Amazon FBA: Retail Arbitrage vs. Private Label
So, private label or retail arb. Which one is right for you?
Let’s find out. Hey welcome back for another episode of The Bootstrap Boutique, I am happy you’re here.
Today I just wanted to cover some of the very high level differences between selling private label vs selling retail arbitrage.
If those things don’t make sense to you, I’m going to link up another video I did talking about the difference between private label and retail arbitrage as far as what do they mean.
And just to be clear, this isn’t saying that you can only do one or the other, because you can absolutely sell both on Amazon, its just that most people are going to go one way or the other.
So let’s recap.
What is Retail Arbitrage?
Lets start with arbitrage. Arbitrage means buying something in one market for one price and selling it in another market for a different price. And an arbitrage person is going to make the spread between those two markets. So you always want to make sure that you are buying low and selling high. Makes sense.
Retail arbitrage means that you are buying products from a retail store. Maybe you’re going to CVS and scooping out their clearance section. Maybe you’re going to Wal-Mart or a store that is liquidating, either locally or online. You can buy liquidation lots online.
So you are buying from a retail location and you are selling online at Amazon. That is retail arbitrage in a nut shell.
What is Private Label?
Private label is also sometimes called white label and that means that you are taking a product and you are putting your logo on it, so you are branding that product. Again, it’s more involved than that but we’re going to keep it very high level today.
Retail Arbitrage vs. Private Label?
What are the differences between retail arbitrage and private label and why should you choose one over the other?
There’s no answers here, it’s all going to depend on your situation but I hope that this will help you decide.
One of the big benefits that I see to retail arbitrage is a relatively low cost to get started. You can go into a CVS, into a Target, into a Wal-Mart, a Walgreens whatever and buy something very cheap that you can sell on Amazon. That means that your cost of capital that you put into a product is very low.
Now you may not make a big spread on that, you may buy something for 5 dollars and sell it for 10, and then of course you’ve got your seller fees and everything that’s going to cut into that 5 dollar profit margin, however, you only have 5 dollars into the product.
So if you don’t have a lot of money, if you just want to test the waters, that is a great way to get started.
You may decide that you really like retail arbitrage and that’s just what you want to do, or you may use that money to fund a private label product down the road.
Another great benefit to retail arbitrage is that you don’t have to create anything. You go out and you’re buying products that already exist on the marketplace. So you didn’t have to go through all the work of creating that widget because it’s already there and you’re just going to buy it and resell it on Amazon.
Also you can assume that there is already a market for that widget. Because big box stores, they don’t get it right every time but they have a huge database of knowledge to pull from when they are making buying decisions on products.
Now one of the big downsides to retail arbitrage is something that I just said. There is already the product there. So not just are you buying it, but other people are buying it and selling it on Amazon.
And that means that you have to compete for what is called the buy box.
Another downside to retail arbitrage is that you just kind of taking what you’re given. So you can’t necessarily keep going back to the same well to get more of the same product because it’s going to depend on what’s out there in the market place that you can buy.
So you are always having to replenish your stock on the retail arbitrage side. There are some costs involved to starting retail arbitrage too.
You need some money to invest in your inventory or your stock, sometimes people use repricer software, which helps them to keep the lowest price in relation to who else is selling the same product on Amazon. Because remember you’re not going to be the only seller on that product.
There’s also labeling cost, shipping costs, packing costs, all the things that it takes to get your product physically into the Amazon warehouse.
So that’s a very high level overview of retail arbitrage.
And now let’s talk about Private Label. Private label means again that its a product that you are creating and putting your logo on and you are selling it as the manufacturer.
Private label can be very expensive. You can expect to spend a few thousand dollars getting something off the ground. You don’t have to, there are cheaper ways to do it, but from what I’ve seen, a lot of people online look like they are spending at least a couple thousand bucks.
However, once you get through the launch phase, if you have a good relationship with your supplier, you can go back to that well time and time again and just reorder the same thing and continue to sell it on Amazon. Also, in theory, there is less competition on a product because as the manufacturer, you are the only one that can sell that particular thing. That doesn’t mean you’re the only person selling a spatula on Amazon, not even close, but that particular spatula, that particular model, you should be the only one selling it as the manufacturer of that product.
Private Label is also very attractive if you’ve ever wanted to create something. If you’ve even been using a product and you thought, “it would be way better if it could do this” you can work with a manufacturer and create that.
The downside of that and obviously what is opposite of retail arbitrage is that if you go and create something totally new, there may not be a market for it. And that is something that you may not know until you’ve got the product here, ready to go.
Another benefit to private label is that it can be much more profitable. Because you’re not competing with other sellers and trying to have the lowest price and other factors to win the buy box, you can pretty much set your price. You do still need to remain competitive with other people in your category, but for your specific product you can sell it for, I guess whatever you want really.
So in theory your profit margins on private label products should be much better.
Finally private label gives you the opportunity to build a brand. You can build product and brand awareness in the market place and take that to channels that are not Amazon.
You could build your own ecommerce site, you could sell into brick and mortar retail stores in your area, there’s a lot more that you can do with Private Label if you have a long term mindset that retail arbitrage you’re not going to have the opportunities to do.
So which one is better, Private Label or Retail Arbitrage? Like I said, there’s no answers here because there is so much that is dependent on your individual situation. And the good news is that you don’t have to choose one, you can try both and see how you like them. See which fits better with your lifestyle.
But here is what you do have to do. You have to make a decision to start.
So like we said last week, what is the one thing that you can do today to get started on this journey?
Write it down and go do that thing. Hey thanks so much for watching again this week. Would appreciate a thumbs up on the video if it gave you something to think about. And down in the comments below tell me what do you prefer? Private label or retail arbitrage? You can give a reason if you want, or not because like I said there’s no wrong answers and I will see you next week. Thanks guys, take care!