By Greg Bensinger
A few times each month, Anne Zarraonandia drives from her Mill
Valley, Calif., office to a nearby retailer such as Walgreens or
Toys 'R' Us to scout for bargains. Armed with a price-checking app
on her iPhone, she trawls the aisles, filling her cart with toys,
electronics, sporting goods and packaged food.
Ms. Zarraonandia, 58 years old, isn't looking to save a few
bucks for her family. Rather, she's looking for items she can
resell on Amazon.com Inc.--at a profit.
Traditional retailers fret about the practice they call
"showrooming," where smartphone-toting shoppers scan bar codes in
their stores, then seek better deals online. Ms. Zarraonandia, and
thousands of others like her, engage in what might be called
"reverse showrooming," looking for goods that are cheaper in stores
than online.
Industry insiders call the practice retail arbitrage. It's more
art than science, because prices are often lower online. Tricks of
the trade include scoping bargain racks, shopping on senior
discount day, buying unusual sizes and anticipating high demand.
Software developers offer price-checking applications that help
calculate potential profit, after shipping costs and online
commissions.
Ms. Zarraonandia once sold $2 canned pumpkin from Safeway for
$13 each ahead of Thanksgiving, when a supplier fell behind on
production. She estimates that she sells about $30,000 worth of
goods annually on Amazon, generating a profit of about $12,000.
"Some people say I am taking advantage of Amazon shoppers," said
Ms. Zarraonandia. "But anyone can do this."
Amazon declined to comment.
Another seller, Chris Green, of Rehoboth, Mass., said at his
peak a few years ago he was moving about $800,000 of merchandise
online annually, primarily through Amazon. He cut his teeth in
retail arbitrage buying discounted tool sets from Home Depot Inc.
stores. "Home Depot would buy way too much of one thing and then
have to discount them--which was an opportunity for me," said Mr.
Green. Home Depot declined to comment.
Such experiences led him to create ScanPower, a price-checking
app for which he says thousands of people pay at least $40 a month.
To improve speed on his own shopping trips, Mr. Green uses a
scanner embedded in a glove.
Another app, from ASellerTool Inc., plays a "Booyah" sound when
it calculates that a scanned item can be resold for a profit.
Ms. Zarraonandia and Mr. Green are among more than two million
independent merchants selling goods on Amazon. Sellers set their
own prices, competing to appear in the "buy box," the most
prominent position for a given search, which typically goes to the
lowest-priced such item.
These merchants account for more than 40% of Amazon's sales by
unit, the company says. Amazon doesn't disclose revenue from
outside merchants. But Gene Munster, a Piper Jaffray analyst,
estimates they will account for about 12%, or $12.2 billion, of
Amazon's revenue this year, climbing to $23.3 billion by 2020.
With the narrow margins inherent to retail and consumers' fickle
tastes, of course not all third-party sellers find success on
Amazon. Too, some products in Amazon warehouses never find a buyer
and are either recalled by merchants or ordered to be destroyed.
Ms. Zarraonandia and other sellers say they occasionally pay to
have Amazon dispose of some merchandise after it sits on the shelf
for at least six months, a tipping point when Amazon charges a
penalty, based on an item's size.
Amazon charges third-party merchants a commission of 6% to 15%
for most items. Many merchants also pay Amazon to store and ship
their goods.
Sellers say retail arbitrage can be a painstaking process,
making it difficult to grow. That's why some choose to also sell
merchandise on eBay Inc.'s website or other online marketplaces
like that of Sears Holding Corp.
But for a lucky few, it is a big business. Sam Cohen, owner of
DWNY LLC in Ocean, N.J., said he expects to post $10 million in
revenue this year from selling on Amazon, double last year's
total.
Mr. Cohen dispatches several of his dozen or so employees to
stores like Kohl's and Kmart daily to scan products and find those
that he can resell profitably on Amazon. He recently opened a
sorting center to handle the volume, which also includes goods he
buys from liquidators and some manufacturers.
"We have an idea what we're looking for and a pretty good idea
for what sells," said Mr. Cohen, who estimates he stores about
500,000 items in Amazon warehouses at a given time. He said items
featuring characters from Walt Disney Co.'s "Frozen" are
consistently good sellers.
Mr. Cohen said his employees occasionally are stopped by
retailers' staff members, concerned that they are clearing out
inventory of a certain item. When that happens, he said he has
instructed them to either walk away or to buy the merchandise in
separate transactions.
One morning last month, Ms. Zarraonandia checked out of a
Sausalito, Calif., Ross Stores Inc. outlet with $157 in
merchandise, including an Angry Birds toy set, a Jeep brand
stroller bag and two Bluetooth-enabled tablet-computer
keyboards.
Back at her office, in the rear of an architecture firm, Ms.
Zarraonandia began removing price labels, a painstaking process
requiring a jury-rigged hair dryer, a toothbrush-sized hand tool
called a Scotty Peeler and a solvent for removing the last bits of
glue.
She then set prices, beginning with a pink camouflage Nike
iPhone 5 case for which she had paid $7.99. Amazon's buy box showed
a price of $22.97, which Ms. Zarraonandia matched. Other sellers
showed lower prices, but they didn't offer free shipping, as she
did.
Seeing no competition for a car-window shade she bought for
$2.99, she listed the item at $14.99. The Bluetooth keyboards,
bought for $14.99 each, are listed at $35.99.
Amazon's software tells her where to send the items, based on an
algorithm that projects demand; two identical swim caps were routed
to different warehouses in New Jersey and Phoenix. "You're always
hoping for Phoenix," said Ms. Zarraonandia. "It's closer, meaning
my items are processed and listed sooner and the postage is
cheaper."
On this day, Ms. Zarraonandia shipped three boxes to Amazon
warehouses near Phoenix, Newark, N.J., and Columbia, S.C. She paid
UPS $20.05.
Including a few items she'd collected elsewhere, Ms.
Zarraonandia calculated she'd get a check for $451--excluding her
costs, like shipping, warehousing and the goods themselves--if all
the items sell for their initial listing price. "That's not a bad
day," she said.
Write to Greg Bensinger at greg.bensinger@wsj.com
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