Book Arbitrage at Amazon
If you’ve ever wondered how Amazon is able to turn a profit on books that are priced well below the average retail price for the product, Amazon can do so by using their store as a potential source of retail arbitrage. Retail arbitrage is when a retailer pays less than market price for a product.
Retail arbitrage can be a win-win situation for both the retailer and the customer. The retailer takes in less money in a day and can reinvest some of it into other parts of their business. The customer gets a product they want at a price that they want, and with no additional shipping costs, since they can just buy the product from Amazon directly.
Amazon has used retail arbitrage to profit through retail arbitrage in a variety of ways. In one case, Amazon used wholesale pricing to profit while making its customers pay more. In another case, Amazon used retailer pricing to profit while making its customers to pay a higher price for ebooks. In the third case, Amazon entered into an agreement with a wholesaler to allow them to retain all of their products at a discount, which ultimately caused them to make a profit on their own terms.
Before I go any further, let me say up front that I’m a huge fan of Amazon. I have purchased numerous items from Amazon with no complications and received excellent customer service.
So, before going on, I have nothing against Amazon and I have nothing against the company. What I do have an issue with is Amazon’s retail arbitrage, which has made the company a great deal more than the price of many books in the past few years.
Let’s take a look at a couple of examples of how Amazon has entered into agreements with wholesale distributors in order to get books at wholesale prices. By doing so, Amazon not only saves itself a lot of money, but customers as well.
First, let’s look at retail arbitrage and see how it can work for the retailer. Retail arbitrage allows a retailer to buy something, sell it at a reduced price, and make a profit on the difference. If you’re a retailer, you can buy a book at retail cost, put a discounted price tag on it, and sell it online for a lower price.
When a book is sold at a retail price, a retailer is required to make a markup on the price. While the retailer makes a margin of profit on each sale, the overhead costs of operation with the added inventory and the labor costs can easily increase the retailer’s operating expenses beyond the margin of profit. This margin of profit is also lost when the retailer sells a book for more than the wholesale price, even though it’s technically in the cost of the product.
Amazon, in its search for ways to turn a profit, used retail arbitrage to be able to sell books at wholesale prices. By doing so, Amazon not only helps itself to a profit margin, but it also helps other retailers. Amazon’s retail arbitrage strategy helps many other retailers sell their products at a lower price, and this includes Barnes & Noble.
As a retailer, if you sell through Amazon, you will notice that Amazon does not have a price on a book until the item is shipped. The retailer simply has to purchase the item at retail price and then mark the price to reflect what the price should be. Amazon purchases books at wholesale, charges a discounted price, and ships the books to the customer at the discounted price.
It is no secret that Barnes & Noble would like to sell books at a discount, but Barnes & Noble’s shelves are full of books that are not selling at wholesale prices. By entering into agreements with wholesale distributors, Amazon has taken the retailer out of the equation and allowed it to sell books at a much lower price.
Barnes & Noble and Amazon are just two of the retailers who benefit when retail arbitrage is used. Other retailers benefit as well, such as Borders, Barnes & Noble, BordersBooks-A-Million, and Kobo.