Dropship Online Retail Arbitrage: Pros & Cons
Whether you are just getting started with selling online, or you’re a seasoned professional in selling in the eCommerce space, chances are that you have heard of or are familiar with the term: retail arbitrage.
What is Online Retail Arbitrage?
In the traditional sense, retail arbitrage is a method of identifying profitable products via retailers or physical brick-and-mortar shops and buying these products to sell for a higher price on another sales channel. These products are already publicly available to other consumers.
In the eCommerce space, retail arbitrage is also a very popular method of selling online. Online retail arbitrage works in a similar way in that the seller is identifying products from an online source (for example, eBay, Amazon or another retail website) that all users on the internet can access, and then listing that same product on their own website at a higher price-markup. Once their customer places an order, the seller purchases the product from the original site, and the original site will fulfill the order to the customer from there.
Online retail arbitrage is popular in that there is a low cost of investment to building a business around selling these types of products online – as opposed to other methods, such as selling your own in-house inventory, selling goods via Amazon FBA, or dropshipping via a wholesaler.
Let’s go ahead and jump into the Pros & Cons of this model.
Pros of Online Retail Arbitrage
Practically No Upfront Costs or Investment Needed
Dropshipping using online retail arbitrage requires almost no upfront cost or investment needed. Since there is no need to purchase and house physical inventory or obtain a Dealer Account directly with a supplier, you could simply list the product from the original seller to your online store, and once you make a sale, purchase the item from that store and have them fulfill the order on your behalf.
You would keep the remaining profit after the cost of the product, any shipping fees, taxes, etc.
Easily Source Cheap Products for High Margin… Potentially
If you are sourcing from publicly accessible retail websites from China, such as Aliexpress dropshipping, where the products are much cheaper, then there is a good chance that you may find a product that you could sell on your online store for a high margin.
If you could repeatedly find this opportunity and take advantage of it, then you could make a good living with online retail arbitrage.
Cons of Retail Arbitrage
You’re At the Mercy of the Market
With online retail arbitrage, your sales are dependent on the market and customer buying trends. You have to constantly be on the lookout for new bargain deals, scraping marketplaces such as eBay, Amazon, Aliexpress and other reseller websites, and then always making sure that these products will bring value to your customer base.
In this sense, this method of selling online isn’t as sustainable as a store that’s built around a brand and a specific niche of products. You will be always changing your product line to the next hottest and high-margin product based on what’s happening in the market, and that could take away a lot of time from marketing your business and making actual sales.
Model is Unsustainable in the Long-Term
With retail arbitrage, you are taking a product from other online store listings and listing them onto your website at a higher price mark-up. With no wholesale supplier involved, there is no access to your own unique discount pricing, or any chance to be offered any dealer discounts or specials when it comes to repeated purchases.
You simply have access to the same price from the original seller as any other user that has access to the internet… and there is little value you are providing to the end consumer in this business model.
As more and more users get onboard with buying and selling on the eCommerce space, you’ll want to look to form a long-term relationship with a wholesale dropship supplier, so that you could take advantage of these deals as your average sales volume grows. Becoming a Dealer with a supplier also provides you more exclusive access to their large catalog of products, as opposed to selling products that are publicly available.
Providing highly demanded product brands at a margin other sellers don’t have is typically the competitive advantage retailers build their business around and, in this model, it is almost impossible to gain this advantage.
Conclusion: Arbitrage Versus True Dropshipping
Dropshipping with online retail arbitrage is advantageous in that there is almost no financial investment needed and it is super easy and quick to get started. The primary difference between this method and dropshipping with a true dropship supplier, is that a retail arbitrage business adds little value to the end consumer in price and product selection and, because of this, it’s just not as sustainable of a business in the long-term.
Feel free to refer to our other articles that delve specifically into dropshipping through Aliexpress and dropshipping with a wholesale dropship supplier to weigh your options on the best method of getting started.