When you take a look at Wal-Mart’s daily business plans, you’ll find that their retail arbitrage goal remains a high priority. Retail arbitrage refers to the process of taking raw stock (your inventory) and selling it as if it were newly purchased merchandise in a physical store. Many retail investors would rather buy low and sell high than retail arbitrage.
Some would argue that the concept of retail arbitrage is simple – find the lowest price available for the merchandise and sell it at a markup on the assumption that the item will increase in value. Others point out that retail arbitrage is generally not profitable since many of the items sold in a typical retail store have little or no resale value.
To those who think they can always use retail arbitrage strategies to make money in the stock market, beware – sometimes you just don’t get the right price to make the stock purchase. Some investors believe that you can sell items for less than they are worth while others don’t think this is a smart strategy since the items may be defective or are sold at an absurdly low price in the first place.
It’s very difficult to know how much an item is worth until you actually purchase it. Retail arbitrage is the tactic of buying items at a price that is too low and then reselling them for a price higher than what you paid.
The advantage of doing this for yourself is that you are getting something for nothing but the disadvantage is that you are leaving potential customers without anything to buy. Wal-Mart has created a system in which they purchase products at a discount and then resell them at a markup in hopes of making a profit.
The reason why retail arbitrage is such a good strategy is because Walmart stores have special arrangement with suppliers. They are able to offer a special price in order to get something in return – namely the supply contract with the supplier.
This brings us to the heart of the retail arbitrage strategy. If the retailer buys low and sells high, he is in fact taking advantage of the balance sheet of the supplier.
To understand the concept of retail arbitrage, it is important to realize that Wal-Mart is in competition with other retail chains like K-Mart and Target. If you are looking to enter into the world of retail arbitrage, then you need to have a deep understanding of the way these companies operate.
One of the primary concepts that you must understand when analyzing retail arbitrage strategies is that there is only one “real” winner in a situation like this. While the seller of the product may become a very happy camper if the price goes up, if the retailer is not able to purchase the item at a price higher than he paid, then he is merely making a profit by virtue of having the contract with the supplier.
In the event that the retail arbitrage strategy doesn’t work, the seller stands to lose money if the price of the product decreases. Since the retailer still has a contract with the supplier, he can resell the item at a price lower than his original purchase price.
There are retail arbitrage strategies that do not require an initial purchase. For example, the wholesale price of many items at Wal-Mart are often much lower than the market price, meaning that retailers can sell them for a greater profit margin than buying them directly from the wholesaler.
Retail arbitrage strategies are as simple as simply locating items that are under-priced and then contacting the wholesaler who has the best price on the item. If the retail arbitrage strategy is executed correctly, retail investors will ultimately end up making more money than they did when buying the product at the full retail price.
