Inside the Secretive World of Amazon Arbitrageurs
The majority of products sold on Amazon come from third-party sellers, not Amazon. Reselling on the platform is big, secretive, mysterious business.
|Nov 22, 2019||1|
Happy Friday morning everyone! Today’s newsletter is about Amazon arbitrageurs. Arbitrageurs is a funny-sounding word meaning...well, you’ll find out in the article. I hope everyone has a happy Thanksgiving, and you’ll hear from me again next Friday!
Amazon launched Marketplace, the platform for third-party sellers, all the way back in 2000. Today, the majority of products sold on Amazon are from third-party sellers. Amazon sellers aren’t always big corporations, and are often just regular people trying to make a living. The convenience and speed of Amazon has turned retail arbitrage into a viable career path, more than eBay ever could.
What is arbitrage?
Arbitrageurs take advantage of price discrepancies for the same product in different markets. In other words, they find items they can buy for less than people are willing to pay, and resell products for a profit. The convenience of online shopping has created arbitrage opportunities for start-ups and entrepreneurs everywhere. Instacart, for example, is built on arbitrage; they are able to charge more for groceries than you’d pay if you went to the store yourself. People are willing to pay more to not leave the house and instead have groceries delivered to them.
Many Amazon resellers operate on the same principles. They know that people are willing to pay more for certain items on Amazon than they would pay in retail stores. Hard-to-find, seasonal, and discontinued items often sell for a premium; the discontinued Bounce dryer bar is currently selling for $69.00 on Amazon, for example. Fulfillment by Amazon makes it easy for sellers to let Amazon handle storage and delivery of products, and the Amazon Seller app lets sellers check the profitability of items anywhere and anytime.
The secretive reseller community
The barriers to entry for selling on Amazon are low; to get started, all you need is a phone or computer. The community of resellers, though, is not friendly to new upstarts. For Amazon arbitrageurs, more competition means less profit.
I found one of these communities while doing research, and wanted to interview a few Amazon resellers for this article. Unfortunately, I could not find anyone willing to be interviewed. I was accused of trying to steal their secrets and infiltrate their community; “Lol, ‘who wants to give me the keys to their business?’” one user mockingly wrote. My post requesting interviews was quickly removed, and I was notified that if I made “another post like this,” I could expect a ban.
I understand the secrecy and the unfriendliness. They aren’t big companies making huge profits, they’re often parents, families, or entrepreneurs, all searching for their niche in the American economy. One way or another, they stumbled into reselling on Amazon to make a living. They viewed me as a threat; another person who wanted to take a slice out of their ever-shrinking pie.
On the forum, the annual sales of posters and commenters is prominently displayed next to their anonymous usernames. Many proudly display millions of dollars in sales each year. There is an unspoken oath of secrecy; discussing what they do and how they do it with anyone could potentially put their business in jeopardy. If your business model can be easily replicated, you don’t want to share it with anyone.
Who will spill the beans?
There are plenty of people familiar with the world of Amazon arbitrage that are willing to talk, but they aren’t Amazon resellers. Instead, they sell coaching services. These “coaches” promise to tell you the secrets of making a living on Amazon. They are more than willing to be interviewed for articles; all they want is to increase the awareness of their brand and sales of their system. Unlike Amazon resellers, the more saturated the reseller market is, the more profit they make.
Those selling coaching services are not too highly regarded in the reseller community, to say the least. They’re guilty of blowing up the spot, making their own quick profit while hurting the businesses of everyone else.
Coaching services aren’t unique to the world of Amazon resellers, they’re everywhere now. Everyone wants to know how they can make a living with little to no effort. These “coaches,” and everyone selling a system, promise that it can be done. They’ll tell you how you make money on Amazon, on YouTube, from blogging, and any other way imaginable.
The dirty secret is that there isn’t an easy way to make a living. Blogging, YouTubing, real estate, and any other cheat codes for making money all require an investment of substantial time, hard work, and/or money. Selling on Amazon is no different; arbitrageurs work really hard, traveling across the country searching for products they can resell for a profit, often sleeping in parking lots hundreds of miles from home.
The life of a reseller
Amazon resellers are required to be mobile, and many drift around the country from store to store, living on the road, chasing opportunities. They comb the country for market inefficiencies; the Amazon Seller app makes most of the decisions, and tells them whether or not a product is worth purchasing.
Resellers who travel more off the beaten path are more successful; they’re looking for stores with older stock, stores that haven’t already been picked through by a different arbitrageur.
They need to have a sharp eye, and predict what people are willing to pay a premium for. Like I mentioned earlier, discontinued, seasonal, and hard-to-get products usually sell for a premium, and that includes some things you’d never think of. Certain dental floss, cat food, old iPhone docks (who still uses an iPhone dock?), and Walmart pajama pants can sell for hundreds of dollars, or more in some cases.
Modern-day gold miners
The phenomenon of Amazon arbitrage is not too different from the gold rushes hundreds of years ago. Like their gold-mining counterparts, Amazon arbitrageurs are on a treasure hunt to find products they can sell easily and quickly for a profit. Some items are in such high demand that they might be worth more than their weight in gold.
Similar to the gold rushes of years gone by, the market is now flooded with people looking to make a quick buck. Not only are there more people than ever panning for gold, there are coaches who will teach you how to pan for gold (for a fee, of course).
Amazon arbitrageurs work as hard, or often harder, than those of us with traditional jobs. They don’t do it because it’s easy; the low barrier to entry and freedom from authority are what’s attracting more and more Americans to the Amazon Marketplace.
A small portion of the population, about 16%, are actively disengaged at work and resent their jobs. That job-hating portion of our population is always looking for new opportunities. The freedom to travel the country going from store to store is an appealing way to make a living, maybe a little too appealing. The Marketplace can only feed so many mouths, and the gold rush will come to an end eventually. In fact, the lucrative days of arbitrage may already be behind us.
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