitement and purchasing products that may not sell quickly enough to turn a profit. Instead of making large profits immediately, it is important to focus on celebrating small wins and slowly building up enough capital to sustain and grow your business. This can help you avoid overspending and make smart financial decisions as you begin your retail arbitrage journey. By setting a budget and sticking to it, you can track your progress and monitor your earnings as you gain experience and improve your skills.
Does Retail Arbitrage Work?
Short answer is yes, it works.
While retail arbitrage may seem simple in theory, it takes hard work and persistence to turn a profit. While the concept of buying low and selling high is straightforward, it takes effort to constantly research and source new products, as well as the patience and perseverance to navigate the market and find profitable opportunities. Additionally, the process of physically going out and searching for deals and the time and energy needed to list and sell items can be demanding. However, with dedication and a willingness to put in the work, it is possible to find success in retail arbitrage.
How Can I Beat My Competition?
Here are a couple of strategies you can use to try to beat the competition in retail arbitrage:
Follow Trends and Sell Seasonal Products
By staying informed about what products are in high demand, you can focus your efforts on sourcing and reselling items that are in season or are trending. For example, if a new Spider-Man movie comes out, then you want to source Spider-Man related products.
Sell Discontinued or Limited Products
Ever loved a product and all of a sudden, the brand decided to stop making it? Well, some people are willing to pay a hefty amount of money for products that are impossible to find. Discontinued products can still be found in the most unexpected places, such as:
- Discounted stores (ex. Ollie's)
- Grocery stores
- Retail stores in rural areas
- "Mom and pop" stores
- Local pharmacy
These are some of the brands that are notorious for discontinuing products and have substantial loyal fans that are willing to pay big bucks:
- Bath & Body Works
- Yankee Candles
- Victoria's Secret
You can beat the competition by actively searching for these items and offering them at a marked-up price.
To Sum It Up...
In conclusion, the 10 tips for retail arbitrage outlined in this article can help you make informed decisions and find profitable opportunities in the world of reselling. From understanding the importance of market demand and competition to double-checking prices and being aware of shipping and vehicle mileage, these tips can help you confidently navigate the world of retail arbitrage. Following these tips and staying up-to-date with the latest industry trends and developments can increase your chances of success as a reseller and maximize your profits.