Why Is Retail Arbitrage So Hard To Scale? Here’s What You Can Do

Who doesn’t want to make a quick buck? Retail arbitrage makes it possible for enterprising folks to buy discounted products from retailers and quickly resell them at a profit. Many entrepreneurs get into arbitrage because of the promises of fast profits, but this neverending hustle gets old pretty quickly. 

If you want to build a multi-million dollar business, you have to join the big leagues: private label dropshipping. You’re already putting hours of work into retail arbitrage, so why not invest that work into a brand that will last? 

Let’s dig into how retail arbitrage works, why it isn’t scalable in the long run, and why domestic dropshipping is a better alternative to arbitrage.

How retail arbitrage works

Retail arbitrage happens when you buy items—usually in bulk or at a discount—from a retailer. For example, if you find a rack of shirts on clearance at Walmart for $5, you can turn around and sell them on Amazon for $20 apiece. Resellers usually go for out-of-season or discounted products so they can jack up the price and resell it elsewhere for the highest margin possible (without scaring away shoppers, that is). 

how to scale retail arbitrage

And yes, retail arbitrage is 100% legal. It’s allowed on platforms like Amazon and eBay, although there are some requirements that limit which product categories you can do arbitrage for. 

Plenty of motivated entrepreneurs go for arbitrage to dip their toes into the world of eCommerce. Done well, arbitrage is beneficial because:

  • Anyone can do it: You don’t need millions of dollars or a fancy degree to do retail arbitrage. If you can shop the Walmart clearance racks and set up an Amazon seller account, you can become a reseller. 
  • The products sell themselves: Most resold products come from name brands, which means you don’t have to sell shoppers on the products. The retailer did all of the hard work for you, which means you can move more products and spend less time marketing.
  • Products sell fast: Arbitrage is one get-rich-quick strategy that works well. Since you’re likely buying just 20 - 100 units at a time, you can sell everything more quickly for short-term profits. 

Why retail arbitrage can’t scale

The thing is, as attractive as arbitrage can be in the beginning, it’s a constant grind. If you ever want to retire or take a day off, arbitrage just isn’t the right game for you. 

Arbitrage just isn’t a long-term, scalable business model because: 

  • Supply is inconsistent: Once you’re out of an item, that’s it. You have no consistent supply of reliable goods as a reseller, which means your opportunities to make a profit end as soon as you sell your last product. You have to continually look for products to flip, which is a huge headache. 
  • You have no control: Is your business really “your” business if you have no control over it? With arbitrage, you have no control over product quality or selection. And if a customer complains about a product, there’s no way for you to make it right because you aren’t the manufacturer. 
  • The margins are narrow: A $15 profit margin doesn’t sound too shabby until you realize all of the commissions, fees, and shipping costs that count against that $15. Resellers have much lower margins (usually 5%), which means you’re doing more work for a smaller payoff. 
  • It takes forever: Do you really want to spend half of your work week inspecting the discount bins at Target or TJ Maxx? Arbitrage requires an immense amount of time and patience that you just can’t sustain as your business grows. 
  • You don’t have wholesale receipts: Do you want to sell appliances, DVDs, car parts, or gift cards on Amazon? These niches are a no-go for resellers on platforms like Amazon that require wholesale receipts. As platforms crack down on arbitrage, you’ll find that you can’t sell in as many categories as other sellers.

 

how to scale retail arbitrage

The alternative to retail arbitrage

If you’re only here to make quick profits, arbitrage could be a good way to do it in the short term. But if you’re looking for a clever way to master eCommerce sales, you need to step away from arbitrage and embrace domestic dropshipping. 

Instead of sourcing products from the Walmart sale rack, you can partner with a dropship supplier right here in the US. The supplier gives you access to a robust catalog of high-quality products that you can slap your logo onto and resell for a much higher profit. Since suppliers give you access to lower prices, you’ll see much higher profit margins with dropshipping than you would with arbitrage. 

And no, there’s no need to manufacture, store, or ship your products when you go the dropshipping route. The barrier to entry is even lower than retail arbitrage because you only pay your dropshipping supplier whenever you make a sale. 

Instead of spending hours a week sourcing products for reselling, you can choose a trusted domestic dropshipping supplier to handle a lot of the hassle for you. Plus, with solutions like Spark Shipping available to manage inventory, tracking updates, and more, it’s never been easier to go all-in on dropshipping. 

how to scale retail arbitrage

The bottom line

Retail arbitrage can be a fun and profitable hobby, but it isn’t a scalable business model. If you love the thrill of arbitrage but crave higher earnings for less hassle, go the domestic dropshipping route instead. It will give you more control over your business, take time-consuming to-dos off your plate, and substantially increase your revenue. 

But we know that dropshipping isn’t easy if you’re new to the game. Spark Shipping makes it much easier to move away from arbitrage with our dropshipping automation platform. Get a demo now to see how Spark Shipping simplifies domestic dropshipping.