Retail arbitrage may be the oldest form of trade there is: buy something where it’s cheap, and sell it where it’s expensive. If you’re good, you can do this without ever leaving your home, says Luis Ramirez of S3 Global, an online company that specializes in this form of commerce.
This kind of activity is made possible by inefficiencies in the inventory practices of large retailers. For example, Home Depot might order a type of screwdriver to be stocked in every store in the country. The item might sell wonderfully in Palookaville but terribly in Podunk. The store manager in Podunk would likely be forced to get rid of the extra inventory by selling the screwdrivers on clearance. That’s where a shopper can step in, buy up all the screwdrivers at the largest discount possible, and sell them on Amazon, where they are going for full price, for a nice profit.
The trick is to find these opportunities and take advantage of them quickly, Ramirez says. In the old days arbitragers would establish a routine of going from store to store looking for deals, returning home with a car full of merchandise to sell. Nowadays it’s possible to buy the stock online, list it in your own Amazon seller account, and have it shipped to Amazon fulfillment services without ever touching the merchandise.
To help sellers find deals, there are several online tools available. One is an app called Jungle Scout, a free program that skims sales data from Amazon and helps sellers estimate how fast any given item will sell and at what price. Finding things to buy requires the aid of different programs that each have a subscription of $80 to $120 a month. Tactical Arbitrage was created by group of Australian programmers to seek out arbitrage opportunities. FBA Wizard and OAXray do a similar job. “Those are the three weapons of choice for online arbitrage,” Ramirez says.
Of course, it is still possible to do it the old-fashioned way by going to stores.
Ramirez discusses retail arbitrage in a SCORE seminar at Plainsboro Public Library on Tuesday, May 7, at 6 p.m. The event is free. Visit princeton.score.org for more information.
Ramirez has been in the arbitrage game since the early days of e-commerce. He grew up in Spain, where he went to college for finance and marketing. Early in his career, around 2002, he took a job with Pfizer overseeing the company’s finance division in Latin American countries. When he came to the U.S. for the first time, he decided to stay in the “land of opportunity.”
He also got fascinated with the open frontier of Internet business. “The Internet was very hot, and I made the decision at that time to be a player,” he says. “The online arena was pretty much like the wild west. It was a trial-and-error kind of thing.” Ramirez dabbled in drop shipping — buying from an overseas wholesaler and selling through an online store of his own creation.
He got seriously into online retailing around 2008 when his company restructured him out of a job. Around that time he joined S3, where he could use his skills helping others by using the experience he had gained in the marketplace.
Some of those experiences were harsh teachers. At one point Ramirez saw a great deal on New Balance sneakers from a distributor that was liquidating its inventory. He jumped on the sale, ordering 1,000 units at a bargain basement price. When they arrived at his house he realized he had overlooked an important detail: it was only left shoes. “I had to take the loss and move on,” he said. “It was entirely my fault because I did not carefully review what I was buying.” But he had made a mistake that he can now help others avoid.
Ramirez says that most part-time arbitragers can expect to make a few hundred dollars a week. There are a few outstanding success stories of those who have made it a full-time job and become millionaires, but these are the exception not the rule. One issue is that since everyone is using the same tools, standing out from the crowd is difficult. Any arbitrage opportunity that arises will quickly be jumped on by multiple competitors. Ramirez anticipates the business will only get more difficult in the future. “Retail arbitrage is not going anywhere, but it is going to become harder and harder,” Ramirez says.
Standing out from the crowd requires using advanced techniques such as “bundling” a low profit item with a high-profit item and selling the two together as a package. Selecting items to bundle requires some marketing savvy but can lead to higher profits.
Ramirez believes that what truly sets the successful arbitragers apart is their entrepreneurial spirit. “You have to be an action taker,” he says. “There are 3 million sources of education out there where you can learn anything for free or by paying a relatively small amount of tuition. The key to success of any business is for the entrepreneur to take actions. The reason 90 percent of businesses that are started fail is because the entrepreneur is giving up very quickly. The real message for our audience is that if you are thinking to start a business, now is a great time.”