Over the past few weeks I’ve made several clearance arbitrage scouting trips. After hearing about this side hustle for the past year and some of the success my friends and peers are having with it, I had to give it a shot!
Upon opening it, I learned an Amazon Seller account was required to run it, so I created a free Amazon Seller account.
(I later upgraded to a “Professional” Seller account, for $39.99 a month after a 1-month free trial, but started out with just the free one.)
Armed with my iPhone, I took to the aisles!
My first stop was Walgreens. I found a few items, including this dancing Groot toy from Guardians of the Galaxy.
It was on sale for $3.79, and the barcode scan indicated my estimated gross proceeds would be $12.41. It also had great ratings and a low sales rank in the Toys category. Unfortunately this was the only one they had, otherwise I would have bought the whole stock!
Many of the items I scanned were shown as “restricted” in the app; meaning I couldn’t sell them. I learned later that certain categories, like Automotive and Beauty, require a special application (and a Professional Seller account) to list those items.
I also hit up:
- OSH (local hardware store)
- Radio Shack
- Big Lots
- Office Depot
Radio Shack, CVS, Office Depot, Big Lots, and Safeway were busts, but I did find a few items at each of the other places.
In total, I spent 5-6 hours shopping and spent about $300 so far.
Scanning is a little awkward at first, especially at smaller stores with employees watching. But it was also strangely addicting. Like a little treasure hunt.
In “real life,” I spend very little time shopping. Like, almost never aside from the grocery store.
I don’t buy much and what I do buy, I usually just order from Amazon. So for me, there’s going to be a learning curve in each location to find where the clearance items are generally found and what to look for.
I knew from reading posts like Travis’ that it would take a lot of scanning to find profitable items, but in practice that was more depressing than anticipated.
To leave a store empty-handed after 45 minutes felt like a big waste of time.
Amazon FBA Arbitrage Purchase Criteria
Being a total rookie at this, I didn’t know what exactly I was looking for. I knew that basically I was looking for a healthy spread between my purchase price locally and the “net proceeds” of the item on Amazon (after seller fees).
The other consideration I took into account was the size and weight of the item, reasoning that big and bulky products would be more costly to ship into the warehouse and cut into my margins.
In general, I looked for items that were marked down at least 50% and had estimated profits of $5 or more. If I felt particularly confident about an item, I’d buy two or three.
Getting Gun Shy
I scanned a couple items that looked like winners, but I didn’t end up purchasing for one reason or another. In one case, the packaging was so beat up I wasn’t sure if Amazon (or the end customer) would accept it as “new.”
In another case, a product appeared to have a great spread between the in-store price and the Amazon price, but it had horrible customer reviews. I got freaked out that no one would buy a 1-star rated product and it would just sit in the warehouse.
FBA sellers, do you let the condition of the packaging or the reviews come into consideration on your scouting trips?
What other criteria do you use?
What I Bought to Resell on Amazon
I ended up with mostly toys and some electronics and accessories. Here’s my first shipment I sent off to Amazon:
Want to know what else is crazy? That 10 pound box only cost $8.56 to ship across the country using Amazon’s discounted UPS rates.
One frustrating thing I didn’t really anticipate was when entering in my items in my Seller account was they wanted items shipped to several different warehouses across the country. I guess I knew they had distribution centers all over the place, but for some reason thought I would be able to send all my stuff to one location.
My current game plan is to batch as many items as I can into each shipment to spread the shipping cost across the inventory.
The cool thing is they deduct the super-cheap shipping charges directly from your account so you’re not pulling out your credit card for each box.
Entering the inventory into Amazon’s system and creating the shipments also took some time to learn, since I’d never done it before. They’ll throw unfamiliar terms and requirements at you at every corner, and you just have to push through.
For instance, a couple of the items apparently needed special labeling. A few clicks later and I found the option for Amazon to do this for me for like $0.20 an item. Not worth worrying about at this point.
Other Doubts and Risks About Amazon Arbitrage
My analytical brain has a hard time with this side hustle.
If these products are such a good deal, how come the store hasn’t been able to sell them? How have the employees who work there not heard of this business yet? How long can this last?
And what about the stores themselves? Walmart isn’t stupid. They know we’re coming in and doing this.
On the risk side, the $300 I spent is the most physical “inventory” I’ve had since my painting days. Everything else has been digital!
Inventory risk is the idea of “tying up” your money in stuff and then having it sit around a long time before selling or potentially lose value. Amazon does charge a nominal storage fee for warehousing your items, so you want to try and pick out stuff that will sell relatively quickly.
Amazon FBA Tax Notes
If you want to give this a shot, be sure to save your receipts. Otherwise it can be hard to claim a deduction for stuff you bought at Walmart/Target.
Also be sure to keep track of your mileage to and from the stores. (This can be a great tax-saving hack if you’re already making a trip nearby; just stop in and do some FBA scanning.)
My First Amazon FBA Clearance Arbitrage Sales
It took about a week for my first shipment to make it to Amazon’s warehouse. They inventoried the items late on Thursday or early on Friday.
Saturday morning, I pulled out my phone to check and see if anything sold, and was pleasantly surprised to see this:
Whoa! $221 in 1 day! Granted, only a small bit of that is profit, but it was still really encouraging to see.
- 2 Trolling Motor Adapters (no idea what these are even for): Bought for $7 each and sold for $15 apiece.
- The BodyMedia armband thingy pictured above: Bought for $69 and sold for $115.
- The vTech MobiGo2 thingy pictured above: Bought for $15 and sold for $34.
- The Drax figure from Guardians of the Galaxy, pictured above: Bought for $15 and sold for $28.
- A dinosaur pattern Boppy slipcover: Bought for $10.99 and sold for $14.99.
That last one was an “oops” — either me making a rookie mistake or the cashier ringing me up at the wrong price. I’ll blame the cashier :)
Why was it an oops? Because you don’t keep 100% of the sales price; Amazon still has to take their cut.
On that Boppy slipcover, the fee was $4.92. Definitely went backward on that sale.
It’s something I have to be smarter about when considering these purchases. Or double-checking my receipts before walking away.
Estimated “profit” from the first day of sales: $50.
Actually it’s a little less if I calculate in the lovely California state sales tax and allocate a portion of the shipping costs to those items. But hey, taking action and learning along the way.
I’ve got more inventory on the way from my first shopping trips, and as I get better at this, I suspect my equivalent hourly rate will improve considerably.
Maximize Your Spending
One easy to way improve your margins is to take strategic advantage of credit card rewards. Most cards will earn 1-5% cash back, but you can bump that up to 15-30% or more with certain sign-up bonuses.
I put together a free course on how it all works here: Credit Card Rewards 101: How to Earn Free Cash and Travel by Spending Smarter.
Goals for this Side Hustle
My first goal was to buy $100 worth of stuff to ship off to FBA, and to make my first sales. I can officially cross that off!
The next stage would be to see if this is something I enjoy doing (so far it is, but admittedly I’m still in the honeymoon phase). If it could turn into a $100/week side hustle, it would more or less cover our grocery expenses.
I like to frame these mini business experiments along those lines because it makes them more tangible, like “we’re eating free this month thanks to Amazon FBA.”
Want more retail arbitrage goodness? Check out the podcast episodes I did with Travis Scott and Assad Siddiqi. Assad in particular has taken this hustle to an entirely new level, including sourcing products online and outsourcing his packaging and labeling.
Have you tried this yet? I found it super simple to get started, but does require some upfront investment that’s somewhat speculative.
Pin it for later:
(Walmart image credit)