Author: Jenna White
February 4th, 2021
February 4th, 2021
For decades there has been a silent battle waged between salons and big-box retailers when it comes to selling professional hair care products. Product manufacturers like Paul Mitchell and Aveda build partnerships with salons and agree to solely distribute their products through those locations to enable a competitive edge for small businesses. However, salon owners and their staff, who both earn commissions on retail sales, become frustrated when they notice those same products being sold at drug stores like Target and Walgreens. Read on to learn more about the diversion of hair products, and refer to the list below to understand the key types of players in the ecosystem.
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Hair Product Supply Chain Ecosystem Players
Product Manufacturers
Brands manufacturing products via formulas that are part of their intellectual property.
Examples: Paul Mitchell, Aveda, Moroccanoil
SMB Retailers
Salons and barbershops who use their industry knowledge to recommend products to customers. These businesses often partner with certain brand manufacturers under the agreement that the salon will exclusively sell their brand and the manufacturer will only sell through professional salons.
Examples: your local barbershop and/or salon
Big-Box Retailers
Large conglomerate retail chains, where purchasing decisions are made based on consumer research/self-service (i.e. sans professional recommendations).
Examples: Walgreens, CVS, Walmart, Amazon
Re-distributors
Beauty supply store businesses that may or may not require a cosmetology or barbering license to buy from them.
Examples: Sally's Beauty Supply, CosmoProf, Ulta Beauty
Diverters
Unauthorized distributors who act as a broker between manufacturers and retail channels. They often use discrete, undocumented ways of obtaining products that require a manufacturer's barcodes to be removed.
Example: black-market businesses
Product Manufacturers
Brands manufacturing products via formulas that are part of their intellectual property.
Examples: Paul Mitchell, Aveda, Moroccanoil
SMB Retailers
Salons and barbershops who use their industry knowledge to recommend products to customers. These businesses often partner with certain brand manufacturers under the agreement that the salon will exclusively sell their brand and the manufacturer will only sell through professional salons.
Examples: your local barbershop and/or salon
Big-Box Retailers
Large conglomerate retail chains, where purchasing decisions are made based on consumer research/self-service (i.e. sans professional recommendations).
Examples: Walgreens, CVS, Walmart, Amazon
Re-distributors
Beauty supply store businesses that may or may not require a cosmetology or barbering license to buy from them.
Examples: Sally's Beauty Supply, CosmoProf, Ulta Beauty
Diverters
Unauthorized distributors who act as a broker between manufacturers and retail channels. They often use discrete, undocumented ways of obtaining products that require a manufacturer's barcodes to be removed.
Example: black-market businesses
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How Diversion Happens
If you ask an SMB retailer (i.e. a salon or barbershop) how professional products end up on big-box retailer shelves, some will say they suspect product manufacturers have broken partnership agreements by neglecting to manage their supply chain. This temptation occurs when sales are down or a product is being discontinued, and can be facilitated through "re-distributors", or beauty supply store businesses. For re-distributors, there is technically nothing illegal about selling their inventory to big-box retailers. They would argue it is discretely supported by hair product manufacturers who choose to sell inventory to them knowing that is where it could end up. What is illegal is for manufacturers to claim products can only be bought in salons in writing on the bottle, but then allow sales to occur elsewhere. The articles below share further insights from additional sources.
Stopping Salon Products in Drug Stores, July 10, 2011, Salon Today
L’Oréal Hair Product Class Action Lawsuit Settlement, August 9, 2013, Top Class Actions
If you ask a hair product manufacturer how professional products end up on big-box retailer shelves, some will claim it is the salon industry that has been breaking their partnership obligations, citing instances where "diverters" (unauthorized distributors) are approaching salons to buy boxes of inventory, which they then turn around and resell to, for example, Target at a higher price point. The articles below share further insights from additional sources.
Is It Safe To Buy Salon Shampoo From Drug Stores?, February 21, 2019, Reviewed
Retailers Gloss Over Diversions of Professional Hair Care Products, April 30, 2008, Consumer Affairs
If you ask an SMB retailer (i.e. a salon or barbershop) how professional products end up on big-box retailer shelves, some will say they suspect product manufacturers have broken partnership agreements by neglecting to manage their supply chain. This temptation occurs when sales are down or a product is being discontinued, and can be facilitated through "re-distributors", or beauty supply store businesses. For re-distributors, there is technically nothing illegal about selling their inventory to big-box retailers. They would argue it is discretely supported by hair product manufacturers who choose to sell inventory to them knowing that is where it could end up. What is illegal is for manufacturers to claim products can only be bought in salons in writing on the bottle, but then allow sales to occur elsewhere. The articles below share further insights from additional sources.
Stopping Salon Products in Drug Stores, July 10, 2011, Salon Today
L’Oréal Hair Product Class Action Lawsuit Settlement, August 9, 2013, Top Class Actions
If you ask a hair product manufacturer how professional products end up on big-box retailer shelves, some will claim it is the salon industry that has been breaking their partnership obligations, citing instances where "diverters" (unauthorized distributors) are approaching salons to buy boxes of inventory, which they then turn around and resell to, for example, Target at a higher price point. The articles below share further insights from additional sources.
Is It Safe To Buy Salon Shampoo From Drug Stores?, February 21, 2019, Reviewed
Retailers Gloss Over Diversions of Professional Hair Care Products, April 30, 2008, Consumer Affairs
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Why Consumers Should Care
Diverters Remove Product Barcodes
Since diverters are often operating in the black-market, they need to remove any unique identifiers that link products to different manufacturing batches. This becomes a problem if and when product recalls occur, because there is no way to know which batch a product came from. It also allows diverters to tamper with products. Examples of this could be watering down a product to create more of it (more product allows for increased sales), or reselling to retailers beyond the expiration date (the clock starts ticking the moment a product is opened).
Sources: Product Diversion - The Gross Reality, November 3, 2015, My So-Called Chaos; Hair Product Diversion Is Dirty Business. Here's What It Will Take To Clean Up The Supply Chain, October 23, 2018, Forbes
Quality Assurance Remains a Challenge for Big-Box Retailers
Recently, there have been debates in states like California, Pennsylvania and New York over whether Amazon counts as a seller under product liability law, which would hold them accountable for injuries sustained from 3rd party products sold on their platform. Most notably, the question went to the Texas Supreme Court in December of 2020, with trials still underway. Amazon maintains that it is not a seller but rather a facilitator of the sale.
Source: Online Retailers Beware: Texas Supreme Court to Consider Whether Amazon Is a “Seller”, January 21, 2021, The National Law Review
Excess Inventory's Impact on the Planet
In December of 2019 CNBC reported that “Every year, Amazon and other retailers end up with billions of pounds of excess, unsold inventory that they’re sending straight to landfills, or incinerating". Big-box retailers hoard inventory to ensure they are the ones consumers depend on to have items in stock. However, with so many items to sell across multiple product categories, they're less likely to efficiently match consumers with the best options. This leads to lower sales in certain categories and excess inventory going into landfills.
Source: What Retailers Like Amazon Do With Unsold Inventory, December 14, 2019, CNBC YouTube Channel
Diverters Remove Product Barcodes
Since diverters are often operating in the black-market, they need to remove any unique identifiers that link products to different manufacturing batches. This becomes a problem if and when product recalls occur, because there is no way to know which batch a product came from. It also allows diverters to tamper with products. Examples of this could be watering down a product to create more of it (more product allows for increased sales), or reselling to retailers beyond the expiration date (the clock starts ticking the moment a product is opened).
Sources: Product Diversion - The Gross Reality, November 3, 2015, My So-Called Chaos; Hair Product Diversion Is Dirty Business. Here's What It Will Take To Clean Up The Supply Chain, October 23, 2018, Forbes
Quality Assurance Remains a Challenge for Big-Box Retailers
Recently, there have been debates in states like California, Pennsylvania and New York over whether Amazon counts as a seller under product liability law, which would hold them accountable for injuries sustained from 3rd party products sold on their platform. Most notably, the question went to the Texas Supreme Court in December of 2020, with trials still underway. Amazon maintains that it is not a seller but rather a facilitator of the sale.
Source: Online Retailers Beware: Texas Supreme Court to Consider Whether Amazon Is a “Seller”, January 21, 2021, The National Law Review
Excess Inventory's Impact on the Planet
In December of 2019 CNBC reported that “Every year, Amazon and other retailers end up with billions of pounds of excess, unsold inventory that they’re sending straight to landfills, or incinerating". Big-box retailers hoard inventory to ensure they are the ones consumers depend on to have items in stock. However, with so many items to sell across multiple product categories, they're less likely to efficiently match consumers with the best options. This leads to lower sales in certain categories and excess inventory going into landfills.
Source: What Retailers Like Amazon Do With Unsold Inventory, December 14, 2019, CNBC YouTube Channel
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Source: Product Diversion - The Gross Reality,
November 3, 2015, My So-Called Chaos |
What To Do About It
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