How do chain stores sell salon hair care products?

National-NBC
Aired April 25, 2005

Paul Mitchell, Redken, Aveda and Nexus. You know the names, especially if you're into your hair.

She may use Paul Mitchell products, but Lindsay Allison admits that when it comes to buying, it's all about convenience, "I mainly buy my hair care products at a drug store instead of a salon."

Check out the labels. The high-end shampoos and gels are meant for salon-sale only. Yet, they're turning up in drug stores and supermarkets across the country. Jessi Hempel with Business Week, "We knew that they weren't supposed to be there, and so we asked the question,'Why'?"

The answer is a thriving gray market in professional hair-care products. Hempel was part of a Business Week investigation, "Sometimes, 100, 150 were turning up on shelves."

So, how is this happening? The products are manufactured and sold exclusively to salons. Then according to Hempel, some of those salons re-sell them to wholesalers who then make deals with drugstores and supermarkets, "We call it a gray market because officially there is nothing legally wrong with what's going on."

There's no law against it, but Hempel say buyer beware, "We see products coming in from China, we see products being, out-dated, sold in bottles that should have been sold two-years-ago."

That's what got John Paul Dejoria up in arms. He only sells his Paul Mitchell products to salons. His company launched a multi-million-dollar campaign to educate consumers, "If you find any of our products in any drug store or supermarket, it is either counterfeit, black/gray market, stolen or extremely old."

Dejoria was so concerned, he bought Paul Mitchell products at well-known drug stores and supermarkets from coast-to-coast and then tested them in his company labs, "The bacteria count was too numerous to even count. That's how bad it was."

Lindsay says she'll be doing things a lot differently from now on, "I probably will buy my hair care products in a salon from now on."

The hair care industry loses an estimated $30 to $40 million each year to the gray market. The National Association of Chain Drug Stores declined to comment on this issue and so did the Food Marketing Institute.

________________________________________________________

Comments from Cyrus Bulsara: Professional Consultants & Resources

Dear Salon Industry Leaders:

Above is an informative article on salon diversion from WISTV.com, the Columbia, SC, affiliate of NBC.

The figure of $30 to 40 million in losses due to diversion is grossly underestimated.

Data compiled by us, for our 2004 Salon Industry Haircare Report (featured in the May ‘05 issue of Modern Salon) and by other sources, reveal that diversion of exclusive brands at salon retail dollars, accounts for approximately $300 million.

This equates to nearly $120 to $150 million at manufacturer’s dollars…on haircare items alone!

Diversion has grown by approximately 7% to 8% in 2004.

This is a scourge that the salon industry must fight most aggressively - legally and by all other means. We have recently assisted major corporations and distributors in the fight against diversion as salon industry experts / witnesses.

Diversion and consolidation are now the two major factors that are impacting our industry and causing year after year, of sub 3% growth. This is the lowest growth rate the industry has seen in decades.

Best regards,

Cyrus Bulsara