When you walk into a Walmart supercenter, and the salesperson talks to you about retail arbitrage, your first question is, “What’s that?” Without even thinking, you start to pace the floor, thinking to yourself that you’ve done enough research. You find out it is retail arbitrage, where resellers meet retail, and you realize something is very wrong. Now, you may be thinking, “Whew. This doesn’t sound too awful.”
However, retail arbitrage at Walmart is one of the biggest problems for the company, because they only have so much room to move product, in an endless supply chain. Each of their hundreds of stores is running on empty, because there are no more items to fill them. The only way they can stay in business, is to keep moving products. This means, sometimes, they must turn down items and hire more store employees to help, in order to make room for the next order.
In the early days of retail arbitrage at Walmart, the store manager would not tell the customer, that items were coming slow. They’d say it was coming slowly, until the item was already stocked. It took many months, until the item was in stock, and there was no room for further inventory. The company would never tell the customer the items were running low, until the next holiday season, when it was time to roll the dice again, and hope things worked out for the better this time.
Walmart realized a problem, when they opened up another store in an area. This time, instead of opening an inside location, they opened a regional fulfillment center, in a middle-of-the-mall area, like Wal-Mart’s old layout. Here, they had more floor space, and they could add more employees. They could also increase their retail arbitrage opportunities. The retail store started to sell more merchandise, and customers started to come in who were in need of more merchandise. And with the new store manager, retail arbitrage started to work in the right way.
The regional store manager would call the customer and find out what she wanted. She would then find out if the store had that item and ask for a lower price. When the item sold, and the customer paid the difference, she would mark the price up to the retail price, thus making more profit. Walmart would then put those profits back into the company, instead of paying retail costs. The strategy worked extremely well and became very popular with Walmart customers.
Another retail arbitrage strategy worked for a clothing company. A large department store franchise, started a program, to supply their franchisees, with retail inventory on a consignment basis. The companies gave those stores’ members special identification badges, that could be used to gain access to the retail inventory. Those stores, instead of selling the merchandise to the general public, began to sell the merchandise to those members of the franchisee club. This worked out extremely well, and it soon became popular with other companies.
Today, retail arbitrage is still used by many companies, to save money on retail merchandise. Many stores have reduced their costs by delivering the merchandise in segments, to their various stores. Instead of shipping products all the way from the factory, to each store, they package and deliver the merchandise to their local stores.
One company that uses retail arbitrage, is Home Depot. Many retail stores offer this option to their customers. They will deliver directly to the customer, or ship directly to the store. By using these strategies, retail store owners, are able to reduce their retail cost, and increase their profit. It’s a win-win for everyone!
