When buying on Amazon means a sale for Wal-Mart or Target

Courtney Reagan
Updated
John Taggart | Bloomberg | Getty Images

It may sound suspicious, but it's totally legal.

"Retail arbitrage" happens when someone purchases an item from one merchant, then turns around and sells it somewhere else for a profit. And thanks to the popularity of online marketplaces, it's become a somewhat common occurrence.

It also explains why multiple orders that CNBC placed on Amazon (NASDAQ: AMZN) were shipped with either Wal-Mart (NYSE: WMT) labeling or a Target (NYSE: TGT) invoice.

In a small-scale test last month, CNBC ordered eight identical (or nearly identical) items from Amazon, Target and Wal-Mart. Each item was ordered four times, and sent to four cities across the continental U.S. The orders were placed with standard shipping, and without the use of membership program.

Of the 32 items ordered from Amazon, the majority of which were fulfilled by third-party vendors, six came with Wal-Mart or Target labeling or packaging.

The four bookshelves ordered from Amazon were fulfilled by three different third-party sellers. Yet each one arrived to their respective cities in packaging with Wal-Mart's labeling. The average of the four Amazon sellers' bookshelf prices was $15.22 more than Wal-Mart's price, which held steady at $68.

Tide laundry detergent ordered from two different third-party Amazon sellers arrived in Dayton, Ohio, and Lincoln, Nebraska, in Target and Wal-Mart packaging, respectively. The box sent to Dayton even included a Target invoice. That invoice included the Dayton shipping address, but the billing address was for an unknown person in South Carolina. The billing address for the detergent shipped to Lincoln was for "Joe Order."

CNBC paid the Amazon sellers an average $10.26 more than the average of Target and Wal-Mart's prices. Third-party sellers were the only option for CNBC's buyers because Tide wasn't available directly from Amazon in any of the four cities without being a paid Prime member.

Amazon would not officially comment or respond to questions on retail arbitrage or the results of CNBC's shipping test. Part of the guidelines posted on its website for third-party sellers does not permit "purchasing products from another online retailer and having that retailer ship directly to customers."

There are no rules against buying an item from another retailer and reselling it, so long as the outside seller ships the item directly to the customer with the seller's own labeling, packing slip and invoice.

Piper Jaffray's internet research team acknowledges that arbitrage has existed on all e-commerce platforms for some time, but said its role on Amazon's site is probably very small.

As of the second quarter of 2016, Amazon's roughly 2 million outside marketplace sellers represented more than 49 percent of the total number of items sold on Amazon.com. In many cases, those third-party sellers ship products directly to the consumer, without ever passing through an Amazon warehouse. In some cases, the products may have been bought from a retailer and resold on Amazon.

Walmart.com also has marketplace sellers listing products on its website that are mixed in with the items Wal-Mart owns and ships. The retailer "has been expanding the marketplace to include even more sellers, but continues to look for merchandise integrity and high-quality sellers," spokesman Ravi Jariwala told CNBC. Wal-Mart continues to set processes and guidelines for its marketplace sellers, Jariwala added.

Ultimately, retail arbitrage works for all parties. Prices are low enough at Wal-Mart and Target, and some shoppers will pay more for the convenience of shipping an item to their home. Wal-Mart and Target got a sale, and so did the Amazon sellers. And Amazon got paid a fee by the seller for hosting the listing.

Neither Wal-Mart nor Target commented specifically on CNBC's observations of third-party merchants reselling products purchased from its stores or website. When asked if retail arbitrage helps its sales, Jariwala said only that "Wal-Mart is confident in our low prices and fulfillment process as it allows us to ship and deliver even faster to our customers."

Target has listed products on eBay (NASDAQ: EBAY)'s Marketplace since 2012, "because we know it's another way to reach guests where they're shopping and drive incremental volume," spokeswoman Jamie Bastian said.

— CNBC's Sabrina Korber contributed to this report



More From CNBC

  • Top News and Analysis

  • Latest News Video

  • Personal Finance