How Dollar Tree Retail Arbitrage Works
With dollar tree retail arbitrage, the trader or speculator can create an asset from scratch. A simple action can be enough to create an extra dollar to cover loss or earn a profit from it.
When dealing with dollar tree retail arbitrage, it is advisable to follow an investment plan. The first step should be to study the company and know its earnings, sales and income statement. Then, the investor can look at the income statement and cash flow statement.
When analyzing the dollar tree retail arbitrage, the investors must consider the fact that the retail business is usually the company that supplies the consumer goods. Dollar tree retail companies employ thousands of employees in producing merchandise. They have store fronts and warehouses to handle the inventory and they also have shipping, sales and finance staffs. Therefore, each company’s primary source of revenue is from its consumers.
Since this is the case, the consumer is normally the company’s main source of income. Therefore, it is a good idea to have dollar tree retail arbitrage by entering the same amount of product as that of the consumer or the dollar tree retail company to invest and make profits.
As stated before, the retail arbitrage technique requires the investor to purchase a commodity at a low price in order to make a profit. The profit can be an addition to the capital value of the commodity. This may also be called a horizontal arbitrage or a cross trade arbitrage.
For example, you buy a commodity and sell it for more because you know that the supply will increase the following day. In this case, the investment activity is horizontal.
If you buy a commodity and sell it for less than the previous day’s price because you anticipate a decreasing demand in the following day. In this case, the investor does not need to see the increase in the supply as a result of the previous day’s increase in supply. He only needs to predict a decrease in demand.
With dollar tree retail arbitrage, the number of traders is limited by the number of businesses that need to have the same commodity. So, when you are looking at the commodity, you have to consider that the next business that will need to use the same commodity has just entered the market.
Also, there are cases when the dollar tree arbitrage doesn’t always work. For example, if there is a retailer who only deals with health food products and sells only them. A competitor of the dollar tree retailer may come along and offer a better deal.
Sometimes, the vertical supply chain of health food industry is so complex that it can’t be broken down into simple events and effects. For example, suppose a department store is selling three or four types of health foods, and in order to profit from the dollar tree arbitrage, the retailer must buy the health food stocks on a single day. This is clearly impossible.
On the other hand, suppose there are physical store fronts and warehouses that deal with different kinds of health food. Suppose the vertical chain is segmented and made into several vertical chains.
For example, suppose the warehouse or the physical store fronts are involved in the vertical chain and the consumer product manufacturer is not part of the dollar tree retail arbitrage scheme. The retailer can still make money by buying at a lower price than the consumer commodity and selling it at a higher price on the following day.
