April 7, 2008
Diverting Targets Upscale Beauty Lines
In light of the recent story and RetailWire discussion on Costco’s
use of diverting, it was interesting to come across a piece on the Women’s Wear Daily (WWD) website describing how Target has brought in upscale beauty brands into a store in New Jersey that are typically found only in department stores and high-end beauty boutiques.
According to a piece by Molly Prior and Faye Brookman, Target’s store in South Plainfield included Bare Escentuals, Bumble and bumble, Clarins, Keihl’s, Origins and StriVectin.
Manufacturers of the brands, interviewed by WWD, all maintained that the companies had no direct relationship with Target.
Bumble and bumble president Peter Lichtenthal said the retailer is not authorized to sell its products.
“We became aware of this matter only when the products appeared on shelf,” he told WWD. “Bumble and bumble is committed to prestige hair salons as our primary and overwhelming channel of distribution…Through Bumble and bumble’s advanced coding system, along with dedicated surveillance on ordering patterns, we have been able to intensify our ‘zero’ tolerance policy against any Bumble and bumble partner that diverts our merchandise to an unauthorized retailer. If someone diverts, we will shut them down.”
StriVectin marketing director Gina Daines, said, “Unfortunately, diversion of luxury goods has become a serious problem worldwide and one that StriVectin takes seriously. As a high-end brand, we have invested an incalculable amount of research and resources into finding the best ingredients and formulas to make our products safe and effective. As a result, we believe that our products should be sold at the finest retailers.”
William Chappell, an analyst with SunTrust Robinson Humphrey, said, “It’s ironic that a good Midwestern retailer is using backdoor tactics to get ahead. Target has decided it’s going to go upscale whether [prestige beauty firms] like it or not.”
Target does seem intent on upscaling its beauty image with a four-foot planogram signed as “professional skin care” in a number of stores. The set included the Lumene brand along with the aforementioned prestige brands.
WWD reported that it found similar sets in three of 11 Target stores visited in a number of states. The retailer declined to comment on the “professional skin care” site but an unidentified vendor said Target is testing the concept in 300 to 500 stores across the country.
Discussion Questions: Has diverting activity increased? Are the objections raised by brands in the media an accurate reflection of the c-suite reality outside of the public eye? Does diverting during an economic slowdown represent a bigger threat to a luxury brand’s equity than when it is done during a more robust time?
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Indications are that diverting is running at about the same level as before. The difference is that some players have left the game and new ones have arrived. Diverting was never limited to retail food. World wide it is referred to as the Grey Market.
Many products are sold in countries in which the supplier has no presence. The mistake suppliers make is not following their customers. If Target is attracting the suppliers target consumers then they should think up an approach to sell them. Many retailers attempt to go upscale by acquiring the brands of the upscale retailer. This brings the brand image down, but for many it is just the next step in a brands life cycle.
There are a number of customers who, realizing their “Neiman Marcus product” is now at Target and available to “everyone” will NOT buy that product. The company potentially could recover in volume, sales lost through supposed “exclusivity” and while it is true that most of these products likely have lives that will take them to Target eventually anyway, it may not be “time” yet for that to happen and that undercuts the original company. I agree that–for example–if Family Dollar started to sell “Choxie” chocolate whenever they could have some diverted to them, Target would not likely be amused–nor should they be.
Target IS Great. I love it and shop there regularly. It is the Neiman Marcus of discount department stores but it is STILL a discount department store and there needs to be upholding of the commitment for exclusivity to brands and stores.
Also, as pointed out, constant reliable product may not be available if one has to rely on diversion. This probably would not hurt Target in the long run, however, because the customer is likely to figure out that Target simply could no longer carry that article of interest. Intermittent product availability also would probably be assured to clear the shelves quickly whenever it would be available.
Diversion has gone on and will continue to go on, and not only at Target. Exclusivity contracts exist for a reason, to protect the product reputation and marketplace standing, at that point, in the product life cycle. These should be honored and people should do what is right and none of this would be a problem. Having said that–that and $3.50 will get you a gallon of gas and that is about all it is worth because there will always be some people willing to do the sale and the deal–no matter what.
This is GREAT! I’ve always found the snooty attitudes of so-called luxury brands to be off-putting. For Target, diverting contributes to their “Discovery Shopping” effort. This refers to unusual products available for a short period of time at a great price. Since they can’t depend on diverted products being available forever, they treat them as “in-and-outs.” This is exciting for shoppers, encouraging them to visit the store often so they won’t miss out on any of the limited-time products. And, it works great during an economic slowdown when shoppers are hunting for bargains more than ever.
Brands, on the other hand, should object and do everything in their power to control diverting. As always, it’s an adversarial relationship between manufacturer and retailer. This tension between suppliers and stores is good for consumers and good for business.
Diverting is a double edged sword for a retailer like Target. At best, they get a limited and sporadic supply of goods that they can quietly make a splash with their customers. On the other hand, the limited and sporadic supply cuts against Target’s message as an in-stock retailer that customers can rely on.
For starters, if the upscale beauty products are “available” for diverting to Target, then this is a very good indicator that they are not selling properly at their normal (preferred) retail distribution venues.
Many consumers who can afford to shop and have accounts at Nieman’s and Nordstrom, also regularly shop at Target. Does this make these exact same consumers suddenly more downscale or less desirable as consumers on days they park their vehicle in the parking lot at Target? Only a snob would think so.
Distributors of “prestige” lines who truly wish to maintain control of their product placement and price point would do well to experiment to see where their customers are and not force themselves into a small box that limits sales and deprives customers of convenient access to the product.
Diverting has been around for years, and whether or not it is on the increase is difficult to determine, because there are no real tracking numbers to review. That being said, I find it interesting that Target is involved in this, directly thumbing their nose at the requests to stop by the brand owners.
I wonder what Target would do if all of the sudden, a retailer started to carry Archer Farms products, or Choxie chocolate. Would Target allow this to continue? Would they see it as another way to promote the brand? I think not.
I’m not opposed to diverting, but I think it has to work both ways. If Target wants to purchase product through the back door, they can say anything if another retailer does the same with their corporate brands.
I don’t know how anyone can speculate on the relative rate of diverting activity across all classes of trade since it benefits so few to have those numbers made public BUT I don’t think we’ve seen any decrease.
I find it interesting that people are just catching on to the fact that the mass merchant channel diverts. Duh!!! Where have you guys been for years???
Diverting serves multiple purposes and generates tremendous annual revenues for manufacturers, wholesalers and retailers. As long as “enforcement” is limited to a wink and a nod, I expect we may be looking at this same issue a dozen years from now.
I can understand luxury brands hesitation with selling to mass merchants. It may affect brand equity at some point but if a chain can sell it, why not? And Target is not low rent by any means. Whether its Crocs at Costco or Clarins at Target, vendors need to look at this as an opportunity and demand for their products. Is a Target shopper’s money not as good as a Nordstrom shopper’s?
This development raises a few interesting questions about Target’s beauty strategy in particular as well as its current business:
1. Diversion of brands like Kiehl’s and StriVectin makes you wonder about the state of Target’s internal product development. Has their beauty department reached a dead end, or is the business continuing to grow?
2. Target was accused by Coach a couple of years ago of selling counterfeit handbags. These turned out to be the genuine article, and bought from a department store chain liquidating some inventory. Is diversion going to become a bigger piece of the Target merchandising strategy?
3. If Target intends and expects to sell higher-priced beauty products (wherever the source), how does it intend to improve the content of its women’s apparel business at the same time?
It’s hard for the Target consumer to respond to “surprises” in the beauty and accessory areas if they are not responding to the core assortments in apparel.
Diverting is certainly at least 50 years old. I’ve spoken with retail executives from the 1950s, who bought millions of dollars in diverted goods when Fair Trade laws were enforced. My impression is that 99% of all diverted goods volume is aided by the manufacturers. The technology for recording where the merchandise originally went has been around since forever. Any manufacturer can simply mark the cartons with the name or code number of the original purchaser. Or the manufacturer can mark a random sample of the product itself. Without diverting, many brands would miss their sales objectives by double-digit declines. They just can’t admit it.
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Indications are that diverting is running at about the same level as before. The difference is that some players have left the game and new ones have arrived. Diverting was never limited to retail food. World wide it is referred to as the Grey Market.
Many products are sold in countries in which the supplier has no presence. The mistake suppliers make is not following their customers. If Target is attracting the suppliers target consumers then they should think up an approach to sell them. Many retailers attempt to go upscale by acquiring the brands of the upscale retailer. This brings the brand image down, but for many it is just the next step in a brands life cycle.
There are a number of customers who, realizing their “Neiman Marcus product” is now at Target and available to “everyone” will NOT buy that product. The company potentially could recover in volume, sales lost through supposed “exclusivity” and while it is true that most of these products likely have lives that will take them to Target eventually anyway, it may not be “time” yet for that to happen and that undercuts the original company. I agree that–for example–if Family Dollar started to sell “Choxie” chocolate whenever they could have some diverted to them, Target would not likely be amused–nor should they be.
Target IS Great. I love it and shop there regularly. It is the Neiman Marcus of discount department stores but it is STILL a discount department store and there needs to be upholding of the commitment for exclusivity to brands and stores.
Also, as pointed out, constant reliable product may not be available if one has to rely on diversion. This probably would not hurt Target in the long run, however, because the customer is likely to figure out that Target simply could no longer carry that article of interest. Intermittent product availability also would probably be assured to clear the shelves quickly whenever it would be available.
Diversion has gone on and will continue to go on, and not only at Target. Exclusivity contracts exist for a reason, to protect the product reputation and marketplace standing, at that point, in the product life cycle. These should be honored and people should do what is right and none of this would be a problem. Having said that–that and $3.50 will get you a gallon of gas and that is about all it is worth because there will always be some people willing to do the sale and the deal–no matter what.
This is GREAT! I’ve always found the snooty attitudes of so-called luxury brands to be off-putting. For Target, diverting contributes to their “Discovery Shopping” effort. This refers to unusual products available for a short period of time at a great price. Since they can’t depend on diverted products being available forever, they treat them as “in-and-outs.” This is exciting for shoppers, encouraging them to visit the store often so they won’t miss out on any of the limited-time products. And, it works great during an economic slowdown when shoppers are hunting for bargains more than ever.
Brands, on the other hand, should object and do everything in their power to control diverting. As always, it’s an adversarial relationship between manufacturer and retailer. This tension between suppliers and stores is good for consumers and good for business.
Diverting is a double edged sword for a retailer like Target. At best, they get a limited and sporadic supply of goods that they can quietly make a splash with their customers. On the other hand, the limited and sporadic supply cuts against Target’s message as an in-stock retailer that customers can rely on.
For starters, if the upscale beauty products are “available” for diverting to Target, then this is a very good indicator that they are not selling properly at their normal (preferred) retail distribution venues.
Many consumers who can afford to shop and have accounts at Nieman’s and Nordstrom, also regularly shop at Target. Does this make these exact same consumers suddenly more downscale or less desirable as consumers on days they park their vehicle in the parking lot at Target? Only a snob would think so.
Distributors of “prestige” lines who truly wish to maintain control of their product placement and price point would do well to experiment to see where their customers are and not force themselves into a small box that limits sales and deprives customers of convenient access to the product.
Diverting has been around for years, and whether or not it is on the increase is difficult to determine, because there are no real tracking numbers to review. That being said, I find it interesting that Target is involved in this, directly thumbing their nose at the requests to stop by the brand owners.
I wonder what Target would do if all of the sudden, a retailer started to carry Archer Farms products, or Choxie chocolate. Would Target allow this to continue? Would they see it as another way to promote the brand? I think not.
I’m not opposed to diverting, but I think it has to work both ways. If Target wants to purchase product through the back door, they can say anything if another retailer does the same with their corporate brands.
I don’t know how anyone can speculate on the relative rate of diverting activity across all classes of trade since it benefits so few to have those numbers made public BUT I don’t think we’ve seen any decrease.
I find it interesting that people are just catching on to the fact that the mass merchant channel diverts. Duh!!! Where have you guys been for years???
Diverting serves multiple purposes and generates tremendous annual revenues for manufacturers, wholesalers and retailers. As long as “enforcement” is limited to a wink and a nod, I expect we may be looking at this same issue a dozen years from now.
I can understand luxury brands hesitation with selling to mass merchants. It may affect brand equity at some point but if a chain can sell it, why not? And Target is not low rent by any means. Whether its Crocs at Costco or Clarins at Target, vendors need to look at this as an opportunity and demand for their products. Is a Target shopper’s money not as good as a Nordstrom shopper’s?
This development raises a few interesting questions about Target’s beauty strategy in particular as well as its current business:
1. Diversion of brands like Kiehl’s and StriVectin makes you wonder about the state of Target’s internal product development. Has their beauty department reached a dead end, or is the business continuing to grow?
2. Target was accused by Coach a couple of years ago of selling counterfeit handbags. These turned out to be the genuine article, and bought from a department store chain liquidating some inventory. Is diversion going to become a bigger piece of the Target merchandising strategy?
3. If Target intends and expects to sell higher-priced beauty products (wherever the source), how does it intend to improve the content of its women’s apparel business at the same time?
It’s hard for the Target consumer to respond to “surprises” in the beauty and accessory areas if they are not responding to the core assortments in apparel.
Diverting is certainly at least 50 years old. I’ve spoken with retail executives from the 1950s, who bought millions of dollars in diverted goods when Fair Trade laws were enforced. My impression is that 99% of all diverted goods volume is aided by the manufacturers. The technology for recording where the merchandise originally went has been around since forever. Any manufacturer can simply mark the cartons with the name or code number of the original purchaser. Or the manufacturer can mark a random sample of the product itself. Without diverting, many brands would miss their sales objectives by double-digit declines. They just can’t admit it.