202: The State Of Online And Retail Arbitrage On Amazon With Nate McCallister

Podcast: Download (Duration: 51:54 — 71.6MB)

Online arbitrage on Amazon means buying products from other websites at a lower price than they sell for on Amazon, then reselling them on existing Amazon listings. Retail arbitrage is the same thing done by walking into physical stores and scanning barcodes to compare prices.

Nate McCallister sells on Amazon, runs EntreResource.com, and built the software tool Storefront Stalker. He started by scanning things around his house, sold a duplicate book for about a dollar in profit, and scaled to the point where arbitrage income exceeded his day job.

This episode covers the minimum margins worth accepting, why sales rank is a poor measure of sales velocity, brand gating and category restrictions, buy box competition, and Nate’s honest assessment that the model gets harder every year.

A note on timing: Amazon has continued tightening restrictions on arbitrage sellers since this conversation, with more brands gated and more documentation required. The mechanics described here still explain how the model works, and anyone starting today should expect the restrictions to be considerably tighter.

Key takeaways

• Set a minimum of roughly $4 net profit and 25% ROI per item. Anything thinner leaves no room for price movement.
• Sales rank reflects a single point in time, not sustained velocity. Use price and sales history charts instead.
• Assume you are overestimating the selling price before every purchase, and look for the reason a deal is bad.
• Never dropship on Amazon from a third-party retailer. Cancellations from supplier stockouts will suspend your account.
• Many popular brands are gated and cannot be sold. Scanning apps flag restrictions before you buy.
• Arbitrage needs almost no starting capital, which is its main advantage over private label.
• Reviews and advertising do not matter in arbitrage, because you buy into listings that already sell.
• Arbitrage leads are short-lived. There is no equivalent of an evergreen private label product.

What is the difference between retail and online arbitrage?

Retail arbitrage means walking into physical stores and scanning barcodes to find products selling for more on Amazon. Online arbitrage is the same comparison done against other websites instead of physical shelves.

The scanning tools do the arithmetic. Amazon’s own app scans barcodes for free, and paid tools like Scan Power and Inventory Lab add sales rank, fee calculations, and historical price data from Keepa and CamelCamelCamel.

Online arbitrage removes the travel entirely. Prep centers add another layer, receiving your purchases and forwarding them to Amazon, so you may never physically handle the products except returns.

Should you dropship from retail websites to Amazon?

No. Fulfilling Amazon orders by purchasing from a third-party retailer at the moment of sale is high risk and Nate does not recommend it under any circumstances.

The failure mode is supplier stockouts. When the source runs out, sellers cancel the Amazon order rather than absorb a loss buying at full price elsewhere, and cancellations damage your account quickly.

At scale this becomes inevitable rather than occasional. Enough cancellations will end your selling privileges.

Dropshipping itself is fine on platforms you control. Running it through your own Shopify store means a cancelled order does not threaten your entire business.

What margins should you accept in arbitrage?

Nate targets a minimum of $4 net profit per item and 25% ROI, weighing both rather than either alone. Sellers with more capital sometimes accept 10% to 15%, and others refuse anything below 40% or 50%.

His early mistake was buying anything that showed a dollar of profit after fees. That leaves no wiggle room and ties up capital in inventory that earns almost nothing.

Higher margins are insurance against price movement. At 50% to 75% margins it becomes genuinely difficult to end up selling at a loss.

Expect to pay tuition. New sellers make bad buys, and the correct posture is assuming you are overestimating the selling price and actively looking for the reason a deal is worse than it appears.

Why sales rank misleads arbitrage sellers

Sales rank is a snapshot rather than a rate. A book that has never sold before will show a strong rank immediately after its first sale, which tells you nothing about how often it sells.

Nate made this exact error early on, assuming a rank of 100,000 in toys implied a specific weekly sales rate. The relationship does not hold.

Use Keepa and CamelCamelCamel charts instead. Those show when a product actually sold historically and at what price, which is the information you need.

Listed price is equally unreliable. A product displayed at $59 may never have sold at $59, and the realistic price could be $24.99.

How does brand gating limit what you can sell?

Many popular brands are gated and simply cannot be sold by arbitrage sellers, and certain categories require approval. Nike is one Nate names, following authenticity problems.

Scanning apps flag restrictions when you scan. That check is essential, since buying inventory you discover you cannot list is a common early mistake.

The set of restricted brands changes continually. Experienced sellers learn which brands to skip and stop scanning them.

Getting ungated varies by category. Some are a click, some require applications, and categories occasionally open to anyone who applies.

Which categories work best for arbitrage?

Stay open to any category you are approved to sell in, since brand continuity does not matter the way it does in private label. Nate describes an arbitrage inventory as closer to a garage sale than a boutique.

Retail arbitrage sellers favor shoes, clothing, and toys. Online arbitrage tends toward toys, kitchen, home and garden, and sporting goods.

No category is worth dismissing outright. Money is money when you have no brand to maintain.

How long do arbitrage opportunities last?

Individual leads are short-lived, limited by store stock and by how quickly other sellers find the same opportunity. There is no arbitrage equivalent of an evergreen product.

Nate calls the recurring ones replens, sources you can buy from repeatedly. Even those rarely last, because good opportunities are impossible to keep secret.

The supply of new opportunities is what sustains the model. New products appear on Amazon and in stores continuously, and third-party retailers do not price against Amazon, so discrepancies keep appearing.

His framing is hunting versus farming. Private label is farming and arbitrage is going out to find something new every day.

How do you win the buy box in arbitrage?

Price at the existing buy box price rather than undercutting, since most competitors run automated repricers and undercutting starts a race to the bottom. Tools that show competitors’ remaining stock inform the decision.

If the current buy box holder has two units left on a product selling five a day, there is no reason to cut price. They will sell out shortly.

Amazon’s presence on a listing is a warning sign. Amazon can control the buy box and drive the price down further than a third-party seller can profitably follow.

Some sellers simply wait. Letting an aggressive undercutter sell through their inventory and then selling afterward is a legitimate strategy.

Arbitrage also reduces the stakes here. Most arbitrage sellers hold two or three units of any item rather than deep inventory, so buy box share matters less than it does for private label.

Do reviews and advertising matter in arbitrage?

Neither matters much, which is a genuine advantage over private label. You are selling into listings that already sell, on products whose reviews belong to the brand.

Sales velocity is why you bought the item in the first place. You need the product to keep selling at its existing rate rather than to lift that rate.

That eliminates review generation, advertising, and listing optimization from the workload entirely. Those are the most demanding parts of private label.

What are the advantages of arbitrage over private label?

Arbitrage requires very little starting capital and scales further than most people expect. Nate knows sellers doing six figures a month with outsourced sourcing and prep.

Starting is genuinely accessible. You can begin by selling items from your own home, listed honestly in the correct condition.

The tradeoff is continuity. Arbitrage builds no brand equity and no asset you could sell, and every month starts with finding new products.

Many sellers use it as a gateway. Building capital through arbitrage funds a move into private label or wholesale later, or turns out to be enough on its own.

What gets arbitrage sellers suspended?

Listing used or refurbished items as new is what most often triggers suspensions. Amazon has very little grey area on condition.

Thrift store sourcing is where Nate has seen this go wrong most often, which is why he does not recommend it. The business works without walking that line.

Counterfeit claims are the other common problem. Nate worked with Cynthia Stine on suspension cases where sellers were reinstated by supplying retail invoices from the original store.

That reinstatement pattern reflects how Amazon handled these cases at the time. Enforcement has tightened since, and invoice requirements are considerably stricter today.

How do arbitrage sourcing tools work?

Tools like Tactical Arbitrage compare Amazon prices against products on hundreds of other retail sites, deduct your fees, and report what you would net on each. Matching happens by UPC, image recognition, and title search.

UPC matches are the most reliable. Image and title matching sometimes flags multipacks or near-matches, so every result needs manual verification before you buy.

Nate’s own tool, Storefront Stalker, exports the products a competing Amazon storefront sells. The logic is that a seller repeatedly competing with you probably sources from the same places.

The two combine into a workflow. Export a competitor’s catalog or a filtered Amazon category, feed it into the sourcing tool, set your parameters, and let it scan overnight.

Does everyone using the same tool find the same deals?

Saturation is less of a problem than it sounds, because the parameter space is enormous. Sellers filter by different categories, price ranges, ranks, and margin thresholds, so results diverge sharply.

Physical limits help too. Most retailers cap purchase quantities, and not every seller has the capital to act on every lead they find.

Plan for undercutting anyway. If a product historically sells at $30, model it selling somewhat lower and check whether the deal still clears your threshold.

Is arbitrage still viable long term?

Nate’s honest answer is that it gets harder every year and has not been eliminated. Amazon continues implementing policies that restrict selling anything that is not perfectly new.

His prediction was that arbitrage would still be an opportunity five years out and a considerably harder one. That has broadly held.

The money is still there and the approach keeps changing. Every year requires adapting to new gates, new restrictions, and new brand limitations.

Anyone starting today should treat it as a way to learn ecommerce and build capital rather than as a permanent business. The restrictions have only tightened since this conversation.

Frequently asked questions

What is online arbitrage on Amazon?

Buying products from other websites at a lower price than they sell for on Amazon, then reselling them on the existing Amazon listing. Retail arbitrage is the same model using physical stores.

What profit margin should you target in arbitrage?

At least $4 net profit and 25% ROI per item as a baseline. Thinner margins leave no protection against price drops and tie up capital for little return.

Can you dropship from retail sites to Amazon?

You should not. Supplier stockouts force order cancellations, and enough cancellations will get your Amazon account suspended.

Is Amazon sales rank a good measure of how fast something sells?

No. Sales rank reflects a single recent sale rather than an ongoing rate, so use Keepa or CamelCamelCamel price and sales history charts instead.

Why are some brands restricted on Amazon?

Brands gate their listings to control distribution and reduce counterfeits. Scanning apps flag restrictions before you buy, which is the check that prevents buying unsellable inventory.

Do you need reviews for arbitrage products?

No. You sell into listings that already have reviews and existing sales velocity, which is why arbitrage skips the hardest part of private label.

How much capital do you need to start arbitrage?

Very little. You can begin by selling items already in your home and reinvest the proceeds, which is arbitrage’s main advantage as an entry point.

Why do arbitrage sellers get suspended?

Most often for listing used or refurbished items as new, since Amazon allows almost no grey area on condition. Counterfeit claims are the other common cause and require retail invoices to resolve.