Diversion Incursion

We know that diversion can be controlled. Our stringent sales policy is key to fulfilling our commitment to keeping our products non-diverted—something that we’ve successfully done for the past 10 years. (Eufora founders Don and Beth Bewley)

My position has always been ‘no diversion’ for my product lines. Our products have never been diverted in the 18 years that we’ve been in business. (Guita Dovas, founder of Oloff Beauty)

 

Diversion Incursion

Sad, but true: diversion is coming out of the closet with a vengeance. A case in point: During the recent America’s Beauty Show (ABS) in Chicago, I was taking a quick chill in the pressroom. While kicking back on a comfy couch, I couldn’t help but overhear a conversation that was going on right next to me. A man—who I later learned was a collector (a business person who collects diverted products, usually from multiple sources, and then sells the goods to stores) was talking rather loudly about his challenge with Moroccanoil products, complaining that even though he had a purchase order from a big-box company for 100,000 units of this professional product, the owner, Ofer Tal, had refused to divert his products. (Good for you, Mr. Tal!). He then paused before asking, “Do you have any leads on professional irons?” So much for the mysterious counterfeit products from Mexico, or the sneaky Belgian distributor who’s importing professional goods to the States by the boatload. The deals are going down right here, right now.

“I believe that we’re being blatantly exploited and, in the process, our livelihood is being taken from us,” declares Gina Lucci, owner of the Dante Lucci Salon, whose single location in Rocky River, Ohio, sells $280,000 in retail each year. “Do I feel threatened about this situation? You bet! I’m also insulted that many diverters believe that hairstylists are so stupid that they accept their excuses for pro beauty goods being sold in retail outlets. We’re not mom-and-pop operations anymore; we’re business people.”

Pointing the Finger

We do not tolerate diversion of our Profound Beauty products whatsoever — even those sold on eBay. I personally track them down and have them removed. (Stefany Reed, senior vice president of marketing and salon development for Profound Beauty)

Aquage is the poster-child for anti-diversion. We don’t sell to diverters, and any company wishing to carry our products must produce at least 50% of its business dollars in salon services. (Luis Alvarez, vice president of creative and education of Aquage)

 

Pointing the Finger

So, who’s to blame for this salon business disaster? Everyone in the beauty biz, that’s who! Some salon owners are reaping the benefits of peddling their wares on eBay or stocking smaller beauty stores with coveted professional brands. And some product companies have grown their bottom lines by millions of dollars by diverting their goods to the mass-market sector where the high cost of education and maintaining a salon sales force doesn’t exist. Looking at the situation strictly from a dollars-and-cents point of view, who could blame them for seeking alternative channels? When the almighty dollar comes calling, these companies have to weigh their options: Should they stick with the salon business that produces modest product sales, or use the goodwill and solid retail base that has been built by their salon customers to stuff their coffers with a steady flow of staggering sums of money?

“My answer to your question: Product companies need to target their customers and stick with them,” says Guita Dovas, founder of Oloff Beauty, which produces the non-diverted Barex Italiana, JOC Color and Aéto Botanica Hair brands. “We’ve developed such highly researched products that we want them to be sold strictly in salons because only salon professionals know the difference between X, Y and Z brands. We’ve always wanted the ultimate recipient—professional beauty experts—to rate our products and to give them brands that they could call their own. Because of this, we’re fierce antidiversionists. When a distributor has even a small spike in product sales, we want to know why.”

“We, too, monitor our distributors very carefully,” says Wayne Grund, founder and president of Surface hair products. “But salon owners should also track where their brands are being sold. Besides all the lost revenues that happen any time products wind up in a Costco or Walgreens, their presence in these mass-merchandise stores degrades the total image of their salons. Think about it: You could be displaying the same products on the shelves of your $500,000 salon that a discount store is proudly displaying—often on huge palettes so they can’t be missed by the same shoppers that frequent your salon.”

 

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Alterna closely monitors purchases from our distributors and has a cross-reference invoice-to-product coding procedure to prevent diversion. Additionally, we don’t pressure our accounts with unrealistic purchase expectations, which is a primary cause of diversion. (Jay Morris, Alterna executive VP of global sales)

Our greatest means of defense against diversion is our limited distribution network. We service all of our salons in the U.S. market with just four distributors. (Steven Goddard, CEO of Pravana Naturceuticals)

 

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Other prolific salon retailers are turning to private-label and custom manufacturing to preserve their bottom lines. “Some time ago, we signed a contract with an upscale pro beauty company, in part agreeing that we would purchase a large amount of the company’s goods each month,” says Allen Edwards, owner of the SoCal-based Allen Edwards salon + spa. “In return, we were told, ‘We will only allow a few select locations in your area to carry our line.’ In truth, one of these select locations ended up being a lowbrow beauty store down the street—just to name one diverted location. Because this scenario has happened over and over again, we took ourselves out of the line of fire by introducing our own haircare line—Shear Force.” Beth Minardi, owner of the Minardi Salon in Manhattan, had a similar experience with the same company. “It’s a joke, really,” she relates. “Diversion is everywhere, and it’s not going away.” Perhaps, though, the last laugh is on the offending product maker: Minardi is adding her name to the growing list of product companies that refuse to divert their goods by launching her own color-safe brand, Minardi uxury Color Care Line, which will soon be distributed nationwide.

Fresh Brands

Fresh Brands

Another harsh reality check: Diverters are looking for fresh lines to stock mass-merchandise shelves and stimulate sales. This has necessitated pursuing smaller brands, like Moroccanoil and Surface, which are still strictly professional. “My company is very new, and yet we’re already being approached by diverters who want to put our products into non-professional beauty stores,” informs Grund. “But we have a plan and destiny for our products—built on three generations of stylists and salon owners—and it only entails the professional beauty industry.”

Dovas reports the same experience. “I had a diverter approach me not more than a month ago, asking if he could take on both my Barex and Aéto lines. When I looked at him with dismay, he quickly added, ‘C’mon, don’t worry. No one will ever know.’ ‘But I would know,’ I replied. ‘I told salons 18 years ago that I would never divert my products and I’m sticking to my word.’”

We stand by the hairdresser. Our products will never be diverted. (Wayne Grund, founder and president of Surface)

Dermalogica Denounces Diversion

Dermalogica Denounces Diversion

Yes, the underground market in skincare products is thriving. But for one leading brand, this means war: Dermalogica has launched a zero-tolerance campaign against diversion that promises to have the plunderers—whom president Jerry Wenker refers to as “pirates”—hoisting the white flag.

“At tremendous cost to our company,” says Wenker, “we’re aggressively going after anyone who diverts our brand.” How much cost, exactly? Wenker reveals that last year alone, the company cut off accounts representing more than $1 million in revenues for selling Dermalogica products outside of approved channels!

Company policy states that Dermalogica may only be sold in settings where licensed skin therapists offer their services in bona-fide treatment rooms. For more than 20 years, this has kept the coveted brand out of department and drug stores. For the same reason, the product line is never sold on TV home shopping shows, company infomercials, or directly to the public via the Internet.

The brand leaves no stone unturned in its quest to bust diversion marauders. For instance, an in-house team surfs the web daily to find any sites that are retailing Dermalogica products. What’s more, “every product is embedded with both visible and hidden opportunities for tracking,” promises Wenker confidently.

“We’re passionate about protecting the expertise of the skin therapist, and about guaranteeing that all Dermalogica products that are sold to consumers are pristine,” says Wenker. “Every time we shut one of these pirates down, we’ve made the skincare industry a better place for everybody.” —Grace Green