The Amazon Seller community has been buzzing about the future of retail and online arbitrage over the past few days.  Much of the recent discussion stems from a recent article by Cynthia Stine (author of Suspension Prevention and writes the blog www.onlinesalesstepbystep.com).  You can read the full article here. I will provide some thoughts on this article first, and then will provide some of my thoughts on the future of retail and online arbitrage.

My goal is to share a perspective of someone who still has a significant portion of their business reliant upon retail arbitrage (RA) and online arbitrage (OA).  The picture in the aforementioned post of the truck with the Target cart is actually of a sourcing trip of mine 🙂  I made it the header image for this post today as well.  This was taken after a particularly good sourcing trip in December of 2014.  I wouldn’t recommend trying this today as Target has a policy against resellers in their stores today.

My Thoughts on the Article

The cliff notes version of the article is that it provides some serious doubts about the future of online and retail arbitrage.  If you haven’t already I’d recommend reading through that article first.  If you didn’t check it out from the link above, here it is one more time: https://onlinesalesstepbystep.com/arbitrage.

There have been some comments on posts in Facebook groups questioning the intent of this post, saying that it is creating unnecessary fear, and things along those lines.

I think Cynthia’s intentions with this post are pure, and she is sharing out of the desire to inform the Amazon Seller community based upon her knowledge and experiences.  She has a service that helps Amazon sellers who are suspended work to get reinstated.  With this in mind she is seeing the worst of what is going on with Amazon sellers, and the impact this can have on their businesses.  This is a unique perspective, and these experiences likely skew one towards being overly conservative.

Personally, I would compare this to the way I sometimes feel about my business when I am going through and lowering minimum prices for items in my repricer.  When I am going through this process, I am looking through items that have been in stock longer than I would have liked or the market price has dropped.  However, this is not representative of my full business, as when I look through my orders I am able to see a significant number of items that have sold for my full asking price within days of arriving at Amazon warehouses.  Depending on what I’ve looked at more recently (my repricer or my recent orders) this may impact how I feel about the outlook of my business at a given point in time.  Also, my experiences will significantly impact what I believe is best for myself and others in the future.

My point here is that running a business that helps sellers who have been suspended on Amazon is more likely to lead you to have a conservative outlook when it comes to their policies.  That’s not saying that any info in her article is incorrect, I just like a frame of reference for peoples perspective when I am reading almost anything.

It’s also very important to mention that the entire point of the article is about the future of arbitrage as it relates to Amazon’s seller performance department accepting retail or online receipts as proof for any issue that may arise from your account.  This is the change that the article predicts will be coming.  So I would say the article is about receipts, rather than the future of arbitrage entirely.

There are 2 main points where I am not in agreement with the article.  The first is that the articles recommends, “Sell off your RA/OA inventory as quickly as possible.”

I think that is an extremely risk averse view and is not a prudent move at this point in time.  I will discuss more later in this post.

The other point where I have some skepticism related to the article is that it states a timeline of October for when this policy will be implemented.  I think that it’s very possible that this type of change could happen at some point in the future, but putting a specific timeline is a difficult thing to do.  It’s possible it could happen in October this year, or several years down the road.

Amazon’s number one priority as always is serving their customers the best way possible.  The reason for implementing a change to their policies related to receipts would be as a result of seeing an increase in dissatisfied customers related to orders where customers are not receiving items that met their expectations.

I believe that is happening to some extent today as Amazon has been tightening up restrictions on sellers continually over the years.  This includes category’s requiring approval, brand restrictions, among other measures.  The point is that Amazon will do what they believe is necessary to remedy any issues that are causing problems for their customers.

With that said, it’s also possible that different divisions within Amazon may have different ways they believe would address the issue and not be in full communication.  So it’s difficult to say what timeline this type of change would take effect.

While I don’t agree with everything in the blog post, I appreciate the perspective it offers.  Ultimately, I believe this article should be used as an opportunity to assess the risk in your business.  That doesn’t mean you will be required to change anything, but I believe considering the risks in your business to be at an absolute minimum a good thought exercise.  It might lead you to diversify your sourcing methods, diversify the platforms you sell on, or it might lead you to no change at all.

As someone who has been suspended from selling on Amazon, I regularly take some time to consider the risks that exist in my business.  I urge you to do the same, and this article is a good time to think about it.

When do Receipts actually come into play? 

Receipts are the key issue in the article, so let’s take a look at when they come into play.

In the event that a customer experiences a significant issue with an item that you sold, you will likely receive an email with a subject line like this: Action Required: Listing Removed from Amazon.  The email will then outline the details of what the issue was with the specific product.  The 2 that I have seen are “used sold as new” and “inauthentic.”

In the event that you receive a notification like that you will have to provide proof that the item was purchased from a legitimate supplier to prove authenticity.  If Amazon was to make a change and no longer accept retail receipts, then if you sourced an item that you received a complaint on, you would not have a method for getting your listing reinstated.  More importantly, you wouldn’t have a way to resolve the complaint from your account.  It’s difficult to say how many of these Amazon will tolerate, but it’s best not to push the limits.  Too many would seem to be a sure path to a suspension.

So that sounds kind of scary, but let’s take a look at how often these notifications come into play.

Personally on my account I have sold over 25,000 items so far in 2016, and have received exactly 1 inauthentic claim in 2016.  This might not be representative of everyone who sells on Amazon, but the point is this a very rare occurrence for my business.  Feel free to share your ratio of seller performance notifications to number of orders in the comments.

For me when percentage of items I receive notifications on are this small, I think it really comes down to a risk/reward analysis.  We’ll get more into that later in the post.

Thoughts on the future of Retail and Online Arbitrage 

I have been selling on Amazon since 2008, and full time since September of 2013.  Retail and online arbitrage have been primary sourcing methods for me the entire time I have been full time.  I have been asked multiple times to do a post on some of the changes I have seen to RA and OA over the years, as well as what I see as the future, so I will be incorporating a discussion of that into this post.

Over the years there have definitely been changes.  Certain stores (like Target among many others) are implementing policies against resellers.  Carts like this will no longer be possible:

Amazon has continually been tightening up their guidelines on what products can be sold.  Most recently they are requiring approval for Adidas products in the sports category, and Jordan products in the shoe category.  There have been many more ASIN and brand level restrictions over the past few years, and more so over the past few months.  Most likely this type of restriction will continue in the future as well.

Another major change over the past few years is the number of new sellers.  It’s not uncommon to see 100+ sellers on widely available popular products.  Items that go on clearance nationwide at major retailers often see a significant increase in the number of sellers, and a resulting decrease in the selling price on Amazon.  With all of these new sellers has come an abundance of service providers.  There is a service to help with just about any aspect of your Amazon business at this point.

Those are a few of the major changes and impacts I have seen.

Now, in terms of going forward, here’s what I see with retail and online arbitrage:

I believe that retail and online arbitrage are here to stay in some capacity.  That’s not to say that they won’t become more difficult, or that Amazon won’t issue more restrictions in the future, but I don’t see them going away entirely.

In order to completely end retail and online arbitrage, Amazon would have to begin requiring sellers to obtain approval letters from every company for every product that is sold on the platform.  Unless there is this level of restriction in place, then retail and online arbitrage will be possible on Amazon.

Even in light of a potential change in the way that seller performance deals with receipts, this does not mean that retail or online arbitrage are dead.  If they put this type of policy in place, it would make RA and OA riskier, but it doesn’t put an end to them entirely.  As discussed above, I’ve only had one issue where I would need to provide receipts in all of 2016.  This is an extremely small percentage of items.   This means that for the extreme majority of items sourced via RA and OA, it won’t even come into consideration.  If a change does happen, there’s no doubt it adds risk, but it’s just a matter of deciding how to assess that risk in my opinion.

I believe Amazon will continue to tighten up their requirements for sourcing products, and will continue to add approval requirements for specific products and brands.  I think that at some point in the future it’s possible that RA and OA receipts will no longer serve as proof for inauthentic claims.  I think that the change will take some time to roll out, and probably won’t be universally rolled out across the board immediately.

Ultimately, I don’t see RA or OA going away anytime soon.  Creative and skilled sellers will be able to make these sourcing methods work for a long time.

I think what’s most important is evaluating the risk that exists in RA / OA and then weighing those against the rewards.  Make a decision on what risk / reward ratio you are willing to accept, and then focus on the necessary actions to put that decision into place.

Below I will get into a few of the different decisions I believe you could come to after performing a risk analysis on RA / OA.   These will assume that you have a significant portion of your inventory that was sourced via RA and/or OA, and these are your primary sourcing methods today.

Where you fall on this spectrum will largely depend on your analysis of the discussion throughout this post, as well as where you believe Amazon will go in the future.

Risk Profiles 

Extremely Risk Averse – Immediately remove all inventory that has been sourced via retail and online arbitrage, and stop sourcing any new products via RA or OA.

Risk Averse – Stop sourcing all new RA / OA and begin to shift to purchasing inventory via other sourcing methods such as wholesale.  

Calculated Risk  –  Keep sourcing RA / OA, while monitoring Amazon’s changes.  Keep 2 to 3 months inventory in stock at a given point in time to be able to adjust if a change comes through the pipeline.  Don’t make any drastic changes to your business at this point in time. 

Ignore Risk  –  Keep sourcing RA /OA as you do today, and plan to continue these methods until retirement or you are suspended.  Essentially, you’ve picked your path and will not deviate no matter what changes are made by Amazon.  

My plan is to follow what I have classified as the calculated risk strategy.  I plan to continue sourcing via retail and online arbitrage.  I will keep my existing purchasing guidelines which are designed to turnover my entire inventory within 90 days.  This will allow me to adjust relatively quickly if a change comes through the pipeline from Amazon.

For the retail and online sourcing that I will be doing (and this has been the way I have been operating for over a year) I will be extremely selective on what types of receipts I receive from the retailer.  For the receipts I require that they have either the UPC or the exact name of the product on the receipt.  Essentially, I won’t be sourcing from anywhere that has very generic terms on the receipts that make it very difficult to determine which line item relates to each item.  Above and beyond the proof that comes from the receipt, I will be making sure that I do everything in my power to make sure that the item arrives exactly as the customer expects it.  That means that I diligently have my team and anyone who is working with products carefully inspect for any issue prior to sending to FBA warehouses.  If there is any doubt at all in our minds as to whether a product is in new condition, then we will not list it as new on Amazon.

I will be paying close attention to what Amazon is doing from the network of people that I know who sell on Amazon, as well as keeping an eye on what is going on in the Facebook groups.  Until there is a definitive way that Amazon is handling things, I won’t be making drastic changes to my sourcing methodologies.

I will also be dedicating time to expanding the wholesale sourcing that my business does.  I think that wholesale sourcing is one of the safest methods for the long term.  I want my business to be able to continuing operating for a long time, so I believe that increasing the amount that I purchase wholesale will be very important to this in the future.

With that said the profit potential of online and retail arbitrage are very significant, and in my opinion this justifies taking on some additional risk.

KEY TAKEAWAYS: 

The #1 takeaway for me is that it’s essential to play by Amazon’s rules. They change things from time to time and when that happens it may require adjustments.  With any change they are making it’s important to consider the direction Amazon is going, and determine how you fit into that puzzle.

Second, assess your risk and make sure you understand / are ok with it. Run through different scenarios.  Consider what the worst case scenarios are. Make a decision and then act upon it.  Focus upon what is actionable and in your control.

Ultimately, based on the information that I have available to me I plan to continue sourcing via retail and online arbitrage.  I have assessed all of the risks that I can think of, weighed them against the rewards, and believe that the risk / reward ratio justifies continuing on with RA and OA.

There’s a quote I heard recently by Mark Andreessen, “Strong opinions, loosely held.”  I think that applies to this business, and at this time, I believe continuing RA and OA are the right choices for my business.  With that said, if information to the contrary surfaces that indicates that I am not on the right path, I am willing to drop that opinion and switch things up.

To be perfectly clear, these are my thoughts on the topic, and not recommendations for what everyone else should do.  The recommendation that I will make is to consider all of the risks, and rewards of selling on Amazon utilizing either RA or OA.  Then run through scenarios to see what you believe is the most likely, what let’s you sleep at night, what helps you reach your goals, etc.  Really ask yourself some of these tough questions and come up with what you believe is right for you.

I’m almost 3,000 words in at this point, so we’ll close up this post for today.  I’d be happy to keep the conversation going, and  I’d love to hear your thoughts on the future of retail and online arbitrage.  If you have thoughts or questions about those topics or anything else I touched on in this post, please let me know in the comments below!