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The fourth business model in the 5 Basic eCommerce Business Models is this:

4: Retail Arbitrage (RA), or Online Retail Arbitrage

These are the people who source for discounted new products available in large quantities (like overstocked items) from retail stores offline or online, then resell the products at a profit. It occupies an interesting place between reselling, private labeling and liquidation, but generally differs in terms of:

  1. Discounts of source products (and therefore profits) are usually not as high as liquidation business models.

  2. Modifications may be made by changing products’ packaging or marketing materials, but not their design – therefore no private labels are added.

  3. The source of products is easily accessible to small businesses and individuals.

This is a really hot e-commerce business model nowadays. Take note though, competition within RA businesses is very intense - with few barriers to sell through online marketplaces, and even fewer to buy from an ordinary retail store, RA is open to absolutely anyone with some time and capital to invest. As such, the Return on Investment margins for RA has dropped to an extremely low value - just around 5%.

Another practical concern about RA that many new sellers do not know is that some brands require reseller certificates to sell their items. Thus if you accidentally bought such items, you will end up getting stuck with a lot of goods which you have to dispose of. So do consider carefully before you decide to jump into the RA business!

Following so far? Great! Stay tuned for our last Fundamental Ecommerce Business Model!

Check out the series on the 5 Basic eCommerce Business Models Posts Here:

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