If you've been following the latest online money making trends, and especially selling on Amazon's FBA, then more than likely you've heard the term "Retail Arbitrage". Maybe you've wondered what it is, maybe you've already figured that out, or maybe you've never even heard the term. No matter, here we're going to talk about it, explain it, and I'm even going to expand on it a little.
Ever heard the term buy low and sell high? It's kicked around a lot in the business world, and it basically means you buy the product low, and you sell it high for a profit. It is the very lifeblood of how business works, from the smallest to the largest it's all about keeping costs low and selling at a premium price for the best profit margin possible. Okay, so what does this have to do with retail arbitrage? Well, essentially it's exactly the same thing, only as it relates to the retail world.
It means that you walk into a store (retail) say Walmart, and you find the clearance isle, while there you find some widget that is 90% off retail cost. You find 5 of these widgets and buy them all (after some research online about popularity, price, and what they are being sold for). You then take those widgets home and through some form of selling avenue, we'll say Ebay for this example, you turn around and sell those 5 widgets at full retail price. Say those widgets were $10 each, you bought five @ $50, you then sold those 5 widgets for full retail price, $100 each, so $500 total. That means that for your initial $50 investment you made $450 off those little widgets. Are you starting to see how it works now.
The above is a very simplified example of what retail arbitrage is, but it gets the gist across. Now, you may be thinking that's crazy, why wouldn't that person that bought my widget online just go buy it on clearance themselves? Really, that's a great question, and one that has a lot of layers to peel back to answer. I'll quickly cover a few reasons, but understand that there are a lot of reasons people buy online vs. in person and not all can be neatly explained.
- The item may not be available in their area, or it could be a long drive for them to get to a store that carries the item. I live in a rural area myself and need to drive around 40 miles to even get to a Walmart or Target so believe me when I say this is a consideration for people.
- The item may not be on clearance in their area. Clearance is a funny beast, mostly because consumers are funny beasts, so while your store may have over bought a certain item so that it sat on a shelf until they marked it down to get rid of it, it could've sold out in a matter of hours in another region.
- Inability to shop. It could be a mental health consideration, think extreme anxiety in crowds, to a fear of leaving home, or physical reasons that prevent them from shopping. Maybe they don't have a licence or vehicle to get to and from the store. Whatever the reason for some it's a hassle, if not impossible to shop in traditional stores.
Those are just a few examples there are really so many reasons someone may choose to purchase something from you rather than the store. Here's another example: At the town that I mainly shop at there is a Tuesday Morning store and they have a wonderful little toy section chock full of great toys that are marked down 50% or more from retail. It would be a simple thing for me to scan a few items with a smartphone app, find a couple profitable items, and turn around and resell them on Amazon.
Don't think this is just an online thing though! The current buzz may be all about Amazon FBA and Ebay and such, but you can still do this locally at home. There's always selling sites for your area, craigslist, bookoo sites, and of course Facebook buy/sell/trade groups. Yes, you still need a computer and an internet connection, but no shipping and such required. You could choose to have a garage sale as well. The thing to remember about these kinds of selling avenues is that people expect deals and discounts when they buy stuff this way. So while you can still ask more than you paid for an item, the chances of you getting close to retail cost of an item is slim. So make sure if you buying to resell locally or face to face that you make sure your initial cost is dirt cheap! A few ways to sell offline would be:
* Local buy/sell/trade sites
* Local craigslist listing
* Garage sale(s)
* Local flea markets
Okay, so let's expand a little on the retail arbitrage theory a bit. Let's move outside the strict zone of buying something retail and new. Let's say you go to a garage sale and see a dresser that's in decent condition for $10, knowing that dressers are a hot item on the buy/sell/trade sites you snap it up. You take it home, clean it up a little, take a picture, and post the item in your local buy/sell/trade facebook group for $25 dollars. Within 15 minutes you've got 5 interested people and someone on their way to come get the item. With just a minimal amount of effort and money on your part you've just made a quick $15. Knowing your local market is important in this example. If you see an item consistently sell quickly and with a lot of interest then be sure to keep your eyes peeled for those items when you are out bargain hunting.
Here's another example: You go to a local auction, a decent washer and dryer set come up for bid, they are a good name and seem in good condition. You bid $50 for the pair, for whatever reason no one else bids and the set is yours. You take them home, make sure they work (always a risk with an auction or garage sale item) clean them up, take some pictures and list them for $125 for the pair. You sell within the week, mostly because it's a higher priced item so it may take longer to sell. Here you've made another $75 with again a minimal amount of effort on your part.
By now I'm sure the wheels are starting to turn and you're starting to see the possibilities all around you. Hopefully you're even getting a little excited! Before you get to far ahead though just remember to carefully enter this game. Be as tight with your money as you can, because you will buy some items that will fail. You'll be lucky to break even on them, if not flat out lose money. If you're going to sell online research if it's selling and for how much. If you're selling offline watch the local selling groups and such and see what seems to be in demand. Eventually you'll start to get a "feel" for it and will gain more confidence with your decisions.
I myself have been so focused on the online selling aspect that I think I've missed out on selling locally and quickly for cash in hand. As fall approaches and garage sale season will begin to wind down soon I'm going to look around a little more for these local opportunities and be sure to post my results and progress here on the blog. Online is great, and the potential for huge success is amazing in the online world, but it's often slow. It takes months, and/or years to build a profitable blog, create and sell ebooks, start selling consistently online and so on. Local efforts to make extra money have a greater short term gain, with the potential for long term. Never allow yourself to become blinded to another way of making money because you've been to focused on just one thing.
So there is retail arbitrage in a nutshell. Buy it low in the store, or wherever, and sell it high online, or wherever! Business 101 at it's best.
No comments:
Post a Comment