Retailer Arbitrage: How Internet Middlemen Are Scaring Traditional Stores
MELISSA BLOCK, HOST:
Now we're going to hear about something called retail arbitrage. That's buying stuff in a store then turning around and selling it for a profit on Amazon. It's more than a hobby. Jacob Goldstein, from our Planet Money podcast, met a man who's turned this into a business worth millions of dollars a year.
JACOB GOLDSTEIN, BYLINE: I'm driving through Eatontown, N.J. with Sam Cohen.
Where are we going right now?
SAM COHEN: We'll go to Toys R Us.
GOLDSTEIN: What are you hoping to find at Toys R Us?
COHEN: Anything we can make money on.
GOLDSTEIN: Sam has to find something he can buy on the cheap and sell for a lot more. So much more that he can make a profit even after paying Amazon fees to list the item and ship it to customers. That's tough to find. We start walking through the aisles at Toys R Us.
COHEN: Something like this, like the Graco car seat, is probably too big and something like an infant toy is probably too inexpensive.
GOLDSTEIN: An item that only costs a few bucks just isn't going to sell for that much. Sam has to pay for a warehouse, an office and a bunch of full-time employees who are doing this same hunt every day.
COHEN: So this is interesting. This is a Babies R Us 800 baby wipes.
GOLDSTEIN: The wipes are in one of those displays out in the middle of the aisle. They're selling for $16.99. As the father of two young kids, I feel like I have some insight here.
Baby stuff - I know how much baby stuff costs.
COHEN: OK. Is this a good price?
GOLDSTEIN: Not great. It's not great.
COHEN: Seventeen bucks for 800 wipes? It's a value box.
GOLDSTEIN: I mean, buy it if you want. I don't think there's a lot of margin in it for you.
COHEN: I think you're wrong.
GOLDSTEIN: Sam has brought along one of his employees, a guy named Jay Freiday, to help him with the shopping. Freiday pulls out his phone and looks up how much this $17 box of wipes is selling for on Amazon.
JAY FREIDAY: This is currently selling for $46.
GOLDSTEIN: Wait a minute. People are paying - what did you say?
GOLDSTEIN: For 800 baby wipes?
FREIDAY: Yeah. It's a lot?
GOLDSTEIN: It's a lot.
Even when you add in all of Sam's costs, he figures he can make $14 profit on every box. Jay Freiday puts all the wipes from the display into the cart. Sam keeps going and finds a few other items to buy.
COHEN: This is called a Little Tikes Big Digger Sandbox.
COHEN: A slumber bag.
GOLDSTEIN: Like, a sleeping bag for inside?
COHEN: Star Wars Rebels, with a bonus backpack.
GOLDSTEIN: They push the now overflowing cart up to the cash register. The cashier is totally unfazed. Then they walk out the door and put the stuff in the car.
What about the Toys R Us side of the story? If people are willing to pay $46 for a box of wipes on Amazon, why doesn't Toys R Us just sell its own wipes there? Toys R Us declined to be interviewed for this story, but I talked to Ina Steiner, who edits a newsletter for people who sell stuff online. And she says Toys R Us and most of the other stores where Sam shops are locked in this battle with Amazon.
INA STEINER: You cannot underestimate the impact that Amazon is having on retailers. Amazon is the 800-pound gorilla that every retailer has nightmares about.
GOLDSTEIN: This fear of Amazon explains a lot. Sure, Toys R Us could cut Sam out of the loop and sell its own wipes on Amazon, but the last thing Toys R Us wants is for people to think of Amazon as the place to buy everything. Toys R Us does sell those wipes online. It just doesn't sell them on Amazon. And that, of course, creates an opportunity for Sam Cohen.
COHEN: Hi Jacob. How are you?
GOLDSTEIN: Good. How you doing?
I called Sam a few weeks after our shopping trip. He'd already sold a bunch of the slumber bags he bought. On the sandboxes, he's been seeing some tough competition. Which leaves, of course, the wipes. How's he doing on those boxes of wipes?
COHEN: I believe we have one or two left. Most of them have already sold.
GOLDSTEIN: And what did you sell them for?
COHEN: We sold them for $45.
GOLDSTEIN: So I was definitely wrong about the baby wipes. I want to say that on the record.
GOLDSTEIN: Here's what Sam Cohen has discovered - there are people who shop on Amazon who really want particular things. In this case, not just any wipes, but Babies R Us wipes, and they want to buy those wipes with their one-click Amazon Prime two-day delivery. For $45, Sam is happy to sell to them. Jacob Goldstein, NPR News.
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