"Sold Only in Professional Salons." Those are fighting words throughout the beauty industry. They proclaim manufacturers’ and beauty salons’ desires to limit sales of many high-end professional-beauty products to salons. But large drugstore chains and discount retailers often sell products that have packages marked for sale in salons only. And they sell those products in competition with beauty salons despite the manufacturers’ and salons’ wishes.
Diversion happens when professional products that the manufacturers intend for sale only at salons are sold at other types of retail outlets. For example, an exclusive shampoo may be sold by the manufacturer directly to a distributor with a requirement that the distributor must sell the shampoo to salons and not to large drugstore chains. If the shampoo ends up on drugstore shelves, it was diverted. The distributor could have diverted it, the salons could have diverted it, or “collectors” who buy from the salons to sell to mass-market retailers could be the diverters. Diversion is not an issue for mass-market products because those products are designed for sale in discount retailers, drugstores and grocery-store chains.
Professional-product diversion inspires passions on both sides of the issue. Important industry players have differing views on whether salon diversion is a problem or not. Some people make money when products are diverted and other people lose money; so those passions are very understandable. This column is not going to take sides. It will explore some of the legal issues involved and arguments made by both sides. There is a lot of money involved in diversion. One plaintiff estimated in 2010 that the professional beauty-product industry has sales of $5 billion per year, out of which $1 billion is diverted salon-only products. In haircare products alone, industry reports show that $44 million worth of products were diverted in the fourth quarter of 2011.
[Photo: Courtesy of BSB columnist and NYC lawyer Jean Warshaw]