The Truth About... (#1) Retail Arbitrage
"The Truth About..." series by 30+ year ECommerce veteran Chris Malta exposes the 'the truth about' all of the many ways that unscrupulous online marketers cheat home-based business owners out of their time and money for their own profit.
"The truth will set you free, but first it will piss you off." — Gloria Steinem
"Retail Arbitrage" isn't a real thing. The term “arbitrage," refers to risk-free profit opportunities resulting from price discrepancies in financial markets. It has nothing to do with retail products. The term was coined in the late 2000's by a dishonest online marketer who was looking for a new 'hook' to sell useless information to unsuspecting home-based business owners.
But that doesn't stop The YouTube Clown Show from telling you it's a real thing and teaching you how to beat yourself up and lose money all the way from your hometown to eBay and Amazon.
So, The Thing Incorrectly Known As Retail Arbitrage is a practice where people buy products at sale and discount prices from retail stores (and even other online stores) and then resell them online, mostly on eBay and Amazon, at an over-inflated price. Thousands upon thousands of people have been talked into doing this with false promises of easy money.
On the surface, it might seem promising, especially when YouTube Marketers lie so well about it.
However, a closer examination reveals that The Thing Incorrectly Known As Retail Arbitrage comes with significant drawbacks and challenges that make it a poor substitute for learning to run a real home-based business. Those drawbacks include (but certainly are not limited to) issues related to scalability, sustainability, profit margins, and more.
1. Scalability Limitations
One of the primary drawbacks of The Thing Incorrectly Known As Retail Arbitrage for home-based online business owners is its limited scalability. Scalability refers to your business's ability to grow and expand its operations without proportionally increasing its costs. The Thing Incorrectly Known As Retail Arbitrage falls FAR short in this aspect for several reasons:
a. Time-Intensive Process: Sourcing products from physical retail stores demands a considerable amount of time and gas money, from tracking down sale and discounted products that people actually want by physically driving around to multiple local stores. For home-based entrepreneurs with limited hours in the day, this quickly becomes an overwhelming waste of time and money.
b. Financial Pressure: If you’re going to do this, you need to do a LOT of it at once, to minimize the problem we just talked about in (a). So, you need a big chunk of money to haul around with you from Walmart to Target to Kmart to Lowe’s to Best Buy and wherever else your endless search for sale and discounted products takes you.
c. Storage Issues: This means you need plenty of room to store all the junk you’re going to try to sell at a ridiculously high price to unsuspecting shoppers on eBay and Amazon. This can become a logistical nightmare, especially if you lack dedicated storage space.
2. Thin Profit Margins
While The Thing Incorrectly Known As Retail Arbitrage can sometimes earn a few dollars, the profit margins are far thinner than they appear, making it impossible to sustain a profitable business. Here are a few reasons for these narrow margins:
a. Competition: There are so many people caught up in The Thing Incorrectly Known As Retail Arbitrage that many other sellers are hunting for the same deals. As a result, price wars can erupt, eroding your margins and forcing you to continually lower prices to stay competitive.
b. Fees and Expenses: Online marketplaces, such as Amazon or eBay, charge exorbitant fees that eat into your profits. Additionally, factoring in expenses like shipping, storage, and packaging materials further crushes your bottom line.
c. Market Saturation: The popular products that are required by The Thing Incorrectly Known As Retail Arbitrage quickly become saturated on online marketplaces, making it harder to sell them at that oh-so-critical over-inflated price.
3. Unsustainability
Another critical issue with The Thing Incorrectly Known As Retail Arbitrage is its inherent unsustainability. This practice lacks the stability and predictability necessary for a home-based business to thrive:
a. Dependency on Retail Clearance: The viability of The Thing Incorrectly Known As Retail Arbitrage hinges mostly on finding discounted or clearance items in physical stores. This dependency results in a completely unpredictable income stream.
b. Seasonal Fluctuations: The availability of discounted products in retail stores can vary greatly by season. This can lead to unpredictable highs and lows in sales and income, making it challenging to plan and budget effectively.
c. Regulatory and Policy Changes: Online marketplaces (especially eBay and Amazon) constantly change their policies and restrictions on certain types of sellers, and they DON’T like this practice. So, WHEN they catch you doing The Thing Incorrectly Known As Retail Arbitrage, it leads to account suspensions or closures.
d. Crazy Wacko YouTube ‘Guru’ Ideas: Some people are actually crazy enough to use The Thing Incorrectly Known As Retail Arbitrage to find discounted products on Amazon and list them on eBay (and vice-versa) without even buying them first! That really pisses eBay and Amazon off (think major volcanic eruption going off right up your nose).
5. Ethical and Legal Concerns
The Thing Incorrectly Known As Retail Arbitrage involves ethical and legal gray areas. Home-based entrepreneurs often unknowingly engage in practices that violate store policies, manufacturer agreements, or even legal regulations. This can easily blow up in your face, resulting in loss of inventory, account shutdowns, or in some cases even legal action.
There are two take-aways from these truths:
1. If you’re thinking about it, don’t do it.
2. If you’ve already done it, you know this truth all too well, and you have my sincere sympathies.
I've been teaching the most comprehensive ECommerce Education and Mentoring Program on the planet for over a decade. I have more than 30 years of actual experience IN this business.
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