Retail Arbitrage Can Lead to Losses
In the world of retail, online retail arbitrage is more common than you might realize. But what is retail arbitrage?
Let’s start with the traditional retailer. They might have a store at their home or at another location. They have a unique mix of items they sell that is similar to how a business works. It’s usually their mix of products that generates a profit margin so the price is quite low.
With an online retail store, they have to figure out their pricing system because there is no one in the chain that can hold them accountable. Some stores have several different price points that will suit various needs.
Online retailers must research the competition, all the way down to the merchandises that they carry. That’s because of the competition that exists on the internet. There are e-commerce vendors that sell like crazy on the internet. That means there are other merchants who need to be found, discounted and marketed as well.
And these vendors may compete with you if you aren’t aggressive enough in your business. Not being aggressive enough will lead to losses for you.
I’m not saying that retail arbitrage is necessarily a bad thing. Quite the contrary, when it comes to finding low prices and high profits there is no substitute for online shopping.
But I want to point out that there is the possibility of finding a discount department store. And if you can find one you will get a huge discount.
Imagine, for example, that you want to buy one pair of shoes for $5 and find a store at a high rate that is willing to pay more for those shoes than you’re going to. You’ll be able to get the shoes at a lower rate than the original price.
However, that won’t happen often because you only spend time and money on the high rate places. It’s possible to get a great discount if you shop at a few places that are within your price range. Many places give a large discount if you buy from them three times.
The real issue when it comes to online retail arbitrage is what the margin is for those discounted goods. Is it a potential profit that you should be making or a potential loss if you don’t.
Often there is an internet retailer that will offer free shipping if you spend a certain amount of money. They’ve figured out that there is a place for them at the low end of the cost spectrum. So, they are willing to take some money off of you to try to gain a lot of sales.
So, what should you do when you get approached by such a merchant? Are you going to take the money and run?