Sourcing is how you discover what you’ll be selling on Amazon and other e-commerce platforms. Sourcing items is a regular part of life for anyone running an e-commerce business, but not all sourcing methods are right for every business owner.
With a slew of recent Amazon suspensions and crackdowns related to sourcing issues, I decided to break down some of the pros and cons of common sourcing methods. Understanding the risks involved with different methods will help you avoid a situation that could jeopardize your business.
Three Important Aspects of Everything You Source
Regardless of the sourcing method, you should be looking at a few different things as you decide what to buy:
- It’s authentic, and its authenticity can be proven
- It’s of good quality
- The merchandise is in demand
Keeping each of these aspects in mind during the sourcing process will help you defend yourself should a complaint or warning arise.
The Problem with Private Labels
A private label is a new brand that you create. It’s exciting to have your own brand, and growing that brand adds a new level to your Amazon business. Yet, there’s a definite liability and additional cost involved with private labels.
You need to be aware of all legal restrictions on the product you’re hoping to sell. When sourcing existing brands, they’ve already done much of the legwork. When you promote a private label, you’re responsible for ensuring compliance with all regulations, you must have the right business entity setup and you need business insurance.
For example, if you source a plastic bottle for your private label, and the manufacturer claims that it’s BPA free – you need to prove that if you want to list it as BPA free.
Before embarking on a private label journey, look into all the legal and compliance aspects involved. There’s a lot of moving parts involved, but it can be highly lucrative and fun. One of the biggest pros is that you can create a niche item and completely dominate that niche.
The Liability of Liquidation
Liquidators are a great source of low cost items that often have amazing profit margins. The right liquidator can help your business grow significantly.
However, there’s a lot of grey area when it comes to items found from liquidators. Maybe the item “fell off the back of a truck,” or is counterfeit yet claims to be authentic.
Authenticity is the main liability with sourcing from liquidators. If you can’t prove that the item is authentic, it’s not worth your time. This is especially true for brands and industries that aggressively fight back against counterfeit goods. Some brands require you to source only through authorized channels, or even become authorized yourself before you can sell it.
A secondary problem with liquidation is that items aren’t often in the right condition to even sell on Amazon. If you buy a bulk amount of goods form a liquidator, you’ll then have to sort through it to see what you can sell. You’ll also need to be ready to sell things that aren’t fit for Amazon on other channels, such as eBay and Craigslist.
The Raw Truth about Retail Arbitrage
Retail arbitrage is the practice of buying items at a retail store that you can sell for more online. Much like with liquidators, the biggest problem with retail arbitrage is authenticity. If the item is in a high counterfeit category, it might not be worth your time.
It largely comes down to how the item is reported on the receipt. Let’s say you buy a Teenage Mutant Ninja Turtle action figure from a retail store, but it only rings up as ‘TOY’. That receipt proves that you bought a toy, but it does little to prove to Amazon that it’s an authentic, officially licensed toy. This is common at stores like Ross or T.J.Maxx.
If you buy that same toy at Toys R’ Us, you better believe the receipt will say something like ‘TMNT APRIL’. That may be enough evidence for Amazon that it’s authentic. There’s no guarantee that Amazon will accept this as evidence in every situation, but it will certainly help.
The Helpfulness of Wholesale
Wholesale is one of my favorite ways to source when it comes to ensuring authenticity and quality. However, not everyone selling wholesale is truly wholesale – it might be through a distributor or liquidator.
We like to buy wholesale directly from the manufacturer, and we usually work with small companies. This way, we know what we’re buying is authentic, and there’s a clear trail that shows where we purchased the item.
The Need for Due Diligence
Every method discussed above requires further research and vetting, also known as due diligence. Someone claiming to sell an authentic product to you isn’t enough evidence for Amazon. Anything that contains intellectual property, such as a SpongeBob image, needs proof that they’re legally allowed to use that image.
You need to ask your sources additional questions to help prevent future issues, such as:
- How can I prove that this toy is lead-free and meets all compliance regulations to be sold in the United States?
- How quickly can you provide the documentation I need?
- Can you provide legal permission to use intellectual property that belongs to someone else?
Making sure that everything you bring to market is problem free from the beginning will help you keep your account clean and free of red flags.