Products, products, products for Retail Arbitrage
Products are the backbone of any successful retail arbitrage empire. If you have the ability to quickly source profitable ones, you can do almost no work and make a profit.
If you don’t have this ability, you’ll find yourself buying products that just don’t work for retail arbitrage, and you’ll either lose money or just barely break even. Or you’ll be spending hours finding a single product, and your hourly rate will drop to below minimum wage.
This chapter will go over how to find a product for retail arbitrage. Sounds simple… but in reality, there are a slew of different metrics and criteria to check before spending money on a product.
Chapter 4 is arguably the most important chapter in this entire guide. Don’t skim it, and we’d recommend bookmarking this page for later reference.
What to look for in a product (general)
Before we launch into telling you where to find products and how to verify that they’re actually good products for retail arbitrage, we have to enlighten you on what makes a good product, good. There are countless products out there that, to a retail arbitrage beginner, might seem like steals… but in reality, they’re not.
Here’s what to look for.
Margins that can handle fluctuation
The general rule of thumb in retail arbitrage is that if a product doesn’t have a 40% profit margin after all of your selling fees, you shouldn’t buy it. This is because online prices fluctuate constantly, and it’ll take you a week or so to get the item from the retailer’s website into FBA.
Let’s assume that you source a product for $10 in total, and when you buy it, on Amazon, it’s selling for $14. That’s the 40% profit margin we’re aiming for. Even if another, more reputable seller comes along and offers it for $14 as well, you can drop to $12 or $13 and still make a decent profit.
The 40% also sets you up to be able to unload inventory if a big brand comes along with a substantially discounted price. If a retailer is having a “20% off everything” sale, you can still undercut them and unload your inventory for a small profit.
40% is a somewhat arbitrary number, but it’s chosen because by and large, retailers do not have all-inclusive discounts that go past that (or even past 30%). Think of any publicly-advertised sale – are you seeing 50%, 40%, or 30% off of everything? Not usually – usually, you’re seeing 15% off of everything, 30% off of select items, etc.
Following the 40% rule might still cause you to lose money… but it’s a decent number to start with as a beginner.
Not too expensive, not too cheap
We feel that the sweet spot for a retail arbitrage product is right between $10 and $30. Anything below that is subject to tiny margins, and at anything above that, if you want to buy multiple units of a product, you’re investing quite a bit of money.
The minimum of $10 allows for a $4 profit margin on that 40% rule. Is $4 going to make you rich? No. But you can get 10 of these products, and all of the sudden, you’re making $40 on the product, which isn’t bad.
$10 also helps you in two other ways:
- You’re not competing on dirt-cheap products that Chinese Amazon sellers are unloading for pennies on the dollar
- You’re not spending too high of a percentage on shipping the item – assuming you get multiple units, you’ll probably be able to cut that shipping cost down to under $1 per unit with Amazon’s discounts. If your product was $5, this would be a major hit to your margins, but at $10, it’s pretty reasonable.
The maximum of $30 can be adjusted depending on how much money you have to invest in a retail arbitrage product. The higher you go, the higher your margins are, and the riskier that item becomes. But more risk means more reward – buying 10 $60 items instead of 10 $30 items means that you make double your money. On top of that, you’ll be competing with fewer sellers, because not everyone has the money to invest in such expensive products.
Light and small – but don’t restrict yourself too much
Light and small products will save you on shipping costs. When you go to generate your UPS shipping label through FBA, you’ll be asked to enter the weight and dimensions of each package that you send. If your package is unusually heavy or large, you’ll have to pay extra.
This isn’t a huge deal because of the ridiculously cheap UPS rates that Amazon gives you. Luckily, you can actually check how much your shipping will be ahead of time (which we’ll explain later), assuming that you have set up your FBA account before starting to source products (which we highly recommend).
Good reviews on Amazon (the ecosystem of reviews)
Have you ever bought a product on Amazon that had a one-star rating? What about two stars? Three stars?
Unless there are no other options, people on Amazon just don’t buy products with terrible reviews. While Amazon doesn’t release a lot of data to the public on this phenomenon, you can observe it in real-time – just look at the bestsellers in any Amazon category. They are all 4, 4.5, or 5 stars overall, with the only exception being ultra-cheap products where people are willing to compromise on quality for price.
If you buy a product that maintains low reviews on Amazon, you will have trouble flipping it.
It’s also important to be looking at the top-rated reviews for each product that you’re considering. Think about yourself as an Amazon buyer – when you go to buy something, do you blindly trust the overall rating? Or do you go down to the top-rated reviews to see the good and the bad?
Most people scroll down. And on more expensive purchases, some people even go past the top-rated reviews, so if you source an expensive, non-impulse product, check those, too.
You want to make sure that your 4, 4.5, or 5 star overall review is backed up by good individual reviews. If it isn’t, you may have trouble selling your product.
Please note that this does not work the other way. If a product has two stars overall and all of the top-rated reviews are five stars, you should still stay away. No one will dig further into the reviews after seeing a 2-star rating overall unless the product is extremely well-known, and the products we will be sourcing probably won’t be in that category.
Selling quick on Amazon
A product that has gotten 90 four and five star reviews over the span of four years is a good product overall… but not a good product for retail arbitrage. We need steady traffic and sales on each of the product pages that we’re considering so that when our units go up on the page, they sell out quickly.
We’ll give you tools a little bit further down the page on how to check the Amazon sales volume for retail arbitrage.
Not too many sellers on Amazon (analysis required)
This is one of the trickier metrics to consider. On one hand, you want to be selling popular products, and popular products often have quite a few third party sellers pushing them. On the other hand, if there are too many sellers, you’ll get into pricing wars, and your profits will suffer as a result of that.
It’s important to note that your only real competition is other individual sellers, and not massive companies. Companies will thousands upon thousands of products are okay with letting their products sit for a while. But you know who’s not okay with that? Other people doing retail arbitrage, such as yourself.
It’s pretty easy to check if someone is a small seller. Go to the available offers for the product and click on their usernames. You’ll see the products that are currently up for sale by them. If it’s a small, random assortment of items, it’s likely that the seller is doing retail arbitrage. If there are a ton of products or products in only one certain niche, then you likely don’t have to worry that much.
Nothing is guaranteed – a bigger seller might still come and undercut you. But by and large, you want listings with big brands selling and without retail arbitrage sellers.
We understand that this is a lot to swallow. Bookmark this page and come back when you have a potential product. Not every product is going to be a winner, but by following this criteria, you can be pretty sure.
(Or, you can always subscribe to our daily list of profitable products – we source these products and vet them ourselves so that you can just look at the list, buy, flip, and profit.)
Where to source products
Now that you know what to look for, it’s time to learn where to look.
Scouring retail websites for hours on end will end in frustration for you. Retail websites usually price their products at retail prices… so you have to get creative.
This is pretty self-explanatory, and by far the most popular option for retail arbitrage sellers. Individual outlets have limited sales on certain products, and either they (or others who noticed the sales) post them on one of the deal sites below.
Those are just a few. Feel free to do your own research.
Now… deal sites are fantastic for retail arbitrage sellers, because the units will eventually sell out, and the price will return back to normal. Just keep in mind that almost every other retail arbitrage seller will be on these sites, too, so you may have some competition when you go to list the products that you buy.
Major retailers for discounts on name brands
Many retail arbitrage sellers don’t take advantage of individual store sales, and we have no idea why. Often times, you can find hot products for 20%+ off.
Here’s an example: Macy’s. If you go to macys.com, you’ll see that they almost always have a 20% off sale on select products.
Let’s look at the men’s watches category. Most of the watches with 20% off are novelty ones, related to sports teams and such – these you don’t want. But at the time of writing this, there are two Skagen watches (one of the most popular discount watch brands) selling for $76 instead of $95.
On Amazon, that price is still $95. So why is Macy’s giving a discount? We’re not sure. Big brands rarely reveal why they give sales like this. But it doesn’t matter – as long as the price on Amazon is consistent, we can capitalize on people not shopping around for watches and make a cool profit on each one.
You’ll notice that this $76 watch breaks two of the rules we went over in the first section – the profit margin is less than 40%. Keep this example in mind, though – we’re going to save even more money with some exclusive tactics a little bit further down the page.
Let’s move off of online and talk about in-person sourcing:
Walking into retail stores
If you have extra time on your hands and live near shopping centers, you can source products the good old fashioned way – by walking into the store, checking the clearance section, and capitalizing on any good deals.
Obviously, when you’re in a retail store, you can’t sit down with your laptop and research the product. You have to just scan and know which ones will make you money. Luckily, app creators recognized this need, and there are a few different apps that you can use.
Our favorite is Profit Bandit – you literally just scan the UPC code and it gives you the Amazon price + all fees associated with selling it. You do a little bit of mental math and if you’re going to make money on it, you load up your cart with all of the units in the clearance section, go home, package them up, and send them to FBA. Easy.
Some stores will let you view the clearance sections online when you select your store. For example, Target does this. If you have a long drive to big box stores, this can save you a lot of time, but sometimes the unit estimations are inaccurate.
Keep in mind that if you do this, you’ll have to take care of getting your own boxes and packing material – you can’t just use the box that the retailer sent you the items in like you could if you were buying online. Make sure to account for these costs – boxes aren’t cheap! (But you can save money by getting them in bulk from Uline or another online retailer.)
Luckily, aside from the boxes themselves, shipping costs to Amazon’s warehouses are pretty minimal. Amazon has a deal with UPS to make shipments to its warehouses extremely cheap – far cheaper than you’d get if you were to ship them yourselves. You’ll see the option to use these UPS labels when you create a FBA shipment.
Okay, back to online:
“Lot” sites – for experts
Sites such as 100lot.com will often offer “lots” of 20-100 items for $100 to $300. As a beginner, you want to stay away from such a large initial investment, but if you’re an expert with a decent bank roll, these sites can be absolute gold mines.
They can be gold mines because this is where products go to get liquidated. For example, if a department store couldn’t sell 27 pieces of women’s lingerie, it first goes to discount department stores (Tj Maxx, Marshall’s, etc.) and then if it still doesn’t sell, it hits these lot sites for ridiculously low prices.
Most of the items are complete junk. But now and then, you find lots of designer products for 50% to 75% off. Many of the items in the lot might be selling on Amazon for full retail… they just didn’t sell in that particular department store.
We recommend getting lots that aren’t assorted – buying 27 pieces of assorted women’s lingerie is a tossup and will take you quite a while to list on Amazon, but 27 of the same brand and size is a winner.
Proceed with caution. Luxury brands (Tommy Hilfiger, for example) can’t be sold by just anyone on Amazon. You need special permission from the brand itself – Amazon does this to counteract counterfeit items. But there are plenty of listings up on sites like 100lot.com that can be re-sold by anyone.
What to do when you find a potential product
Okay… you followed the advice above and you think that you have a solid product. Here are some ways to verify even further that it’s a good one, as well as some methods to save even more money and make even more profit.
Check the sales rank
Sales rank is Amazon’s way of giving you a rough idea on how many units of the item are selling per day. You can find it by going to the Amazon item page and looking under “Product Details”. You’ll see its ranking for its main category (ex: Home & Kitchen) as well as its subcategory ranking(s), if any (ex: Home & Kitchen -> Cleaning Supplies).
To visualize what sales ranking means for an item, imagine that Home & Kitchen only had three products in it. One sold 10 units per day, one sold eight units per day, and one sold five units per day. The sales rankings would be #1 for 10, #2 for eight, and #3 for five.
Now, consider just how many products are in the Home & Kitchen category… hundreds of thousands. A low sales rank (such as 1,000) is good, because that means that the item is selling consistently, and if we get that item, we’ll be able to unload inventory fast. A high sales rank (such as 500,000) is bad, because that means that the item isn’t selling very much at all, and our inventory won’t move quickly.
Don’t let sales rank completely turn you off to an item. The item with the 10,000th sales rank in one category might still get steady sales… it depends on the category. Sales rank should be your first criteria point, though – is the sales rank decent (under 10,000) or is this product not worth my time (really high – 250,000+)? It weeds out product that won’t do anything for us.
Use the FBA calculator + shipping estimations
Amazon is well aware that a substantial amount of its sales comes from people doing retail arbitrage. So, there’s a calculator that will tell you exactly how much it will cost to ship the item from the Amazon warehouse as well as how much you’ll pay in Amazon referral fees.
Watch out for the referral fees… they vary drastically between categories. Some are as low as 8%, whereas some are 20% and higher.
The FBA calculator does not take into account the cost of shipping to the warehouse, though. You can get an exact estimate on this by going into your account, pretending to create a shipment of the item, and putting in your dimensions + weight of the product. (Dimensions is just the dimensions of one item times how many units you have, and weight can be found in the same way – add a few ounces for the box and packing material.)
Go to Camel Camel Camel
camelcamelcamel.com (yes, that’s the actual URL) is one of the best free resources for aspiring retail arbitrage sellers. They analyze most of Amazon’s catalog and check for price fluctuations, along with a few other metrics.
Basically, you want to input your potential item and confirm that there have been no wild fluctuations in the price over time. If there are, between the time that you buy the item and the time that it’s listed under your account on Amazon, one of these price fluctuations might hit. Sure, the price might go back up back later on… but there’s no way of telling how long that will take, and with retail arbitrage, you simply cannot afford to have your inventory sitting stagnant in Amazon’s warehouses.
Camel Camel Camel is especially useful because you can see the low price and the high price of an item, too. If your item has gradually been decreasing in price, stay away. If it’s been going up, you may have just found yourself a nice investment to make.
You can also sign up and get notifications of price drops on popular products. Play around with the site – like we said, it’s one of the best resources for retail arbitrage.
Consider FBA Toolkit
FBA Toolkit isn’t as popular as Camel Camel Camel is, but they do give you more metrics on any certain item.
If you’re lucky, someone else will have already requested that the product be tracked, and you can just enter the ASIN and see all of the metrics behind it. Mainly, the one we’re looking at is daily sales – this will give you a look into whether or not your product will move quickly. FBA Toolkit can’t access Amazon’s data directly – they estimate daily sales by checking the available inventory every single day. As long as the seller isn’t messing with the inventory count, the number will be accurate.
You can also upload a list of up to 10 UPC codes and track potential profit on every single one. This is a great feature, but we’d always recommend double-checking any profitable products with the official FBA calculator, as a mistake in FBA Toolkit’s algorithm will lead to a loss of money for you.
Check rebate sites
A traditional rebate goes like this – you buy something, fill out a form, mail it in, and you are eventually refunded your money after 2-8 weeks.
An online rebate is much, much better – instead of dealing with all of that nonsense, you just buy through a certain rebate provider and get a couple percent off of your purchase.
Remember that Macy’s example? Right now, while that watch is 20% off, eBates is offered an additional 8% off of all Macy’s purchases. So your profit margin (before fees) is now 28% instead of 20%.
Believe it or not, this happens all of the time. Honestly, we have no idea why online rebate sites aren’t bigger with the general population, but now you know!
Check coupon sites
The bigger retailers will almost always have their sales funnels on lock to prevent you from using multiple coupon codes. Sometimes though, if they make a mistake, you can find a discount on RetailMeNot that will stack on top of another promotion. (Let’s say you find an additional 10% off for Macy’s… that watch now has a 38% profit margin.)
The most common coupon that you’ll find on these sites is one for free shipping over a certain amount. Take advantage of these – shipping cuts into your profit.
Product conclusion: take the risk
Very rarely will a product be 100% perfect – after all, you’re looking to game the system to make a profit.
At the end of the day, you’ll have to take a risk. Don’t let fear of losing money prevent you from buying a product, but don’t recklessly spend money on a bad product, either.
As you continue to do retail arbitrage, you’ll continue to get better and better. At the start, you might lose money – and that’s okay. It’s part of the learning process. No business is always 100% profitable.
(If you’d like to skip the learning curve and buy only profitable products, check out our daily list of products for retail arbitrage – we do all of the work for you.)
Chapter 5 is all about managing your retail arbitrage business, because in retail arbitrage, an accounting hiccup can lead to a substantial loss of profit for you. Keep reading – you’re almost a RA expert!
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