Retail Arbitrage is a simple concept: you buy items from regular bricks-and-mortar stores, then sell them online through marketplaces like eBay and Amazon.
But to make a profit after shipping and marketplace fees, arbitrage sellers need to find products which are a lot cheaper in-store than online. Those items do exist, but they are rare. So not surprisingly, retail arbitrage shopping trips are often described as “hunting for treasure”.
Spending hour after hour checking prices in stores doesn’t sound like a great foundation for a profitable business. But it can be done.
Robyn Johnson’s business is proof of that. Robyn has spent as much as $50,000 on inventory in 2 to 3 days, and sold well over a million dollars on Amazon and hundreds of thousands on eBay. It’s profitable too, with excellent margins. Robyn also finds time to blog and offer coaching on her website Best From The Nest.
I spoke to Robyn about how her business has grown since she started in 2011, and to find out how retail arbitrage really works at scale.
Andy: How did you get started in ecommerce?
Robyn: We started it in about 2011, or a little bit before, with just $100. I was a youth minister, working with little kids. I loved my job, getting to watch these young people become amazing adults. So I was one of those rare people who really love what they do.
But we just couldn’t make ends meet, especially when my son started to have to some health issues. So after listening to Dave Ramsey I decided to take $100 out of our emergency fund. I bought things at garage sales, then went and listed them on Craigslist. We did that for several months and then started selling on eBay, then Amazon and now our own website.
So we’ve grown from that $100 to a seven-figure business in less than five years. Retail arbitrage has been a really big part of that. Now we’ve scaled it – we have a warehouse and we have employees, and VA’s in the Philippines.
What did you buy at the garage sales, and how did you move from that to selling online?
Well my daughter was less than six months old at the time, so I knew how much it cost to get a baby bouncer, a baby swing or a pack-and-play. So I started buying those things, as well as strollers, at garage sales. I would go to the fancy neighbourhoods in the area, pay cash, then clean them up and sell them on Craigslist.
I remember this little woman named Jaquita, who bought around $400 worth of stuff from me at my own garage sale. I asked her what she was doing with it, and she said she was taking it down to Mexico to resell – I live in Arizona so the border isn’t far. I was like “I could do that! I don’t even have to go to Mexico.” That was where the idea came from.
The next step I took was to start buying children’s clothes, the high end clothes, and listing them on eBay. I thought I was doing really amazing! I remember when I sold $300 in a week, and I was so proud of myself. In retrospect that was a very small amount but it was big for us at the time.
One time I came across this woman who had a store that she was liquidating, selling new items from her home on Craigslist. That was the first time I sold on Amazon. It was so much easier, and I could do so many more listings, that we started to do more and more on Amazon.
How did that progress to retail arbitrage?
I was doing a lot of reading, finding out about different ways to source and sell online. As I was reading I started to think of new ideas. So then we started doing some retail arbitrage at Big Lots.
There was a certain scent of Febreze NOTICEables air freshener that they stopped making – Moroccan Breeze refills. We would buy them for $5 and sell them for $25. They were small and light and perfect to sell online, and we bought hundreds of them. And people wouldn’t buy one from us, they would buy ten. I remember thinking, “You could hire somebody to spray air freshener in your house for that much money!” We couldn’t believe people would spend that kind of money on those things. That’s when we started to really ramp up the retail arbitrage because we saw how much money there was in it.
They would pay whatever it took to get that scent in their house
Why did it sell so well? It was just that it was a discontinued scent, so really, really hard to find. But people liked that scent… really, really liked that scent! And they would pay whatever it took to get that scent in their house.
So we started looking for other things that would be similar. We found some Clorox sponges but Clorox had changed them, and the new sponges weren’t as good as the old ones. So people were looking for the old style, kind of like that Seinfeld episode with the Today Sponges.
When a company changes something and the new model isn’t embraced, the old version usually can get pretty expensive on Amazon because people really want what they’re used to.
So are discontinued products a big part of retail arbitrage as a whole?
Well, there’s two different kinds of retail arbitrage.
There’s sourcing clearance items. So let’s say like WWE wrestling is not super popular in Arizona. But it’s really popular in other parts of the country. So they always have extra WWE stuff in Arizona. They sell it at 70% off and people buy it at that discounted price, which is probably cheaper than you could buy it wholesale, especially for small vendors. But you can resell it online for the regular retail value.
Then the second kind of a retail arbitrage is when you’re looking for things that are selling consistently higher than the retail price. So things that are really, really hard to find. It could be that it’s discontinued. It could be that it’s a regional item. So for example, there is a spice that is in every Walmart in Louisiana, so it’s very easily sourced. But if you’re not in Louisiana it’s very hard to get a hold of. In Arizona the only way to get that spice is to order it online. So you can look at what’s available for you regionally or what’s available at a specialty store, and you can come in at a premium price on Amazon because the demand is greater than the supply.
My step-mom, my aunt, and my uncle all do retail arbitrage in the same city
As people grow their business they start to look for lines that they can consistently find. They start to develop niches where they really get to know that product line, and what’s rare and what’s easy to find. There’s people who specialize in Lego. There’s people who specialize in health and beauty. Not only have I taught other people to do this, but also my step-mom, and my aunt, and my uncle all do retail arbitrage in the same city as I do.
It’s kind of funny because I’ll go over to Sunday dinner, and my aunt will come too, and my step-mom’s trying to throw a tarp over her inventory so that my aunt can’t see what she’s buying! Me and my step-mom have an agreement where we try to stay away from sourcing at the same places. But it’s interesting having family that all do the same thing as us.
Absolutely, it doesn’t sound like the average family meal! How did the business grow from there, did you follow a process or just grow organically?
Well, at first it was really natural growth. And then we found there is only so much we could do, just scanning in stores and finding what we could find. So we started to develop systems to make it more efficient, especially when we brought Rochelle on – she’s our operations manager now. I trained her how to shop for me.
She likes to tell the story that we went to a store and I left her in an aisle and I said, “Alright, I want you to start scanning in this aisle.” I knew what she should find. “And while you do this one aisle. I’m going to do the rest of the store.” And I came back and I was like, “Okay. You missed three things.” And we went through them.
So we started to develop systems as we trained other people how to do this. Now we have lists that we use to identify the items that are selling for over retail, and we keep track of things we’ve carried in the past so that we can easily identify which items we should be buying.
Is it very physical work, driving from store to store, walking up and down scanning?
Especially in the beginning it was. Even when I was doing maybe $300,000 to $400,000 a year, we were doing a lot of sitting in the store, sometimes on the floor, scanning things. You have to scan a lot in the beginning.
But now we spend less than four hours a week sourcing in stores. We have really got it down to a system and down to a science. But at the beginning, if you want to do retail arbitrage, you really have to spend that time sourcing. And it is very physical work because you’re loading things in the cart, loading things out of the cart into the car. There is definitely a physical aspect to it.
How can people progress from that?
I think it is by finding an area that you specialize in and creating a system to keep track of the things that you’re able to replenish. Then you start to notice patterns. You notice that this trend is on the way in, and this item is on the way out.
Because of the way that we’ve built our systems, Rochelle spent $30,000 on retail arbitrage in a day a couple of weeks ago. This week she only spent $15,000, and I think it was in two days because they had some other things that they had to do during the day. But we are able to buy very large volumes and scale that part of our business by specializing. And we don’t specialize in just one niche, we specialize in a lot of niches.
How do you spend so much in just a day or two? Do you research items in advance and buy all the units you can get?
We actually have it down to more of a science than that. We use Amazon’s inventory health report to keep track of how many we’ve sold in the last seven days, the last 30 days, the last 90 days. Then we use the weeks of coverage in that report to tell us how many we need. So we actually go in with a shopping list.
Some of the products don’t move 500 items a day, they only sell a couple a week. So we might buy 100 of item A, three of item B, and 27 of item C. We have a list of exactly how many we need to get of each SKU. That’s how we’re able to come in and buy so many, because you don’t want to go too deep. And we’re very, very conservative. We don’t like to buy too much of any one item.
I didn’t realize there was so much replenishment going on in retail arbitrage. I think a lot of people see it as a series of one-hit products, where you find something with a big price differential and buy it all out before anybody else sees it.
Yeah. And that’s how most people start. That’s really how you have to start because you haven’t scanned enough items to find those replenishables. But you can only do so much with that one-hit “buy it and clear it out” approach. We were able to get to half a million dollars in sales mostly just doing that, but once you get past that point it does become hard to scale.
Hiring somebody to do that one-hit stuff does take quite a bit out of your margin too. So a lot of retail arbitrage people, as they grow will start to move towards replenishable items, so that they can continue to scale up their business.
I guess the margins must be lower on the products that can be replenished?
Well not necessarily. We try not to buy anything that has less than 70% ROI.
Wow, OK. So does it take a lot of nerve to do this type of sourcing? To stay in a store for hours, scanning their entire inventory?
It’s hard for me to say because I was a youth minister, and once you try to sell chastity to teenagers you get pretty cheeky! I just consider myself a customer, and I’m looking to buy specific things. I’m no different than somebody who’s looking to get a price-match deal. I’m just another customer, and I’m a good customer.
It’s funny because I hear that from people who primarily do wholesale or private label, and they say, “Well, I can’t imagine going into a store. I’d be so embarrassed.” Then I talk to people in retail arbitrage and they say, “Oh, I could never go to a trade show and talk to people about making my own item, that would be embarrassing.”
I think the key is whether you decide to do retail arbitrage, private label or wholesale, that you continue to work within your strengths, find what you’re good at, and capitalize on that. Everybody has a different skill set and everybody’s going to have a different business model to a degree. Know who you are, where you’re strong and where you’re weak, and build from there.
I think people worry that other shoppers or the store’s staff are going to start asking them what they are doing, or maybe get annoyed with them. Does that happen?
It does happen but mostly it’s just morbid curiosity. They just want to know. Most of the time I’m really nice about it. They say, “Do you have a lot of kids?” I’m like, “No, I just have the two.” And they’ll be like, “Wow, this is a lot of soap.” I’m like, “Yep, we like to be clean.” And just leave it at that.
Another time I was really tired and somebody said, “What are you doing with all this stuff?” They just kept asking questions. So I said, “I’m a hoarder, I’m going to be on the A&E TV show next week.”
Every now and again you’ll get a manager who’s on a power trip
For the most part people just can’t figure out what you’re doing. They’re confused. There have been times where I’m like, “Oh well, I have an online store, I can get it cheaper here than I can buy it wholesale.” And they go, “Okay.” Their curiosity is satisfied.
It’s very rare that you get somebody who is like, “How dare you buy this and resell it?” That’s not something that happens very often. Every now and again you’ll get a manager who’s on a power trip and they want to assert their authority. But if they can’t appreciate me as a buyer then that’s okay, I’ll go find somebody else who will be happy to take my money.
What are the staff generally like in the stores? Do you get to be on friendly terms with them or do they roll their eyes at you?
I can’t speak for all retail arbitrage, but we go out of our way to make sure that we are their best friends. When a customer comes up to our cart and takes something out, we welcome them. I’m not going to take the last Barbie doll from a store, and have a little girl not get what she wants.
If I wear a red shirt to Target and somebody asks me where the Star Wars toys are, I’ll show them. I make sure I leave the displays clean, and we try not to buy their loss-leaders. We fill out customer service surveys. We make sure that we thank their managers if they do a really great job.
They are always really, really happy to see us because we also buy the things that they can’t get rid of. We buy a lot of the things that don’t move as fast. So it helps them. And we’re pleasant and respectful of their employment and their position. So we find that they’re very respectful back to us.
There’s a popular view that arbitrage sellers are cut-throat and exploitative, just going after loss-leaders or high-demand toys.
There definitely are people who do that. They just go after the high loss-leaders. I’m not putting down on that business model, it’s just not something that we do.
If you look at online commerce in general it’s kind of backwards from bricks and mortar retail. People don’t go online to buy a spatula. But if you were going to open a real store selling kitchen stuff, you’d want to carry spatulas.
People go online for things that they can’t find locally, or they’re not sure where they could find them. I look at it as Amazon is my customer. They already have the spatulas and the Spalding basketballs and the Betty Crocker vanilla cake mix. It’s my job to bring all the weird edge cases, like the store exclusives or maybe the weird flavour, maybe chocolate pomegranate orange or the Moroccan Breeze scent. It’s all the weird stuff that Amazon can’t have because Amazon, my customer, wants to be The Everything Store. It’s my job to help fill in the holes.
Some people are attracted to retail arbitrage because they like shopping, and they think it’s going to be fun. Do you see that?
Yeah. When people think it’s going to be a day at Barney’s or a day at Nordstrom’s, they’re usually pretty disappointed. People who do well in retail arbitrage are generally people who like to treasure hunt, because that’s kind of what you’re doing, you’re hunting for treasure. But it’s not sexy or cool to stand in an aisle and scan everything. It gets boring, it gets monotonous. It’s very mind-numbing. So at the beginning it is not nearly as glamorous as people anticipate it’s going to be.
It is not nearly as glamorous as people anticipate it’s going to be
I think that you have to understand that in every business, it’s important to find work that you can enjoy, but it is work and this is a business. It’s a real thing. You have to approach it as a business. But it’s a great way for people to get started because if you go straight to wholesale, or you go straight to private label, it’s easy to make very expensive mistakes. Retail arbitrage gives you a chance to really learn the marketplace – what works, what doesn’t, and get used to the process before you buy quantities of 12 or 24 or 144, which we do as well.
So what is the right way to get started when you’re starting from nothing?
When people say they want to start selling online, whether they have $10 or $10,000, I usually respond the same way. And that’s that they should start with used books. Used books are the easiest way, and they’re an inexpensive way. There’s very little capital risk. And it takes out a lot of the learning curve – you don’t have to worry about liquids and glass, bubble wrap and the three foot drop rule, and expiration dates. So it gets them used to the marketplace.
Then I recommend that they go into retail arbitrage, before moving into wholesale, so that they start to understand. Even if you don’t want to do retail arbitrage long term, it’s a less expensive way to learn how the dynamic works and to start to build up trust in your buying decisions. You can say, “I think this is going to sell.” Then put it on the marketplace and see if you were right or wrong. You can start to make sure that you completely understand what you’re doing.
You’re going to have better success with wholesale, because once you start looking at retail arbitrage with this idea of replenishing, moving into wholesale is very natural. You take everything that you’ve learned there and apply it directly into wholesale or into private label.
And should they start out with software, like a scanning app?
Yeah. The two I would recommend would be either Profit Bandit or Scoutify [part of InventoryLab]. They’re relatively inexpensive and both do a really good job of what they do. Profit Bandit is available in multiple countries. Having the right tools is very, very important, and that scanning software is probably the most important tool.
This is how it works. It’s an app on your phone, and using the app it takes a picture of the barcode. It reads it and sends back the bestsellers’ rank, the Buy Box price, the FBA price, the merchant-fulfilled price. And it does the calculation saying, “This is the price it’s selling at right now.” After all the Amazon fees maybe you’d get $16 or you’d get $12, so you can say, “Okay. If it costs me $13 and I’m only going to make back $12 then I shouldn’t buy it. But if it’s $6 and I’m going to get $12, then it’s a good deal because then I’m going to double my money.”
You can really quickly see not only what things are going to be selling for, but how much profit you can make per item. You can see how popular it is as far as the bestsellers’ rank, and how many sellers are on it. So you have really all the information that you need. They both have links to camelcamelcamel so you can see the sales history over time. There’s a lot of really, really valuable information for you to make your buying decisions off of.
How many items would you expect to scan in a trip? How long does it take?
We have timed it, and we can do about 80 in an hour. But in the beginning you should plan on spending at least 40 or 50 hours scanning in the first two weeks. You are going to be scanning more items than you ever thought you would possibly be able to do. So you need to be prepared for that.
It’s definitely treasure hunting. It’s funny because depending on where you start there are very different viewpoints. When people in the retail arbitrage community look at wholesale they’re like, “This is crazy. Why would people do wholesale? The margins are less. There’s so much competition. You have to buy so deep and I’m getting these items cheaper at a retail store than I could buy them wholesale. Why would I do that?”
Everybody is going to have a slightly different business model, and that makes room for all of us
And then they look at private label and they’re like, “I can’t imagine having all of my inventory in three SKUs, that is completely crazy.” It’s funny that in the different communities everybody has such different viewpoints. They’re all correct, and they’re all incorrect, because very few people have done them all successfully.
I think it comes down to personality type, so different people are attracted to different business models. And it has a lot to do with their risk tolerance, and how comfortable they are with being out and about. A lot of times each community has a negative view of the other one, so you hear, “Well, that’s not the way to do it.”
But I say it’s a good thing that the private labellers do what the private labellers do, and we do what we do. If we all had the exact same business model, we would all source the exact same thing, and we wouldn’t all be able to be in business. We should embrace it. Everybody is going to have a slightly different business model, a slightly different buying criteria, and that makes room for all of us.
What are the biggest downsides of doing retail arbitrage? Why do some people move on from it?
Outside of the physical demands, it takes a special kind of person to be able to scale retail arbitrage. You don’t see that a ton of people getting past the $40,000 a month mark. There are some people who do a lot of volume, and they spend a lot of time in the stores. But I think the biggest drawback is that you have to physically go and get things, and you have to remove the price stickers one by one.
And it’s more piecemeal figuring out what has to happen, compared to wholesale. When I order wholesale it just shows up, I add a sticker, and I can get it out to FBA the same day. With retail arbitrage you also have a lot of SKUs. You have to be really diverse in order to keep from having an oversupply happen on your items.
Usually if people want to move into wholesale it’s because they feel like they’ve maxed out what they can do in retail arbitrage. Or they’re just tired of going to the stores and scanning, because it really is physically tiring.
Do you see people moving the other way, coming from wholesale intro retail arbitrage for example?
I see a lot more people move from retail arbitrage to wholesale and private label. I see very few people going the other way. Once you get used to ordering your items and just having them appear, it becomes hard doing the work to get the ball moving on retail arbitrage.
I see people who have been doing wholesale and private label for years, but maybe they were in a market where in the past there wasn’t as much competition. For example, the toy industry is very competitive on the wholesale side. It’s competitive in retail arbitrage, but it’s cut-throat competitive in wholesale. A lot of people who had that old model of wholesale, where they were just able to buy any kind of toy and sell it online, are now coming up against a lot more competition. I do see some of those people going into retail arbitrage, because the old model’s not working any more and they need to make a change in the way that they source.
What about online arbitrage, is that effective?
Online arbitrage can definitely be very, very effective. Amazon Prime subscribers generally don’t start their search on Google, they start their search on Amazon. So for a lot of people if that product isn’t on Amazon, then it doesn’t exist to them. Bringing items from other online stores and putting them into the Amazon fulfilment system can be a very good option.
Online arbitrage can definitely be very, very effective
I think that you’re going to see online arbitrage changing over the next year or so, as there’s a lot of new programs that scrape sites. It’s going to become a bit more like retail arbitrage, where people will need to find a niche and specialize, and maybe do a little less on Walmart and Target. There will always be money to be made on walmart.com and target.com, but it’s something that’s got a lot of popularity really fast.
So there’s a lot of areas of online arbitrage that are already a little oversaturated. Like every sourcing model, you need to stay one step ahead of your competitor, look for products that nobody else is looking for, and then provide those to the marketplace.
Online everyone can easily see everything that’s for sale, so it’s a more level playing field than buying from bricks-and-mortar stores. It seems like there should be a lot fewer opportunities for arbitrage online.
I think that what you’re going to find in online arbitrage, is some things are easy to source and will get oversaturated. But for other items you can’t just have somebody in the Philippines run a rule set and know what products to sell, because they are specialty items and not on major sites.
So for example there are people that like to dress up as Sailor Moon or Disney characters – it’s an area called Cosplay. If somebody’s not familiar with that niche, they’re never going to look on a Cosplay site for a Sailor Moon wig. There are always going to be edge cases, where people find something unique enough that there’s only a couple of online retailers. And a lot of companies consider Amazon too much work, so they won’t sell there themselves. I think there will always be a place for online arbitrage, but to really scale and make a long term business out of it, people are going to need to specialize.
The timeframe that’s considered reasonable for shipping has shrunk dramatically
The other thing is that we have become very accustomed to items coming the next day, but there’s still a lot of online retailers where you might order something and not get it for 10 days. By putting it in Prime, you can sell it for a lot more. It’s taking advantage of the bad ecommerce sites, that don’t disclose their shipping charges until the last page, or don’t offer free shipping or fast shipping. That frustrates customers.
The timeframe that’s considered reasonable for shipping has shrunk dramatically. People want things right away. There’s items that we carry that somebody could get cheaper off the manufacturer’s website. But we are able to buy and resell because they take five days to ship, and somebody’s going to want this for a birthday present tomorrow. They’re willing to pay that extra.
Is there really enough margin with that for people to make money on it?
Well, it depends. Sometimes there is, and sometimes there isn’t. The most important thing, whether you’re doing online arbitrage, retail arbitrage, even wholesale and private label, is to look at all of your costs and make sure that you’re really making as much money as you think you are.
If you’re not including the cost of shipping, the cost of your time to go to the stores, all of those things, it’s really easy to start an ecommerce business and not realize until the end of the year, or even later, that you’re not actually making as much money as you thought you were.
It breaks my heart when people realize they could have made more working at a $10 an hour job
Sometimes people will buy a product list and say, “Well, I’m getting a list so I don’t have to do it all.” But they’re not telling you that the list cost $100, and they only bought a hundred items from it, so they need to add a dollar to the cost of every item. Or they’re not including that an item has to be put in bubble wrap, or needs to have a sticker taken off and a new one put on. All those things add up. It breaks my heart when people realize that they’ve been working all year, and they could have made more working at a $10 an hour job.
But there’s still hope. People put off running their numbers because they’re afraid of what they’ll find. But it’s good news, even if you find out that you’re not making the money that you thought you were, because now you know there is a problem and can fix it.
How much of your sourcing today is retail arbitrage? Are you phasing it out?
We look at different sourcing methods at different times of the year. With retail arbitrage, unlike wholesale, you don’t have a week to 10-day gap between the day you order and the day that you get your item. As it gets closer to fourth quarter we are almost exclusively retail arbitrage, until about the first week of December.
Then we go almost completely back to wholesale because that lead time isn’t as important. So at different times of the year we focus on different items. I would say that at this time of year [mid-October] we are probably 80% retail arbitrage, then at the beginning of the year I would say we’re probably 90% wholesale. So we flop back and forth.
I think that there will always be a place for retail arbitrage, but it’s going to be a little bit less. In the beginning you could sell anything on eBay. Now you have to know your area, you can’t just slap it up there. We’re going to see the same thing with retail arbitrage for Amazon. People are going to have to start relying on more than just a computer program to tell them what to buy. They’re going to have to start learning about the items that they sell, and develop their knowledge past just a couple of pieces of analytic data.
People can be sceptical about sellers like yourself who are really open about how their business works, and offer coaching or training programs. Why do you do that, and doesn’t it conflict with your ecommerce business?
There is a lot of information out there already, so retail arbitrage and selling on Amazon is not a secret. However, educated sellers make the marketplace better. If people are going to do ecommerce they should do it well, and in order to do it well we need to start sharing. Instead of complaining about new people ruining things, let’s give them the tools to decide whether or not they want to do it. And if they’re going to do it let’s have them do it well. Let’s raise the bar. That’s how I feel.
If they’re going to do it let’s have them do it well. Let’s raise the bar.
If somebody doesn’t understand all the costs, they’re going to undercut you. And it’s lose, lose. You lose out because they’re lowering the price, and they lose out because they work for six months before they realize that they’ve been losing money this entire time. It would be better for everyone if they understood all their costs.
A lot of sellers will say, “Well, you know, too many people are going to saturate the market.” Well, you could say the same thing about franchises like McDonald’s or Taco Bell. There is a reason not everybody opens a restaurant. There’s a reason not everybody opens a bricks-and-mortar store. Because while it can be a great way to make money, there’s a lot of people who don’t do it well and don’t make money. And it’s a lot of work to be a business owner. Most people aren’t really up for that.
So the more tools we can give to people to help them decide if this is really what they want for their life, and to help them do it well, then the better off everybody’s going to be.
Robyn, it’s been fascinating talking with you and I wish you all the best for the future.