Did you hear that Target has banned resellers? Do you know why? I’m going to give you the scoop, as well as explain why JD and I walked away from retail arbitrage completely this year and why we’ll never go back.
What I have to say may be controversial for some, but I’m cool with that.
When JD and I started our FBA business we did what everyone else was doing: we bought items priced low at retailers and we sold them for a profit.
We made money. In fourth quarter, we made a lot of money.
But, at the end of the year we looked at each other and said, “This is not us. This is not who we are. This is a terrible business model for us.”
I’ll explain more in just a second. But, first…
Target Bans Resellers (& so do lots of other stores)
It seems some of our reselling brethren stormed Target, buying up Lilly Pulitzer and trying to resell it at completely insane prices.
Moving forward, Target will no longer accept your retail tax exempt ID and if you buy too many (whatever that trigger may be) of one thing either in the store or online, you’ll be refused.
Target’s TOS has this to say, “Target reserves the right to prohibit purchases of any merchandise to resellers. Resellers are defined as a company or an individual that purchases goods with the intention of selling them rather than using them.”
Kohl’s has made a similar proclamation this year as well. How long until other stores follow?
Why Does Target Care?
If you know anything about retail, you are familiar with loss leaders. Grocery stores and retail stores drop prices on items to engage shoppers and bring them into the store or website so they’ll buy more of other items at full price. The retailer makes next to nothing on those “loss leader” products, most often even losing money.
It’s a strategy that works… until a reseller shows up. Resellers buy those low priced items in bulk and that’s where the process stops. Now with all the loss leaders snatched up, the retailer has lost money and the customers they were hoping for are lost.
I’ve heard a lot of resellers say things like, “They should be glad to get our money.” The truth is, we cost them money. Why would anyone be happy about that?
I’ll compare it to being an Amazon seller and watching another seller come in and drop their price so low that a race to the bottom begins. Very often when that happens you’ll lose money just to get out and move onto another product. It’s frustrating, right? You aren’t “happy to get that money.” You’re bummed that you had to lose money.
Same kind of pain, in my opinion.
Why JD & I Stopped Retail Arbitrage
1. The competition on Amazon is ridiculous. No matter how great the arbitrage deal, you can bet your behind countless other sellers snapped up the same deal.
2. The market will eventually correct itself. We enjoy a free market economy. Maybe you can flip a widget you bought for $1 for $50… for a bit. But, you can’t sustain that over time. Competition drives the price down, as it should.
3. We felt like jerks. Yep. Total jerks. Buying 20 Frozen dolls last year for resale meant that we made money. However. we always felt like our choices could have kept a little girl whose parents couldn’t afford Amazon prices from getting the doll she wanted. Some will say, “tough cookies.” Business is business. And, they’d be right. But, it’s not OUR business.
If not arbitrage, then what?
For us, we believe the future of Amazon selling success lies in these three things:
Wholesale (Or liquidation)
We’ve tested all three this year, and have settled on a business model that will utilize all of them combined. That’s where we’re headed.
Maybe you’ll stick with retail arbitrage, and that’s fine. I’ll wish you every success. I have no doubt there is still a ton of money to be made there. You’ll be glad to know you’ll have just a bit less competition as JD and I back away. 🙂
Resources That Will Help You Succeed:
Learn how to shop liquidation stores for products you can resell. The prices are often so low you can make money without going deep or battling the fluctuating Amazon marketplace for too long. You can never go wrong when you learn from Jessica and Cliff Larrew of The Selling Family.
Debra will teach you the exact process she uses to create bundles that sell. She’ll show you the who, what, when and where so that you’ll be able to do your research and come up with great bundles that serve Amazon’s customers well, and help you avoid the race to the bottom.
What about you & your FBA business?
How is your Amazon FBA business doing? What changes, if any, will you make to the way you source products? Do the new slaps on the hand from major retailers scare you? We’d love to hear what you think.