I’ve known for years about people who make a living off of reselling stuff they bought online. For one reason or another it never crossed my mind that I could be one of those people. They always struck me as people who happened to get in on the online marketplace trend at its infancy, and that their status was essentially unattainable at this point.
Don’t start out trying to be an outlier
I’m talking about those “power sellers” on eBay with thousands and thousands of positive feedback and reviews. They’ve obviously put in the work, got started on the right footing, and made their enterprise profitable.
Like any other endeavor though, if we only look at the giants and whales to model ourselves off of, it is incredibly easy to get discouraged. Someone looking to start their own niche social network, for example, shouldn’t look at Mark Zuckerberg as a role model. An end goal, sure. But Mark Zuckerberg is an exception, an outlier. He’s not the norm.
Speaking of Outliers, there’s a great book by the same name by Malcolm Gladwell which discusses the secrets of success of these unusual people.
To get to be an outlier, we have to understand there isn’t really a formula. There is a mix of dozens of different factors, circumstances and flat out luck behind it.
If we want to be successful at something, we have to understand that we have to start from the bottom… and possibly spend a long time there before we move up. The same can be said about most success stories, I think, and if you read the book, you’ll probably agree.
Back to retail arbitrage
So where am I going with all of this?
Oh yeah, retail arbitrage. I’d heard of it before but never thought to give it a shot. This week I decide would be as good a time as any to get my feet wet and see what I can learn from the experience.
My wife and I were in Bed Bath & Beyond when I came to this decision. Most of my financial decisions aren’t made on a whim like this, but I remembered reading a few articles about retail arbitrage, which recommended the “Just do it” approach.
Lucky for us, there’s usually a pretty good clearance section at that particular store, and to boot, they were having a big clearance on Christmas stuff, as are many other retailers. Now I didn’t feel great about buying Christmas stuff right now because I didn’t think it would sell well until maybe September or October and I’m not looking to make this program work 9 months from now.
What I did find were some unrelated gifts that looked promising, especially given their discounts.
I set a $50 budget and decided to give it a shot. I pulled a few products off the shelf which were marked down and then sat there in the store for about an hour, awkwardly Googling everything I could about each product to try and determine if I could sell it for a profit, including fees and shipping. With a good system in place, this wouldn’t take an hour, hopefully.
My purchases – price point
I ended up buying 5 products. A few children’s gifts at $9.99 each, marked down from $29.99 each. A small novelty ornament for $3, marked down from $9.99. An ugly christmas sweater, which I figure I can regift if I can’t sell it. And a travel blanket for $6.99 marked down from $29.99. These seemed like substantial discounts. I verified what each item typically sold for on eBay and also visited a few online vendors to ensure that the discounts weren’t universally attainable. In addition, I used some coupons that I received in the e-mail to take additional savings.
In total I spent $36.26 (with taxes) out the door
A lot of times retailers will “mark down” items to make it seem like you’re getting a great deal there, but in truth they are manufacturer discounts, or they are marked down to match other retailers. It’s important to make sure what you’re getting is a bona fide cut.
Once I got home, I spent about another hour doing some deep pricing research on eBay. The Amazon seller process is a little complex for entering into retail arbitrage, so I decided to only pursue that if I end up liking the results. eBay is an excellent user experience for sellers.
I found out what the average selling points of similar items were. Looked at product descriptions and pictures to get an idea of how to market it. And finally took a few pictures of my own, priced the items, and listed them.
Not including shipping costs, which I chose to have the buyer pay for, my listings total $80.70.
In the future I hope to try different sales methods, such as including shipping but listing for a higher fee.
In the meantime, if all of my products sell for my minimum asking price, I’m looking at a profit of $44.44. This is for about 2-3 hours of total work. Streamlined, this purchasing and listing process could likely be cut down to 1-2 hours tops. If sold, I would expect to spend another 1 hour or so packaging and shipping these items.
That comes out to about $11-$12/hour. Or about $22/hour with a good, streamlined process in place.
We’ll see how this goes.
A few things to keep in mind
- Capital gains made from sales proceeds are taxable in most circumstances. Keep careful record and receipts.
- Certain rules apply to reselling items. Some items can not be represented as “new,” without being an approved, authorized reseller of those items. There is a law called the First Sale Law, which entitles you to sell the products “new in box,” but they must be represented as not being the first sale of those items from the manufacturer as an authorized seller.
- Always pay attention to listing/sales fees, taxes and time. Spending 5 hours to make a $5 profit is not worth the time. You’re better off with a different side hustle.
- Remember to set limits and SMART goals. Don’t start off with a vague idea otherwise success will be harder to quantify and your system will be harder to improve.
- Buying things with coupons at retail prices is not typically effective. Most other retail arbitrageurs have these same coupons and discounts available, and many buy in bulk, which means they can outprice you. You might think you’ve found a great deal using a Raise gift card, a manufacturer’s rebate, and a seasonal store sale… but so have other sellers. In particular, with how many retailers price match, this is a difficult market to compete it.
- Buying items on clearance, with coupons, rebates and discounts is the plan I intend to stick to for the time being.
Do you have a success story with retail arbitrage? I would love to hear how you got started.