Former distributor, current manufacturer and longtime anti-diversion crusader John Maly offers a historical perspective on the changing face of diversion. —John Maly
Diversion is a multifaceted dilemma. New manufacturers hope their products become so popular that drug stores and grocery stores want them on their shelves; distributors wish they didn’t have to spend time calling on clients who are obviously diverting; salons hate that the products they’ve worked hard to promote are available at the local drugstore; and consumers love the convenience of finding their favorite products next to the laundry detergent. The government won’t make diversion illegal to protect the consumer, and the consumer wants the choice. That makes for a very difficult situation for the salon industry.
I was a distributor for 18 years in the western U.S. When I first came to Los Angeles to run our family business, it was a small distributorship that had recently picked up a well-known professional brand. I would get 20 orders a day for 24 to 36 products in the line. As a naïve 25 year old, I was shocked by how obvious the diverters were. When we sent someone to check out the salons, sometimes the addresses were warehouses. Quickly, I learned to distinguish a diverter order from a salon order. But that was 1989.
Over time, collectors of diverted products became more clever. They would find salons that were short on cash and offer a no-lose proposition: diverters paid them $100 for each $1,000 order. If the salon diverted 10 lines, they could make $1,000 a week; for some, that was the difference between going out of business and keeping the doors open.
Honest salons would call me with the phone numbers of the collectors. However, it wasn’t illegal for a collector to make that offer. If manufacturers had anti-diversion contracts with their salons, they could go after them, but that wasn’t easy either: You needed proof. Occasionally, a manufacturer would win that battle, but it was rare.
Years later, we had to terminate relations with some top salons. They were legitimate, successful salons. They would place an order every week for retail. One week it would stay in the salon, the next week the collector would pick it up. It was nearly impossible to determine if they were legitimate.
To discover diverters, many brands had coding systems. When products were found at grocery stores, someone from the brand would buy them at the full retail price, and decode them to find the diverter. Then we’d be informed which salon we had to shut down.
A good, honest salesperson could tell whether a salon was using all the merchandise they were buying. If there was a doubt, the salesperson would call us and we’d send out a diversion expert within our company to audit the salon. Yes, we would actually go through the receipts of the business! Honest salons welcomed us, knowing we were simply trying to stop diversion. Those who became irate about the audit were usually involved in selling products to unauthorized collectors.
Perhaps I’m still that naïve 25 year old, but I hope that the majority of the people in this great business still care about doing things right, and protecting our salons and our industry.
John Maly is the former CEO of the beauty product distributor Maly’s and the owner of Mirabella Beauty. Maly’s was founded by John’s father, Ken Maly.