Let’s talk about reselling…
Specifically, we’re covering eCommerce reselling which means something different than in other industries.
We’re defining what it means to be a reseller, why you would want to do it and if it’s legal to do it. Our site has one of the most popular articles about retail arbitrage (reselling) so we get questions about this topic all the time.
And that’s why we want to cover this topic fully and help you understand it completely. However our main focus will be with online reselling.
Let’s begin by defining what we mean when we talk about being a reseller.
What is an eCommerce Reseller?
A reseller is an individual person or business that buys a product, marks up the price and sells it for a profit. It’s the middle-men between manufacturers and customers.
Resellers can be 4 different people:
- Distributor: Buys a product from the manufacturer and resells to either a wholesaler or retailer.
- Wholesaler: Purchases the product from distributor to resell to a retail store.
- Retailer: Purchases the product from wholesaler to sell to the customer.
- Arbitrage (Flipping): The customer who finds a deal and sells the product for a small markup on an online marketplace.
Each reseller along the way will find a way to add value to the original product. It can be through repackaging or creating bundles.
How do Resellers Make Money?
Focusing with reselling products online, there are 3 ways to make money.
- Retail Arbitrage: While specifically focusing on retail stores like Target, Walmart, Big Lots and Home Depot go and buy clearance items. Once you spot items on the clearance rack, see what they’re selling for on FB Marketplace, Craigslist, Amazon and eBay. If you can make a profit then buy those products.
- Private Label: The goal here is to source products directly from the manufacturers in lower quantities, add your own branding and packaging and sell them under your own brand. You sell the products on places like eBay, Amazon, personal website, or flea markets.
- Dropshipping: Dropshipping is done completely online. You source products directly from manufacturers, and sell them online to customers without holding inventory. All the handling is done with middle-men or technology.
- Wholesaling: You buy directly from manufacturers at high volumes and resell on platforms like Amazon or eBay.
Another part of reselling worth mentioning is that garage sales and selling things you never use is also known as reselling. It’s not considered a business model but reselling things you don’t use for quick cash falls under “retail arbitrage”.
Why Start a Resale Business?
There’s a low barrier to entry with resale businesses because you’re not creating and manufacturing your own products. There’s demand for the products already and it’s your job to sell them to people.
Creating your own products, branding them, packaging them and marketing them takes a level of commitment that not everyone has. Over time if you enjoy the business model and want to grow your online business, then it makes sense to design your own products.
Resale businesses leverage online platforms like Amazon and eBay. But if you want to grow then it makes sense to start your own website and spend money on advertising. You start owning more of your sale instead of giving it to Amazon or eBay.
Disadvantages of a Resale Business
There is one major drawback to resale business, specifically retail arbitrage.
Lack of control. You can’t control what’s available to buy at stores and you can’t control quality issues with the product. There’s a chance that if you find a product that sells well, you won’t be able to find it at the same price in other stores.
You can’t control branding either. Even though you’re the seller it’s not your product and it’s illegal to claim that it is. It’s the popularity of the brand that makes the sale. Since the product is not unique then you can run into other people selling the same exact brand and product as you. Which means you cannot control the price of your product.
Retail arbitrage (reselling) is a popular method to quickly make money and bootstrap an online business. People see incredible success with the business model but it’s a stepping stone into something more permanent.
Is it Legal to Resell Products?
You’re allowed to resell products that you have purchased in a store. There are entire online communities around this topic like Facebook marketplace, Craigslist and Poshmark. There are even brick and mortar retailers that resell items like Plato’s Closet which buys gently used name brand clothes.
There’s a market for everything. What you’re not allowed to do depends on the marketplace you’re selling on. For example, Amazon has strict policies on reselling products. You can’t resell Nike or Disney merchandise. Usually corporations with big legal teams don’t allow reselling on huge marketplaces. Amazon has an entire section of restricted brands.
Generally, it’s not illegal to resell a product. Restrictions normally come from the platform themselves and not the manufacturer of the company. The truth is that most brands are safe to resell. You’re just not allowed to claim “brand new” or “straight from the manufacturer” because that just wouldn’t be true.
However, if you’re planning on starting a reselling business there are some things to consider.
- Do your research. Every platform has their own criteria and legal requirements to meet and most well known brands have restrictions. A good example is Nike and Lululemon. Both have a very strict resell policy and require that anyone selling their merchandise apply and pay to be an authorized reseller.
- Never claim you created the product or you know the manufacturer of the brand. If you’re reselling then make sure you say “Used – Never Opened” or something similar. Because if you claim that you have access to suppliers you don’t have access to it can cost you. Generally there’s not a problem reselling something as long as you’re upfront that you owned it first.
- Depending on the state you’re in, you need to collect sales tax. Thankfully platforms like Amazon will do that for you when you select the proper settings. This article here covers Amazon sales tax. But if you’re selling on other platforms the steps are similar and you need to figure out if they have sales tax settings. Software like TaxJar can help with filing properly.
It seems like a lot needs to happen for you to start reselling but it’s just the cost of admission. If you do things right the first time there won’t be any long term problems. Once you find a couple products, sign up for a few platforms and start selling you’ll see it’s a step by step learning experience.
Wrapping This Up…
Reselling can take multiple forms but the best thing to do is research which business model you would like to try and start making moves.
Yes, there might be some slight disadvantages but there’s nothing in this world that’s 100% positive. Thankfully we have some resources below that can help. You owe it to yourself to take action and start that business you’ve always thought about starting.
If you need some extra help or guidance don’t hesitate to contact us by sending us an email. bros@startupbros(dot)com.
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