How can Brands Avoid Retail Arbitrage?

From startups to large established product brands, retail arbitrage impacts most retail brands at some stage in their development.

Retail arbitrage is when a reseller buys a product at a very low price (usually on sale) and resells them online (i.e. Craigslist, eBay, Amazon, etc..) for a profit. Some resellers make their entire living off of this strategy.

Speaking of Amazon, many brands are concerned about retail arbitrage on this website if they do not have tight control of their distribution channel.

As the largest online marketplace, Amazon provides a favorable environment for resellers, but for brands – retail arbitrage can be devastating, diminishing the credibility of a brand not to mention the undercuts in pricing, which can lead to revenue loss.

Unfortunately, Amazon keeps a percentage of third-party sales within their marketplace and is hesitant to enforce seller pricing agreements and risk losing revenue. In some circumstances, Amazon will step in to assist brands if they meet specific criteria (example: selling at a high volume) but for most vendors this is not the case.

Retail Arbitrage Can Negatively Impact:

Brand Credibility – Without brand control, a reseller could deliver a product late, damaged, in poor condition or expired. This opens up the door to negative product reviews, which will ultimately devalue a brand and ruin the customer experience.

Amazon Buy Box – Pricing items against a brand increases the Buy Box competition on Amazon. With more resellers competing against brands, the opportunity to win the Buy Box becomes more difficult.

At the end of the day. the only way brands can control retail arbitrage is not going to be through policing effort, but through better comprehensive strategy and how they price items at the wholesale level. They need to be aware that retail arbitrage is likely to happen if they promotionally discount heavily at other retailers.

3 Ways Brands Can Prevent Retail Arbitration:

Here are the 3 best ways brands of all shapes and sizes can reduce retail arbitrage:

  • Tighter Control on Pricing with their Wholesalers & Distributors – A good way to prevent retail arbitrage is to work backwards and look at brand – supplier relationships. Without these relationships, brands ultimately have no business, so it’s important to focus on communication. Many sellers look to Amazon for help, when they really should look further up the chain. Brands shouldn’t rely on Amazon for help, prevention starts before the Marketplace.
  • Implement Preventative Resale Clauses– Having the appropriate documentation around pricing is a key element if any brand hopes to take down unauthorized resellers. Unfortunately, without this type of documentation – brands will find it extremely difficult to get resellers removed from the marketplace.
  • Promotional Code Limitations – Brands should include promo code limitations to prevent bulk purchases when offering discounts. Resellers target these discounts to obtain bulk orders for reselling purposes. Brands don’t want their Buy Box share to suffer as a result of a poorly executed promotion, so be sure to implement limited number of offers per customer.

Still have issues managing your online channel? If you don’t have the time or experience to manage your retail channel strategy, please contact us at info@retailbound.com or call 1-630-246-4068.