Have you ever seen the same product with different prices across eCommerce platforms? You may wonder how it could be possible. It is a result of using Online Arbitrage or Retail Arbitrage by third-party sellers.
Online arbitrage has become the modern way to start an Amazon FBA business. It’s slowly overtaking retail arbitrage as many Amazon FBA sellers are deciding to function and operate purely as an online business model, enabling people to run an Online Arbitrage business from anywhere.
But which is better? Online Arbitrage or Retail Arbitrage? It’s a never-ending debate and is very much a personal preference for which one profits you more. But, according to the sellers involved in this industry, online arbitrage appears to be leading the way as more people are showing a keen interest in it. Let us give you an insight into the pros and cons of Amazon FBA Online Arbitrage and Retail Arbitrage.
What is Online Arbitrage?
It has a simple concept. Basically, the process of sourcing products from online retailers’ websites like Alibaba at a low price and reselling them on another marketplace such as Amazon at a higher price for a profit is Online Arbitrage or, in short form, “OA”.
As you can do it in the comfort of your home, it is known as an easy to do and accessible business model. Practically, sellers don’t even need to touch the product as everything is online. Because Amazon is the world’s biggest marketplace, most sellers resell their items there.
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Pros & Cons of Online Arbitrage
Online Arbitrage will have better effectiveness based on the number of products at the best prices. However, there are pros and cons of the Online Arbitrage business that are nailed down below:
Pros:
- Energy Efficient – You won’t have to go to local stores and physically scan the barcodes. So you will save much more time and energy.
- Diversification – Your mistakes with selecting goods will not affect the whole business, but about 1-2%.
- Low entry threshold – One of the most significant benefits of this business model is the low cost of entry. Most sellers invest $800-$1000 for payments on accounts, software, and charges for the presenters.
- Earning quick money – This feature attracts many sellers. It takes exactly 3 months to line up the OA store. During this time, you can forecast monthly profits, manage your working capital, and clearly understand what actions are needed to build up power. You will undoubtedly have a profit during this time.
- Finding suitable products – It is the main task for you. Without any pain, you can enter different niches. Basically, you just need to search for items, analyze them, buy them, and ship them to Amazon warehouses.
- Comfortability – Your work doesn’t depend on your location. You can run your business from anywhere around the world and your home—no need of moving and trip.
Cons:
- Lossing some sales – You may miss brick and mortar stores’ offers or promotions
- Competitors – The high number of sellers who sells the products is undeniable.
- Long refunding period – Money is withdrawn every two weeks. Therefore, if you want to get a refund on the card, the realistic terms of a refund are 5-6 weeks.
- Risk of mismatching inventory – Generally, listings not being identical across marketplaces.
What is Retail Arbitrage?
In essence, the more traditional method of bargain haunting is Retail Arbitrage. The concept is the act of buying products from local physical retailers below market value and reselling them in an online marketplace at a higher price, profiting from the markup. It is recommended to buy the products with at least $3 profit. Because the items don’t cost the same everywhere, you can easily make a profit. However, this business model is also perfect for starting your seller journey on Amazon.
Pros & Cons of Retail Arbitrage
Simplicity is the beauty of Retail Arbitrage. Practically, every seller can start their business without technical experience and start-up costs. But, obviously, it has its pros and cons. In the following, you can see some of them:
Pros:
- Low upfront cost – For selling online, Retail Arbitrage has extremely low risk. The price of goods is your only upfront cost. Besides, you can sell as few or as many products as you want.
- Great for learning – If a seller wants to learn how to start selling on Amazon before having his own private label products, Retail Arbitrage is a good starting point.
- Getting set up is quick and easy – With just an Amazon seller account, you can start your business. You can source your products from the local retail stores and list them online.
Cons:
- Buying only from physical stores brings you the limitation of your product variety and stock availability.
- Looking around for products takes a lot of time. It may be possible that you can’t find a good deal.
- Apart from fuel cost, buying goods and transporting them to your house requires a lot of energy.
- Your margins are lower when you source your products from the outlet or a retail shop instead of directly from manufacturers or suppliers.
Online Arbitrage or Retail Arbitrage? Which One is Better?
The above remarks are introductory to this topic: online arbitrage vs. retail arbitrage. Now, we are going to discuss which solution is the best and most suitable for you.
In general, there is no restriction for using each of the above methods for arbitrage, and even you can use both methods. But recently, especially because of the pandemic, sellers have preferred Online Arbitrage. The whole process is done via the internet. By using this method, you can effortlessly search for products and resell them from the comfort of your own home.
Final Thoughts
Selling with each method, Online Arbitrage or Retail Arbitrage, to sell on Amazon can be a lucrative side hustle. Here the advantages and disadvantages of both methods are listed. If you have enough time and willpower to go around brick and mortar stores and look for the proper products, Retail Arbitrage is certainly rewarding. However, the trend is leading toward Online Arbitrage.
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