Playing the eBay and Amazon Arbitrage Game

eBay sellers have found a way to offer free 2-day shipping on their orders - without paying a cent to any shipping carrier - with help from Amazon, in what could be called creative retail arbitrage. Not only that, the sellers carry no inventory, making their business virtually risk-free.

While sellers have been using Amazon as a drop-shipper for years (perhaps to their colleagues' surprise), what's unusual about some of these sellers' business models is that they use an Amazon Prime account, which costs $79/year, to get free 2-day shipping on all orders, allowing them to offer free expedited shipping on their eBay and online listings.

However, Amazon spokesperson Mary Osako said the company does not allow sellers to use Amazon Prime for commercial orders, citing Amazon Prime Terms and Conditions. While small businesses are allowed to purchase Prime membership, the terms state, "Prime members are not permitted to purchase products for the purpose of resale or to ship to their customers or potential customers using Prime benefits."

Using Amazon Prime gives these sellers a tremendous advantage over other eBay sellers who must either pay for shipping themselves or else charge a shipping fee to buyers. And because these sellers are able to offer free shipping, they automatically earn a 5 out of 5 DSR rating on shipping criteria, helping them maintain their Top Rated Seller status on eBay.

According to Chris Green of FBAPower, who helps sellers use FBA on Amazon, many online sellers use Amazon (and other retail sites) as drop-shippers and use software to help them manage the process. But Green was not sure how many people might be using their Amazon Prime accounts to send orders, and those who do so may not realize it's against Amazon's terms, he said.

Amazon Drop-Shipping, Not to Be Confused with FBA
With drop-shipping, the sellers never own the inventory - they place an order when they get a sale - and they pay no Amazon selling fees. That's different from Amazon's Multi Channel Fulfillment FBA service, which allows sellers to fulfill orders from sales channels other than Amazon.com using the seller's own inventory that is stored in Amazon fulfillment centers, and for which they pay Amazon fulfillment fees.

Green said packages from Multi Channel Fulfillment FBA look different than items that are ordered by the seller from Amazon, though they both arrive at the buyer's door in an Amazon-branded box.

Drop-shipped orders have Amazon branding on the inside, as well as promotional material from Amazon partners. "Even if marked as a gift, the source of the product would be evident" on the packing slip for drop-shipped orders, he said. "Multi Channel Fulfillment orders would only have the box logos, and it's possible that the customer thinks the seller is just re-using Amazon packaging." But they would not have Amazon branding on the packing slip, he said.

Orders Sent Using Amazon Prime Shipping
So what is the potential profit margin for an eBay seller using Amazon as the drop-shipper? EcommerceBytes purchased several items to see how retail arbitrage worked, ordering items from an eBay Top Rated seller by the name of ShoppingSpreeLLC. In each case, the price of the items on eBay was between 15% and 37% higher on eBay than on Amazon.com and included free 2-day shipping.

The eBay orders arrived in Amazon-branded boxes with Amazon-branded packing slips that indicated the items were "gifts" - sent by the recipients themselves (the "gift from" field displayed the name of the buyer). The name of the eBay seller was nowhere to be found on the box or inside the package.

EcommerceBytes contacted Christina Holmes, who confirmed she was proprietor of ShoppingSpreeLLC on eBay, but refused to answer questions about her business model and her use of Amazon to source products.

ShoppingSpreeLLC has 269,924 total feedback- 13,354 positives, 68 neutrals and 126 negatives in the last month alone.

ShoppingSpreeLLC received occasional feedback on eBay referencing that she used Amazon to send the goods, such as these comments dating back to 2006: "Deal worked great... surprised when shipped from Amazon," and, "Arrived eventually - from Amazon! Hmmmm... Perfect condition. Thanks."

More recently the seller received a negative feedback with the comment, "they buy the product on amazon and sell 4 higher on here. shame on you," to which ShoppingSpreeLLC replied, "Sorry for confusion we use "Fulfillment by Amazon" to store/ship our inventory."

But if ShoppingSpreeLLC is using Amazon's Multi Channel Fulfillment service, there's no indication why the items we ordered were sent as "Gifts" with our own names displayed as the sender rather than with a packing slip showing the seller's business name.

eBay and Amazon.com Policy
In June of 2010, an eBay UK seller wrote on BlackHatWorld.com that he had been using his Amazon Prime account to send goods to his eBay customers, but he ran into problems with PayPal. "I also received an email from Amazon reminding me that Amazon Prime was purely for non commercial purpose," he wrote.

EcommerceBytes asked Amazon's Osako if there was a limit to the number of addresses a Prime account could send to and are awaiting her response.

We also asked eBay if drop-shipping on Amazon was allowed. Spokesperson Johnna Hoff, contacted on February 17th, said she was still researching the issue and would get back to us once she had an answer.

Winning Even with Returns
It's hard to know how eBay and Amazon really feel about the practice and who the winners and losers are, since eBay's still making fees and Amazon is moving product, but the biggest impact is on sellers who are trying to compete with free 2-day shipping.

Ironically, sellers suspected of using Amazon Prime to send eBay orders with free shipping have policies that ensure they still make a profit even if eBay customers return their orders. They do that by charging a set fee for returned items sent with free shipping.

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