The vicious cycle of poor time-to-income ratio and melting capital from dead stock.
Arbitrage (“Sedori” in Japanese, referring to buying low and selling high, often online) is a popular side business because it’s easy to start. However, many aspirants fail and quit, often losing funds equivalent to a “month’s salary.” The root causes of failure are neglecting the hidden labor costs by focusing only on gross profit (leading to a poor time-to-income ratio) and locking up capital by chasing trends (creating a high inventory risk). This article breaks down the mechanisms behind why your room might become flooded with inventory and your cash flow deteriorates, using concrete failure examples.
1. Poor Time-to-Income Ratio (Hourly Rate Calculation)
Many beginners focus only on the difference between the selling price and the purchase price (gross profit), ignoring the hidden cost: their own labor hours.
| Task Process | Factors that Worsen the Time-to-Income Ratio |
| Research & Sourcing | Enormous time spent finding profitable items (“research fatigue”). Travel time and costs for store visits to source items. |
| Inspection, Cleaning, Listing | Time consumed by checking for defects, cleaning, taking photos, and creating product pages. Especially with used or complex items, the effort becomes disproportionately high, making the effective hourly rate unviable. |
| Packaging & Shipping | Procuring packing materials, careful packing, and taking items to the post office or convenience store for every order. This non-scalable, personalized work hinders business expansion. |
| Customer Service | Spending time and emotional energy on answering questions, handling complaints, and processing returns. |
2. Inventory Risk and Deterioration of Cash Flow
“Dead stock” (unsold items) is the biggest factor that makes the continuation of the arbitrage business impossible.
- Capital Immobilization (Cash Flow Deterioration):
- The funds used for sourcing remain tied up as physical inventory and do not convert back into cash (poor cash flow). Since the money is not circulating, the trader cannot make new purchases, causing the business to stall.
- Incurrence of Storage Costs:
- As inventory grows, it encroaches on the living space at home. Even when using external services like FBA (Amazon’s warehouse), long-term storage fees are incurred.
- Price Drop and Obsolescence:
- Especially for trendy items, seasonal goods, and electronics, the market price drops over time, and the value rapidly depreciates.
💡 Typical Failure Example and Analysis
The failure pattern clearly illustrates the danger of “chasing trends.”
“I sourced items based on a current trend, but they didn’t sell, and my room was flooded with inventory. I eventually sold the dead stock at a loss for disposal, and my cash flow seized up.”
| Failure Factor | Specific Risk and Outcome |
| Poor Research | Misjudging the peak of the trend and sourcing at a high price. Inventory is left behind after the boom fades. |
| Inventory Risk | The room being flooded with stock causes storage costs (physical and psychological) to skyrocket. |
| Lack of Money Management | Capital is immobilized in unsold goods, leading to the loss of opportunities for new, profitable sourcing. |
| Final Result | Disposing of the items at a loss solidifies the loss. This loss depletes the working capital needed for the next round of sourcing, leading to business failure. |
Conclusion: Achieving profit in arbitrage requires a high turnover rate (items that sell quickly) and strict inventory management.
