Guess what … if your products are on Amazon then someone is representing your brand on Amazon. Have you made a conscious decision regarding who and how your brand will be represented? Have you ever wondered who is selling your products on Amazon? Do you have sellers selling your products and have no idea how they actually got the products? There are a lot of shady characters that sell on Amazon and I’m going to tell you how they get your products and why you DON’T want them to be representing your brand.
Retail Arbitrage (RA)
Did you know that there are tens if not hundreds of thousands of people and some VERY big businesses whose business model is going into retail stores, buying products, and shipping into Amazon fulfillment centers thereby making them available to Amazon Prime customers via FBA? It’s true. The model is called Retail Arbitrage and it’s actually very lucrative.
But why would someone buy shoes for $90 on Amazon when they can buy the same shoes for $30 at Marshalls? Because people LOVE Amazon and they love Amazon Prime 2-day shipping. Effective RA buyers and companies will make their purchases using gift cards that can be bought at Raise.com, Giftcardgranny.com, Cardcash.com or any of the other gift card marketplaces. As of writing this, it’s possible to buy a $100 Target gift card for $86 which for an RA buyer means a 14% reduction in their cost of goods. Layer that on a 5% cash back Target credit card and whatever seasonal sale Target is running and it becomes easy to find profitable products for arbitrage.
RA buyers scan barcodes of products using apps that will check the price of the same product on Amazon down to even the size and style of a particular type of shoe. Shopify is one of the dominant apps for this purpose but there are several out there. The apps will also tell the buyer the number of sellers, Amazon sales rank, number of reviews, and potential ROI if they were to buy the product and sell it on Amazon.
I will tie this all together at the end but as a mid-article summary, as a brand owner, you DO NOT want RA buyers representing your brand on Amazon. Not because what they are doing is wrong or illegal but because they have absolutely no incentive to protect your brand or increase sales of the brand. They have no long-term view of the products and brands they carry. On the contrary, selling through product as fast as possible is the name of the game for RA and since tomorrow they will be buying totally different products, it doesn’t matter to them if they cause heavy downward pressure on prices in the interest of selling through and recovering their capital for the next round of RA.
Online Arbitrage (OA)
Buyers that utilize Online Arbitrage (OA) as a method of sourcing buy products online and have them shipped to Amazon fulfillment centers so they become available to Amazon Prime customers via Fulfillment By Amazon (FBA). Like RA, OA buyers have their own set of tools to make their product sourcing as efficient as possible. These days, buyers will use tools like Tactical Arbitrage to scour websites and check thousands of products per hour against Amazon prices to find the ones that will be profitable flip opportunities. OA buyers also stack discounts of gift cards, sales, cash back credit cards, and even cash back sites like ebates.com or activejunky.com. These cash back sites offer a certain percentage of cash back if the buyer clicks through their site first. So for instance, as of writing this, I can get 12% off of a purchase at Moosejaw if I click through Active Junky first. Active Junky tracks the purchase and pays out the funds once the order is completed. This is ok when buying one or two items for personal use but is crucial to an OA buyer’s profitability when purchasing several thousand dollars worth of product.
Where is value created?
Arbitrage (both RA and OA) creates value
One way to think about the value provided by RA and OA is that the value is provided TO the end consumers AT THE EXPENSE of the brands. RA and OA provide very little if any value to the brands and I would even argue they detract from a brand’s presence on Amazon. RA and OA buyers generally do not adhere to MAP (minimum advertised price) policies, and usually set repricing rules to price $0.01 below the lowest current price thereby causing price depreciation. Furthermore, if there is an issue with a listing on Amazon, an OA or RA buyer will simply stop selling that product and move on to others. There is no incentive for them to fix listings by improving images, writing better copy, or reuniting parent/child listings that have become separated.
The Amazon marketplace is a jungle. We have talked with many companies that claim that they do not sell on Amazon and do not sell to companies that sell on Amazon and yet their products are all over Amazon (with very sub-par listings and lackluster sales) thanks to the retail and online arbitrageurs that spend their days scouring the world and finding profitable products to sell on Amazon. Make no mistake, you cannot decide that your products will not be sold on Amazon. There is no way to prevent your products from being sold there. Avoiding the Amazon issue is the same as making the decision to leave your brand’s reputation up to a bunch of people and companies that don’t care about your brand. The first decision that you need to make in regards to Amazon is that YOU will represent your own brand.