Retail Arbitrage Is High Risk | What You Need To Know About Amazon FBA

Two blogs in one day, I know..I just felt inspired. So let’s talk about Amazon FBA?

What you need to know…

Are you using Amazon FBA the way it wasn’t intended to be used? Or how Amazon never intended you to harness its services? Many have and we consistently see their businesses shut down or taking big hits because of it.

Just recently during Amazon’s Prime sales event one man states that he lost $200,000 in sales because one of his products was banned on Amazon by a fraudulent claim. Read the story here.

Yet another incident where several businesses were recently shut down and are losing money because Amazon bought Whole Foods and has now restricted all Whole Foods products to be sold only by them.

This is happening because many are approaching the platform from a perspective of “building an Amazon store” rather than a shipping service.

Let’s take a look at what Jeff Bezos and their Executive Chairman have to say about FBA:

“In short, our strategy with FBA is to continue to help sellers grow their business and continue to increase Prime-eligible selection for customers.” – Jeff Bezos*

“Sellers are generally happy with FBA when we talk to them,” said Channel Advisor Executive Chairman Scot Wingo. With FBA, sellers get to hand over the entire logistics process to Amazon, which could be a headache for a small business to deal with. Plus, they can process non-Amazon sales through FBA as well, meaning that if they sell a product on another site, Amazon will still ship it.*

Why you need to know this…

So FBA was really designed to help businesses grow their business, take away the logistics of shipping and customer service, and increase sales on their own websites.

Yet we have many who have found a loop hole in the process by doing retail arbitrage who have reversed the process and therefore are positioning their businesses for great risk. Instead of first building a business and a client base, with products those clients are happy with, they have thrown whatever sells into FBA to just make “passive income”. Although many have seen great financial return in this process it positions them for great risk because they don’t have loyal customers and clients that they are able to contact. This means that if Amazon decides they can no longer sell a product their business is now shut down, instead of just the shipping process changing. Or if someone falsely accuses them of selling something they are not approved to and the item is banned, they lose sales because they have no way of serving faithful clients.

What is even crazier to me is that I see some individuals insisting that “having an Amazon store” is different and you cannot build a client base.

The cost to you if you fail to act…

The only way to secure your business and reduce the risk is to build it off of Amazon.

But Amazon currently has some strict guidelines around promoting your business through advertisements in products. They state in fact “Do not include any marketing or promotional materials with packing materials.”

However, how can you connect with customers without marketing materials?

  • Private Label – If you have a private label, this means you are responsible to design the packaging, include product components and other materials specific to the product. For example, one man who was selling a coffee press included a warranty card for people to go back to his website and register their product. This allowed him to notify them when he launched another product and/or build loyalty. He also included an information card about different types of coffee they may like to try with the coffee press. And lastly he had all of his company information on the packaging. This will allow you to build relationships with customers and provide a way for you to contact them if your product is taken off of Amazon’s storefront.
  • RA Customer Power – For those strictly selling retail arbitrage style I would encourage you to begin building your store on your own website. Even if you choose not to do a private label at minimum begin to get locals leaving comments on your amazon store referencing your business off of Amazon. Amazon has policies about businesses not promoting themselves but they don’t have policies against customers promoting them on Amazon. In fact, customers have even post links to YouTube videos which I have yet to see anyone harness. How about showing customers how you handle their products or better yet your own mini commercials? There are still many who use things like warranty cards, and instruction manuals to connect with customers but this still leaves a level of risk if it is not your product that you produced.

It is often breaking the rules that lead to new and exciting opportunities but make sure if you are one who is breaking the rules that you are not at risk of losing your business in the future.

In my next blog I will share how businesses can harness Amazon to sell their services to other businesses.



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