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Difference Between Online Arbitrage and Retail Arbitrage

Every so often, traders are on the lookout for assets or products that can be resold to make a profit. Arbitrage, the purchase and sale of products or asset and profit from the difference in the asset prices is a common practice in the market. The trend exploits the price differences between similar items in different forms or markets. If all markets were efficient, arbitrage would not exist. While arbitrage has been practiced since ages ago, technological advancements have eased this with many traders now using computerized trading systems to monitor changes in similar markets. 

For arbitrage to be successful, it requires:

  • Quick and accurate information
  • Quick buying and selling
  • Low transactional costs when purchasing an asset
  • Low transactional cost in the exchange of currency

In this article, we will look at the difference between online arbitrage and retail arbitrage. 

Online arbitrage

This is the process of purchasing products from one online retailer and selling it for a profit in a different marketplace. This opportunity exists because of price fluctuations between the market and retailers. Sellers can spot pricing disparities across online establishments and the market, with even e-commerce platforms using online arbitrage when low on stock. 

To maximize online arbitrage, retailers often use 

  • Rank and price history tools
  • Product sourcing tools
  • Dropshipping automation tools
  • Repricing tools

Advantages of online arbitrage include: 

  • Products are shipped at a person’s convenience
  • It offers convenience as it is purely an online process
  • Sellers can order higher quantities of items than those found at retail shelves
  • It is easy to scale

Despite the advantages, online arbitrage has various disadvantages

  • The sourcing process can be overwhelming as there are many stores that sellers can source from
  • Prices can change on online retail stores such as Amazon even before you receive the products
  • It has lower profit margins

Retail arbitrage

This is the practice of buying products from one market and reselling it to a different market at higher prices. Sellers often buy the products in bulk from retail stores. Most times, the products are usually heavily discounted or on clearance which makes it ideal for a good mark-up. 

Advantages e of online arbitrage include:

  • It is easy to carry out as there are no restrictions
  • Sellers do not need to invest heavily in marketing as they can leverage a brands popularity and power
  • Sellers can get quick profits from the resale

On the other hand, the disadvantages include:

  • It can negatively impact a brand especially when it comes to changes in pricing
  • Retailers may have supply chain problems as they rely on other retailers for their supply chain
  • The inconsistencies in the inventory may limit their businesses
  • Retailers have limited control over profit margins
  • It is a time-consuming practise as it takes time to make a decent revenue
  • Since retailers focus on a single product category, they may not be able to build and maintain a loyal customer base

Similarities between Online arbitrage and Retail arbitrage

  • Both involve the purchase and resale of products to make a profit

Differences between Online arbitrage and Retail arbitrage

Definition

Online arbitrage refers to the process of purchasing products from one online retailer and selling it for a profit in a different marketplace. On the other hand, retail arbitrage refers to the practice of buying products from one market and reselling it to a different market at higher prices.

Platform

While online arbitrage entails the purchase of products from other online retailers, retail arbitrage entails the purchase of products from other physical retailers. 

Convenience

Online arbitrage offers convenience as well as minimizing logistic costs seeing that goods can be delivered to one’s location. On the other hand, retail arbitrage does not offer convenience as buyers have to visit physical shop locations. 

Online arbitrage vs. Retail arbitrage: Comparison Table

Summary of Online arbitrage vs. Retail arbitrage

Online arbitrage refers to the process of purchasing products from one online retailer and selling it for a profit in a different marketplace. On the other hand, retail arbitrage refers to the practice of buying products from one market and reselling it to a different market at higher prices.

While online arbitrage offers convenience as well as minimizing logistic costs seeing that goods can be delivered to one’s location, retail arbitrage does not offer convenience as buyers have to visit physical shop locations. However, the choice of online arbitrage vs. retail arbitrage will depend on the resellers’ preferences and their needs. 

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References :


[0]John Navarro. Retail Arbitrage 101. Shh Publishing, 2015.https://books.google.co.ke/books?id=zecBCwAAQBAJ&pg=PT4&dq=Difference+between+online+arbitrage+and+retail+arbitrage&hl=en&sa=X&ved=2ahUKEwjY_9yG6L_tAhUy5OAKHWfEDLMQ6AEwCHoECAkQAg#v=onepage&q=Difference%20between%20online%20arbitrage%20and%20retail%20arbitrage&f=false

[1]Liam S. Parker. Selling on Amazon: Unlocking the Secrets to Successfully Generate a Long-Term Passive Income Business by Selling on Amazon. Isaac Cruz, 2018.https://books.google.co.ke/books?id=GZySDwAAQBAJ&pg=PT10&dq=Difference+between+online+arbitrage+and+retail+arbitrage&hl=en&sa=X&ved=2ahUKEwjY_9yG6L_tAhUy5OAKHWfEDLMQ6AEwBnoECAYQAg#v=onepage&q=Difference%20between%20online%20arbitrage%20and%20retail%20arbitrage&f=false

[2]John Navarro. Retail Arbitrage 101. Shh Publishing, 2015.https://books.google.co.ke/books?id=zecBCwAAQBAJ&pg=PT3&dq=retail+arbitrage&hl=en&sa=X&ved=2ahUKEwiEh7HQ6r_tAhWQ0eAKHWKTDrQQ6AEwAHoECAQQAg#v=onepage&q=retail%20arbitrage&f=false

[3]Image credit: https://pixabay.com/photos/ecommerce-selling-online-2140603/

[4]Image credit: https://pixabay.com/photos/shopping-business-retail-2613984/

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