What the Grey Market Means

After we launched our aggressive anti-diversion campaign, I continue to receive a lot of comments and questions from frustrated salon owners who still see our products on unauthorized shelves. This is not going to be a battle that we win overnight and my goal is to educate the consumer about the risks of purchasing products from outside of a professional salon in what we call "the grey market." Diversion is not always illegal, but affects the general economy while potentially compromising the authenticity of the product. Other industries from champagne to pharmaceuticals are battling similar issues as we are with our diverted salon products. Grey market goods can range from "designer" luxury bags sold on eBay to premium denim copies sold on city streets to designer fragrances sold at your local drugstore. According to Wikipedia, the grey market is defined as the following:

Grey-market goods are not generally illegal. Instead, they are sold outside normal distribution channels by companies which may have no relationship with the producer of the goods. Frequently this form of parallel import occurs when the price of an item is significantly higher in one country than another. This situation commonly occurs with cigarettes and with electronic equipment such as cameras. Entrepreneurs buy the product where it is available cheaply, often at retail but sometimes at wholesale, and import it legally to the target market. They then sell it at a price high enough to provide a profit but under the normal market price.

To clarify how our salon products get into the wrong hands, take the following example. A salon with a professional only contract will order professional products and after six months, they are approached by a grey market agent who in many cases may represent a distributor who sells to mass retailers. These distributors may carry a variety of goods such as DVDs, cigarettes, fragrances and other items they can mark up to make a profit. These agents purchase excess inventory from a small salon at a cost that allows everyone to make a profit. This scenario is a breach of contract and as the business becomes profitable to the diverter and the salon owner, things can sometimes become shady. In an attempt to try to cover their tracks, so they cannot be traced through our product codes, they may change the packaging and/or formula and as we have proven, the mark up becomes greater for the consumer. Products can be diluted, counterfeited or full of bacteria. Because mass retailers make a profit on these goods, the temptation is high to resell. By taking control of our distribution process, one of our objectives is to be able to monitor and track these sales to salons and to ensure that salons are only ordering for their legitimate businesses.

Online Counterfeit Good Legislation

I'm always reading about the challenges other corporations face when their goods are resold in the black or grey market or counterfeited. I receive a lot of comments and messages from customers regarding our products being resold on eBay and other online retailers. The products that you see on these sites are the same diverted products you will see in your mass retailer or local grocery store. We do not sell to or guarantee our products available on these sites. I recently read an interesting article about legislation pertaining to stolen and counterfeit goods sold on eBay. US Representative Brad Ellsworth of Indiana introduced legislation last week that would make organized retail crime a federal offense and would make marketplaces like eBay more accountable for stolen goods listed on their sites. Last week, many companies were disappointed that Tiffany lost their suit against eBay for selling counterfeit products. This new proposed law could provide protection for brand equity where no online laws exist. If the law gets passed, online sites such as eBay could be considered "facilitators" for the sale of unauthorized goods.

NRF Vice President for Loss Prevention Joseph LaRocca said, "A significant portion of this bill deals with on-line fencing of stolen goods. On-line auctions and other markets on the Internet provide a Wild West environment where thieves can re-sell stolen property to customers on a national or even international level with virtually no questions asked.


The bill would define organized retail crime as "the acquiring of retail merchandise by illegal means for the purpose of reselling the items" and make such activity - including transportation, sale or receipt of stolen retail goods, - a federal crime. Among other provisions, sale of stolen or counterfeit gift cards, or items with faked Universal Product Codes or Radio Frequency Identification chips would be considered fraud. Those found guilty of committing or facilitating organized retail crimes would be subject to appropriate existing fines, prison terms and forfeiture, and the legislation would require the U.S. Sentencing Commission to review its guidelines for cases involving such crimes.

I'm not sure what this could mean as we continue to battle diversion, but I'll definitely be following this story.

What I Love About My Job

Recently, I attended a new hire breakfast for our Redken employees which included a Q&A session. Even our new employees were asking insightful questions about what my role is in fighting diversion. I was also asked about what my favorite thing is about my job. I responded at the time about how I enjoy working on large strategic initiatives for the company and managing such a diverse and talented group of employees.

After this meeting, I reflected on my answer and began to think about my role within the salon industry and my commitment to our salon professionals and their customers. I was taken back to my first salaried job in the late 1960's where on my way home from work, I'd stop on King's Road to admire the work of a young hairdresser named Keith Wainwright who opened up a salon called Smile, the first unisex hair salon in London. (His salon still exists in Chelsea.) All of the London scenesters including Jagger and the Beatles went to Keith and I would watch his impressive skill creating some of the signature looks of many style icons of the day. A haircut with Keith cost almost as much as I made in a week so I never was able to sit in Keith's chair. Now, I'm lucky as part of my role at L'Oreal, I work with some of the greatest stylists and educators in the industry (who will sometimes cut my hair) and I think about the confidence and aspirations that these professionals inspire in their clients and students.

I Want Your Feedback

First of all, I wanted to say thank you to all that have taken to time to write comments to my blog posts. I believe in the importance of listening to our salon professionals and clients and strongly believe that with your feedback we can make L'Oreal a better company.

I want to welcome any ideas that you may have regarding initiatives that you would like to see L'Oreal explore for 2009. Whether it's about how to fight & spread the word about Diversion, new products that you would like to see in the market, or other opportunities you would like L'Oreal to participate on, please click on the Comments link below.

Cheers!
David

NAHA 19

How inspiring!

As all our stylist readers know, the North American Hairstyling Awards (NAHA) is the pinnacle of hairstyling competitions in North America where the very best stylists and leaders in the world of hair and beauty are acknowledged. The winners for NAHA 19 were announced this past weekend and if you haven't had a chance to, you should check out their winning styles.

This year, three Matrix Artistic Designers and Matrix C.R.A.F.T. Global Academy instructors were nominated, and among them Nicholas French won for his Avant Garde work. Check out the talent from Matrix.

Congratulations to all the artists!

Why Pay More?

While it may surprise you, you are probably at a price disadvantage when you purchase salon products from retailers such as food, drug and other mass retailers. In fact, through our price checks we have found that salon products purchased at mass retailers are AT LEAST 10% higher than when bought at your local salon or spa.

ABC Phoenix recently reported on diversion. The investigative article explains what diversion is, that it ultimately can rip off consumers and that products may be contaminated. Consumers need to know that non-authorized stores can charge anywhere from 50% up to $5. For example, ABC15 found Redken Color Extend Shampoo for $15.69 at a popular supermarket vs. $11.50 at the salon across the street. Matrix's Sleek.look Shampoo was found for $17.99 at a drug store, vs. $13.95 at a salon.

Click here to read the full article.

If you are a salon professional, I urge you to educate your clients about your commitment over mass retailers to provide fair pricing and guaranteed products.

Please share this with your friends and family so they know the facts.

Myths about Diversion

One of the myths associated with the diversion topic is that we have perpetrated it ourselves by soliciting unauthorized business. I would like to reassure our millions of cherished customers that there is no truth whatsoever in this rumor.

On the contrary, we have always done everything in our power to ensure that professional products stay within the professional channel.

But, this is a fragmented distribution. There are 200,000 salons in the USA and policing that number of outlets is difficult. We continue to redefine our policy and won't give up fighting to protect the interest of our salon professionals and consumers.

Quality Guaranteed Only in Salons

We have great news. Because of the confidence we have in our products, for the 1st time ever, we are offering a QUALITY GUARANTEE on L’Oréal Professional Products – Matrix, Redken, PureOlogy, L’Oréal Professionnel, Artec, Kérastase, Shu Uemura Art of Hair and Mizani. If you purchase our products at your local salon, spa or online from L’Oreal Professional Salon Products websites and you’re not satisfied with their performance, return the product with a receipt within 4 weeks for a full refund.

Please visit these websites for step-by-step instructions:
www.matrix.com
www.redken.com
www.pureology.com
www.shuuemuraartofhair-usa.com
www.kerastase-usa.com
www.mizani-usa.com
www.lorealprofessionnel.com

Only products purchased in a salon or spa are guaranteed to perform to our standards. Thank you for supporting your salon and spa community.

International Pricing Policy and Product Availability

I have had a couple of comments this week from customers regarding our international pricing policy and asking why products are not always available in every country.

As a company, we market price locally based on the competitive dynamics of each country and the economic equation associated with our product sourcing. As a company, we comply to the highest standards of international health and safety but we also comply to local laws. As far as product availability is concerned, we as a company conform to local laws, and different countries allow different ingredients. This is one reason to buy professional products in professional outlets to ensure that you as a consumer purchase compliant products that are appropriately priced.

Customer Service Numbers

Thank you for your many comments on this blog. Although I cannot personally respond to each one of you, I am really excited that you are communicating with me and please know, I'm reading all of your comments. I've noticed that a lot of your comments have included unique customer service inquiries. I am directly forwarding your customer service, brand and technical issues to highly trained experts in our customer response center. If you have a specific question about a L'Oreal product or brand, you can click here to find the appropriate phone number. I've also listed our Professional Product hotlines permanently on the blog.

GMA Consumer Report

Diversion was the topic of today’s Consumer Alert segment on ABC’s Good Morning America. The 3-minute segment provides consumers with three reasons (the three C’s) to not to buy salon products in unauthorized outlets – Counterfeit, Contamination and Costs more at what you think of as bargain stores.

Additionally, they featured these tips to spot Diverted products:
1. The products appear to be watered down
2. The packaging is not the original and this is especially noticeable on the cap

Click here to watch the video, and learn how a client could have saved $15 by purchasing the products featured in the video which include Biolage & Redken at a salon.

What is Diversion?

Please watch my video explaining what diversion means and how it can impact your stylist.

Welcome to My New Blog!

Welcome to my new blog. Many of you are probably already asking why I have decided to enter the blogosphere? My two main reasons are to explain to our valued consumers and hairdressers the risks associated with buying professional products from unauthorized outlets (the process we call product diversion)and to use this great medium to dialogue with the most exciting professionals in the world- our stylist community.

As you can see, there is a comment box below each post. Please feel free to send me messages in this section. I will read all of your comments and while I may not be able to respond to every one of you, I will continue to address hot topics in this forum.