Retail Arbitrage Has One Foot in The Grave or Does It?

By Christopher Grant

August 23, 2016

Retail arbitrage is dying, slowly, but surely!  You can no longer use retail receipts, you need to switch to wholesale or private label, NOW!!!  The sky is falling!

These are all things that I have been hearing since I started selling on Amazon.  Things that I have mostly not paid attention to as I was too busy trying to work a full time job as well as grow my side hustle.  It mainly consisted of retail arbitrage, in fact, it was 100% retail arbitrage.  I focused mostly on clearance items at local grocery store, Walmart's, Walgreen's, and other stores you all know. Now, I have become a full time seller and I try to keep my finger on the pulse of what is going on in the community a little more to help both my business and the businesses of others.

So, in light of all this talk recently I decided I wanted to give a spirited defense of the retail arbitrage and online arbitrage business model many of us enjoy.  Below are some of my thoughts.

Third party merchants are responsible for over 80% of Amazon sales.  Just look at this graph, courtesy of Business Insider.

retail arbitrage

My first counterpoint to the death knell being rung for RA is that Amazon makes a significant amount of money from third party sellers.  Many of whom dedicate their businesses to retail arbitrage and online arbitrage.

I mean, there are over 2,000,000 sellers on the platform.  First, because the return on investment is so high, the amount of product source is plentiful, and the barrier to entry is fairly low I would have to surmise that a huge amount of Amazon product has to come from RA. It just makes sense.  Let's just assume that half of the product from third party sellers is from retail or online arbitrage. If they completely shut that channel down they may lose up to 1,000,000,000, yes one billion, products that they have sold.  That is according to an article by The Wall Street Journal.  We, third party merchants, represent two billion units sold to Amazon customers.  That makes up over 40% of total goods sold by Amazon in 2014.

My second counterpoint is something Amazon themselves have been doing.  They have been rapidly expanding there warehouse space and locations.  Why would they do this if they did not want more products from third party sellers?

So, in Q3 of 2016 Amazon is adding 18 warehouses.  This is in response to the overwhelming “crush” of products they handle in Q4.  We must remember that Q4 is not only a boon to “The Everything Store” but also to us third party sellers.  When Amazon can not keep enough stock on their shelves they rely on us.  They also rely on us to offer products they do not want to hold in stock.  We, as a unit, have the ability to source a more diversified portfolio of stock for Amazon to sell to their customers.  This allows Amazon to make money on, essentially, free inventory.  All they have to do is pick, pack, and ship.

Finally, I ran an extremely scientific poll in my retail arbitrage focused Facebook Group, Clear The Shelf.  I think the results speaks for themself.

Screen Shot 2016-08-23 at 11.35.59 AM


I know none of us retail arbitrageurs have Jeff Bezos ear but I think these results are telling.  First, I am glad they are so positive.  Secondly, I just don't think that Amazon would screw with their bread and butter.  They make a ton of money from third party sellers and by shutting down that channel they would really piss off shareholders.  Those people tend to like profits to keep going up.  Something that would likely not happen without the third party seller given Amazon's aggressive growth strategies.

Now, let's talk a little about what I think you and I should do as sellers.  Do we give up RA and OA?  No.  Do we expand our reach into private label and wholesale?  Yes, if those things interest you. Do we cower in the corner and allow fear to stagnate the growth of our business?  A resounding HELL NO!

We must be flexible, have fluidity in our business plan.  We must also have contingencies in place IF the landscape of the current market place does change.  However, I do not believe this will be happening this year or even the next.  Honestly, I don't think this is something that would happen in the next five years.  Just the competitive reduction in pricing due to supply and demand factors is hugely in Amazon's favor currently.  This means that because so many sellers compete on the same products prices typically tend to be lower for the end consumer.  Amazon wants to be the low price.  I mean, they built a visual scanner so consumers can price compare in the store.

In conclusion, I think we arbitrageurs are safe, for now.  The landscape of our business will and HAS to change as consumer trends do.  However, this should not be something that keeps us awake at night.  Do what you are good at, adapt, stay fluid, keep adding streams of income.  That is all we can do as entrepreneurs.

If none of this gives you a little hope, here is a picture of a penguin.  Penguins always make things better.

baby penguin

If you enjoyed this post and want more please take a minute and join our Facebook Group.  I share tips, tricks, strategies, and sometimes I think of something witty to say.  There may also be penguins on occasion.

Audentes Fortuna Juvat



UPDATE:  This evening I was on a webinar where Cynthia Stine was a guest speaker to discuss the recent hullabaloo over the retail arbitrage issues.  I took some notes and she said this is really to try and get the inauthentic claims to be reduced.  You may have no problems at all if you have never had an inauthentic claim.  It was also mentioned that you are able to get 5 inauthentic claims in a year before a suspension happens.  When these suspensions do happen it has been seen that Amazon is not necessarily accepting retail receipts to get your account back.

Next, it was mentioned that Amazon may be locking up not only specific categories but also brands and specific ASIN's.  You may have to get approved for a specific brand or even an ASIN.  In these cases you may even need legitimate wholesale invoices within the last ninety days.

As always, one team at Amazon doesn't necessarily know what the other hand is doing so this information is all fluid and will be updated as I learn more.

Now, I still would not fret.  Retail arbitrage and online arbitrage are not and will not be dead anytime soon.  Things may change but I still stand by what I said.  We make too much money for Amazon for them to completely shut us down.

Keep your heads up!

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  1. Chris:

    Great post. I agree that the statement “RA/OA is entirely doomed/dead” is probably not going to come to fruitioe. I do see on the horizon that more restrictions will come into place (which can be good to prohibit the careless/unscrupulous sellers). With the graph of the 3rd party sellers though – what we don’t know is how many of those are third party sellers who are approved by manufacturers to resell products, that are already in Amazon’s ‘good graces’. (That versus third party sellers like you or me who are buying products via RA/OA who *may* not be in Amazon’s good graces someday).

  2. The one thing I am afraid of is electronics and games. Who honors the warranty in those situations? Certainly not Joe Seller selling game systems from his garage. My inventory is food, used books and toys that don’t connect to a computer or even use batteries. I feel pretty safe. 🙂

  3. Definitely a big concern, but doubtful that 3rd party sellers will just be wiped out of the picture completely anytime soon. Still, I am working more toward wholesale and adding more private label to expand my options in any event. Do not worry about things you cannot change, and be ready to change with the tide.

  4. Professional sellers are a profit machine for Amazon with all the fees we pay to play in that space. A smart retailer (Amazon) does not get rid of their profit machine. I’d love to see changes to combat counterfeit items and unscrupulous sellers. It would make us legitimate resellers better in my opinion.
    Great post and penguin pic!

  5. A recent radio news story recently said that Amazon wants to limit name brand products to distribution by the brand owner or their authorized retailers. If that is allowed, it will cost Amazon huge profits. When it does, their stock’s share price will tank for at least a short time.

    I have a Yahoo Finance price alert that is monitoring the stock for me. I also have an online trading account with a discount broker and Amazon IS in their profile, meaning that I can buy shares of Amazon when the price dips, as I know it will, due to Amazon’s new policy of brand-protection.

    I won’t buy on margin, though, in case the stock’s share price goes sideways on me. Another strategy I may employ is to buy options on the stock. That way, I can control a greater number of shares with less capital, negating the downsides of margin-free leverage. I will also use trailing-stops to minimize any losses, though I’m not expecting any.

    And, I’m monitoring the SEC public filings of institutional investors’ portfolio updates who’ve made money on Amazon. Since I belong to a large investor pool of financial news hounds on Facebook, I will be alerted to any news about the stock that I don’t learn of, first-hand.

    Taken as a whole, this means that I will make money as an RA/OA partner on Amazon, no matter what they end up doing. I did overhear a radio talk show caller who claimed to be a runner for some brokerage firm say that Bezos may short his own stock. I don’t know how he can pull that off without triggering an SEC investigation.

    But, Bezos is smart. So, he’s probably figured out a way to do it. If the rumor’s true, I figure the time for it to happen will be when Amazon’s new policy goes into effect. Obviously, the Wall Street bears won’t be hibernating through the winter quarter on an empty stomach. I wonder if Cramer knows anything about this?!

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