Retail arbitrage and how it affects you

Recent deliveries to us including a hose, some blackberry weed killer spray and HEPA air filters, almost all from third-party sellers on Amazon.

Ever bought anything from an online marketplace? Walmart, eBay, Amazon?

Chances are, the price you paid, one way or another, was affected by something called “retail arbitrage.”

Retail arbitrage is the process of someone buying an item from one place and selling it to you at a high enough margin for them to make a profit. Items frequently arbitraged online: just about any household item you can imagine. The reasoning: If someone can find the item on sale or as a buy-one-get-one-free at one store and then charge you the price it’s going for online, then they’ve made some profit. The trick is the seller has to raise the price enough to turn a profit after paying various fees to the marketplace for the listing, shipping, etc., and still keep it at a price point that doesn’t drive you away.

To be clear: It’s a very, very hard business to make any money at in the long run. There are outliers who do well, but to constantly make the rounds of stores to find arbitrage items — ultimately, what’s your time worth if you’re doing this?

You could find something rare, say a hot toy in short supply on the East Coast for Christmas, and your local stores in Bismarck, N.D., have a full supply of that same toy.  You could make some real money selling that online, and all of a sudden retail arbitrage seems like a great idea. Win-win, right? You’ve made some money and the person has the desperately-sought toy in New York.

But what about if that same wave of toy desperation then hits Bismarck a few days or even a week later? You’ve bought out the supply, marked up the price and offered it online. Is that fair to your neighbors in Bismarck when they go to the store and the bin is empty?

Amazon, eBay, Walmart and other online marketplaces are happy for you to shop at their sites online. This reselling helps drive their own traffic. Retail arbitrage, no doubt, can affect pricing online and, in some cases one could argue supplies in stores. Some retailers have banned the practice. But unless you’re buying out stock of something in a big way in person, how would a retailer even know that you are practicing retail arbitrage with the store’s items?

I’m not arguing whether this is right or wrong. Merchants have marked up prices of high-demand products since the dawn of business. They also may put those same items on sale to generate more serendipitous shopping. A retailer is happy to take a loss on an item if it means you’ll buy 17 other things you didn’t even know you needed, which means the retailer doesn’t lose at all and makes even more money.

Online shopping doesn’t typically work that way. You pretty much buy what you are there online to find. You may not comparison shop for the lowest price or even realize you’re buying from a reseller when you add something to your Amazon shopping cart.

What I would argue is retail arbitrage is significantly driving our overall consumer economy in ways most people don’t even realize. And, as more brick and mortar stores close, you’re going to be more reliant on this version of supply/demand to get what you need.

Curious? Read more of my coverage here.


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