Online Arbitrage vs Retail Arbitrage: Which Is Better?

Online arbitrage vs retail arbitrage in one sentence: both mean buying discounted products from retailers and reselling them on Amazon, but retail arbitrage (RA) sources in physical stores, while online arbitrage (OA) sources from retailer websites. RA is great for learning with little cash and finding local clearance deals; OA is easier to scale, automate and run from anywhere.

Which one is better depends on your time, budget and goals. Below we compare the two models side by side, with the pros and cons of each, how they fit with other Amazon business models, and how to decide which one to start with.

Classifications of Amazon Sellers

Selling on Amazon is an excellent opportunity for sellers who want to reach new customers both at home and abroad. Millions of sellers on Amazon are using one or multiple different methods of procuring products to sell for profit. These methods are generally classified by where the product is purchased or how the product is created. Below are the classifications of Amazon sellers:

Retail Arbitrageur

They are sellers who buy items in person from brick-and-mortar retailers and resell them on Amazon. Retail Arbitrage is probably the easiest sourcing method to get started selling on Amazon. By driving to your local Target, or Walmart, you can find profitable items on the clearance racks and aisles.

Online Arbitrageur

The ones who buy items from retailer websites and resell them on Amazon are online arbitrageurs. Online Arbitrage is one of the accessible methods of arbitrage. You should not drive to every single store and scan each product. You can even hire a virtual assistant to find profitable products for you. You can scale up faster with this method. Tools like “Tactical Arbitrage” can scan hundreds, thousands, or even hundreds of thousands of products, while in manual searching, the number is limited.

Liquidators/Over stockers

These are sellers who buy liquidation and overstock lots and list the products for resale on Amazon. Online liquidation marketplaces can be a source, but lots often contain customer returns, refurbished items or damaged goods, so every unit has to be inspected before it can be sold as new.

Partnering with a company that produces overstock items (food is one of the most common) is the best way to procure the liquidation products. It is safe and good for a quick sale.

Generic Private Labelers

Sellers who buy unbranded products directly from manufacturers and then brand them with their own logo and packaging and list them for sale on Amazon are generic private labelers. After finding a product from a manufacturer, they need to order samples.

The next step is to check the quality, make up some nice packaging, register the brand, and have chosen items delivered from China, India, or any other country that is decided to source them. And for getting started selling on Amazon, give a discount which helps Amazon recognize the product as a quality product.

Brand Builders

Creatives / Authors / Businesses who design and make their own products and sell them on Amazon (a more advanced type of private labeling) are brand builders.

Wholesale Resellers

These resellers are the ones who set up accounts with established brands and buy products in bulk to resell them on Amazon (usually with controlled prices and rules of the brand). The purpose is to build partnerships with manufacturers and distributors of products when sourcing wholesale.

Designers

Designers and artists create t-shirts and other apparel designs and sell them through Merch on Demand (Merch by Amazon), Amazon’s print-on-demand program, without holding inventory.

Vendors (1P)

Vendors sell their products to Amazon wholesale instead of selling directly to customers. Amazon then becomes the seller of record. Vendor Central is invitation-only, and successful brands that started as third-party (3P) sellers are sometimes invited to join.

 

What Is Online Arbitrage?

For online arbitrage on Amazon, the source has an online presence usually in the form or a website or Facebook shop.

The downside of retail arbitrage is petrol costs and time spent sourcing. And with increased competition, those awesome deals don’t hang around for long.

But if you source deals online using Online Arbitrage you don’t need to travel anywhere, you can do it any time of the day or night and you can usually buy in bigger quantities.

You can source from any website where you see reselling opportunities. If you can buy in bulk at low prices and resell quickly for a nice profit then that is the dream.

Plus, you can hook up with as many retailers as you want and buy as much or as little as you want.

 

Pros And Cons Of Online Arbitrage

Online Arbitrage has its own pros and cons that we discuss about them.

Pros

• Online Arbitrage businesses have a low entry threshold in regards to time and can be run as a side income to your full-time employment.
• It requires less physical work. You just have to find some good, profitable Online Arbitrage deals and then buy the products from the retail websites and have them delivered to you.
• You are location independent and can run an Online Arbitrage business from anywhere around the world.
• Work from the comfort of your home and never have to drive from store to store in bad weather.
• Online stores usually have deeper stock, so you can buy more units of a winning product in one order.

Cons

• You may miss out on local store promotions or offers.
• If you can’t find good Online Arbitrage Leads then you won’t get very far with your business.
• Unless you use an online arbitrage leads list, you will have to spend time and money learning and using sourcing software.
• Shipping times, cancelled orders and wrong items from online retailers can delay your inventory.

 

What is Retail Arbitrage?

Retail arbitrage is the act of buying a product from a retailer such as Walmart or Target at a discounted price and reselling the item for a profit.

All of the selling methods above can create a lucrative foundation for a business, although retail arbitrage has traditionally been the most popular way to quickly start a business and make some extra cash whether using eBay or Amazon. It’s definitely the easiest Amazon FBA gate to enter with the most minimal investment.

You can buy inventory whenever you want in any quantity you want (up to stock limits), and you don’t have to wait for shipping or manufacturing to get the items to Amazon FBA warehouses before you can list and sell them. These characteristics make retail arbitrage the most popular among beginners looking to create an opportunistic business or side hustle.

As a seller builds a successful retail arbitrage business, it’s not uncommon to see them venture into other selling methods once they are more established and financially sound. In reality, the largest sellers on Amazon are private labelers, wholesalers, standalone brands, or mixtures of these models plus online arbitrage.

As an early seller, it’s harder to take risks and make larger investments in wholesale accounts, private label products, and building your own brand. These systems take large financial investments that most sellers don’t have when they start.

The truth is, traditional retail arbitrage is very much like a brick and mortar business. It’s tedious, requires large amounts of effort, and has quite a few moving parts, making it extremely difficult to automate and scale. It can be done, but not without the price of paying physical employees which also requires employee payroll and insurance plans and maybe even a warehouse.

Even with the amazing opportunity that Amazon FBA provides you in handling order fulfillment, if you are looking to create a business that produces income while you sleep and has no limit on scalability, retail arbitrage has many drawbacks that make it a less attractive option than other methods of selling.

When practicing retail arbitrage, the game becomes a process similar to hunting Easter eggs. Sometimes you find the eggs, sometimes you don’t, but you (or your team) are spending time doing it regardless of the outcome. That time you are spending costs money.

 

Pros And Cons Of Retail Arbitrage

Retail Arbitrage has its own pros and cons that we discuss about them.

Pros

• You can find niche sales and clearance goods at your local stores, reducing the chance of competition.
• You are well-aware of the product for sale with no chance of a nasty mis-match or different looking product being delivered to you from an online store.
• You may enjoy shopping!

Cons

• In contrast, retail arbitrage is limited to a brick and mortar shop, an outlet or a retail shop. This limits your product variety and stock availability.
• It takes a lot of time to look around all these shops, often resulting in no deals found!
• It requires a lot of physical work, as you are alone, responsible for collecting goods and transferring it to your home.
• It can cost you a fair amount of money on fuel.

 

What Is the Difference Between Online Arbitrage and Retail Arbitrage

In Online Arbitrage, you don’t need to look for profitable deals from one store to another. Your computer is enough to check many websites all over the world and find the best deals. You can source your inventory from everywhere and sell your products to any customer in the world. Your business is independent of time.

Besides, as you are sourcing online in Online Arbitrage, the stock quantities are higher. Therefore, compared to the physical stores, you have a larger inventory. Also, your products will hit Amazon warehouses faster because online stores are often stacked with astonishingly rapid shipping plans. On the other hand, you would need a lot of storage space if you buy many products in Retail Arbitrage.

 

What Is the Similarity Between Online Arbitrage And Retail Arbitrage

Whether you are an online or retail arbitrageur, you need to improve your knowledge to run a successful business. In both business models, you need software to analyze data to make an informed decision. If you use Amazon to sell your products, you should follow the same policy for copyrighted items, customer service, etc.

In addition, neither method has a minimum order quantity, which gives you the option to manage the number of products based on demands. Here is a quick comparison table to see the common features of Online Arbitrage and Retail Arbitrage:

	Retail Arbitrage	Online Arbitrage
Investment Cost	Low-medium	Low
Prep & Labeling	FBA prep and labels (you or a prep center)	FBA prep and labels (you or a prep center)
Listing Details	Existing Amazon listings	Existing Amazon listings
Product Marketing	Not needed	Not needed
Scalability	Low	Medium-High
Profitability	Low	Medium-High
Overheads	Medium	Very Low
Automation	Limited	Yes

 

Retail Arbitrage Scalability Problem

To truly have an Amazon FBA business that can scale to larger revenue and profit numbers, it’s important to figure out ways to automate the different segments of your business so that you can actually be free to do other things, like growing new or existing revenue streams. Otherwise you will hit burnout.

What if you could free up your time and allow business growth to happens organically with automation and systems? Instead of spending all day in stores, you could be out hitting the snowboard slopes with family.

To automate a business and free up time, you have to delegate and outsource tasks to other people, tools, and services.

Even if you are going hard seven days a week, there are only so many hours that you can spend driving, searching stores, and packing boxes. Eventually, you will hit a ceiling physically because of the nature of the business and monetarily because RA is much harder to scale.

Yes, you can slowly bring on a few people to help you hunt for, prep and ship products, and you’ll see a higher revenue number because of it.  But what about the employment requirements? In the United States, you have to set up unemployment insurance accounts and pay taxes on top of the cost of the actual employee. And, just like you, your employee will also have physical limits in being able to scan products, pack, and ship.

Retail arbitrage is a suitable system to make some extra income on the side, but without some serious moving parts and intricate systems in place to manage all those moving parts, the model has scalability limitations.

So, is there an immediate solution for transitioning a retail arbitrage business into a larger scale business with more profit? Yes: add online arbitrage to your sourcing mix.

Rules That Apply to Both OA and RA

Whichever model you choose, Amazon treats you as a reseller and the same rules apply:

• Restricted (gated) categories and brands: many profitable products require approval first, and Amazon generally asks for invoices from manufacturers or authorized distributors. Store receipts and online order confirmations usually aren’t accepted, so check if a product is restricted before you buy.
• Condition and authenticity: items must be new, unused and in their original packaging to be sold as New, and brands can file IP complaints against listings they don’t authorize.
• Fees and margins: FBA fulfillment, storage and other fees apply equally to OA and RA, so always calculate profit after all Amazon fees, shipping and prep costs.

Both models are legal in the US thanks to the first-sale doctrine. Read more in our guides on whether online arbitrage is legal and whether retail arbitrage is legal.

Online Arbitrage vs Retail Arbitrage: Which Should You Choose?

• Choose retail arbitrage if you have more time than money, enjoy shopping, live near many big-box and discount stores, and want to see products in person before buying. Start with our list of the best stores for retail arbitrage.
• Choose online arbitrage if you have a full-time job, live far from good stores, or want a business you can systemize with software, virtual assistants, leads lists and a prep center. Start with the best online arbitrage websites.
• Do both if you can: many experienced sellers source online every day and use store trips for clearance deals and replenishables.

Planning to grow beyond arbitrage later? Compare online arbitrage vs wholesale to see when it makes sense to open brand and distributor accounts.

FAQ

Is online arbitrage or retail arbitrage more profitable?

Per item, retail clearance deals can have higher margins because fewer sellers find them. Overall, online arbitrage usually earns more over time because you can review far more products, buy deeper quantities and scale without driving to stores.

Is Amazon arbitrage still worth it?

Yes, for sellers who treat it as a business: check restrictions and fees before buying, track your numbers and avoid overstocking. Competition is higher than a few years ago, so speed and good data matter more than ever.

What is ecommerce arbitrage?

Ecommerce arbitrage is another name for online arbitrage: buying products at a discount from online stores and reselling them at a higher price on a marketplace such as Amazon, Walmart or eBay.

How much money do I need to start?

Both models can start with a few hundred dollars of inventory plus your Amazon selling plan and basic tools. See our guide on how much capital you need for online arbitrage.

Start OA Business Using OABeans Leads List

Our product lists help you get the data you need to source the best possible products. You can access tens of product suggestions by subscribing and getting the daily OABeans online arbitrage leads in your email. All of these suggestions are checked, HAZMAT filtered, and linked to the purchase page so you can buy them with minimum effort and resell them on Amazon.

Final Thought

 As you can see, there are massive benefits to using online arbitrage in comparison to traditional retail arbitrage.

If you are currently running a retail arbitrage business, it’s truly beneficial to make the transformation to doing some online arbitrage as well.

Having an online arbitrage business is wonderfully powerful, and it puts you in a position to automate, scale, and adapt to future business models with less overhead and more lead opportunity.

If you are looking for online arbitrage product leads, check out our daily online arbitrage sourcing list for Amazon US and Canada (see plans and pricing).