By
Tom Ryan, Managing Editor, RetailWire
In March, Crocs, Inc. joined a list of retailers freaking out upon finding its products on the floors of Costco. The arrival of their hot selling shoes in the club is apparently part of a long-standing strategy at Costco to look to secondary markets to acquire brands that won't sell to them directly.
"We have not sold Crocs-branded products to Costco nor have we authorized any of our customers to sell our products to Costco," said Croc's CEO Ron Snyder in a statement. "We are continuing to take aggressive measures to prevent this from happening. I want to reiterate that Costco is not an authorized dealer of Crocs products.
"Mr. Galanti afterwards told the Seattle Post Intelligencer that Costco may not directly obtain Crocs, but Costco has acquired the shoes and other items with name brands such as Janzen, Hurley, Lucky and OshKosh because there is more availability in the market. Further prompted by the newspaper, Mr. Galanti wrote in an e-mail, "We did not and do not disclose how we procure them."
This isn't the first time Costco has found companies complaining about finding their goods diverted there. Rollerblade, NordicTrack, Cannondale, Columbia Sportswear, Oakley, Rossignol, Teva and Trek have complained about the practice in the past, with several unsuccessfully filing lawsuits. Last year, both True Religion, the designer jeans marketer, and Camelbak, known for its high-end outdoor hydration products, became irate after finding their products selling at Costco without their authorization.
At the time, Layne Rigney, CamelBak's director of sales for domestic recreation, said, "We keep a close eye on unauthorized distribution, but it can be tough to stop. The good news is that it looks like Costco has limited quantities of our product and what they have is only available online. We are determining how the product was diverted to Costco and we will stop it."
Many retailers worry that Costco's reputation for diverting name brands and then slashing prices undercuts their business and is irresponsible to the consumer. At the same time, Costco's "diversion" buying appears to play a huge role in creating their vaunted "treasure hunt" shopping experience, where customers find unexpected deals with each visit. Many of Costco's items are in the stores for only a short period of time.
Discussion Question
for the BrainTrust panel: Do you think Costco's "diversion" buying strategy is savvy or a little sketchy? Should they keep doing it? If so, should or can other retailers mimic it?
RetailWire
Instant Poll Results:
RetailWire BrainTrust Comments:
Costco's "diversion" buying strategy is great for Costco and it's probably not all that bad either for the name brand as long as Costco cannot buy quantities large enough to stay in stock ongoing. However, as a one-time or occasional event, it's exciting for the Costco consumer and, in my estimation, it really doesn't hurt the image of the brand because Costco is not thought to be a house of lower tier brands, in fact, quite to the contrary, Costco is known to sell name brands at special event prices. It's more about opportunity and value, not so much about erosion.
David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates
| Joel Warady, Principal, Joel Warady Group |
 If Costco purchases product legally, and pays for that product on a timely basis, what have they done wrong? Nothing.
What do you say? Send us your comments here |
This sounds to me a lot like the story about whether or not manufacturers have the right to enforce price strategies at retail for their products. Manufacturers won that round--do they also have the right to say who can and can't sell the product to begin with? Even in secondary markets? If Costco can get their hands on the goods, then I say more power to them! If manufacturers don't want their goods in secondary markets, then they better offer generous return policies to their dealers to remove the incentive to sell to someone else (which realistically is going to happen in an overstock or going-out-of-business situation, primarily).
Nikki Baird, Managing Partner, Retail Systems Research
This is not Costco's problem, it is Croc's problem. If Costco purchases product legally, and pays for that product on a timely basis, what have they done wrong? Nothing. They are very good at what they do, and there are a lot of companies who are willing to sell to them. If Crocs wants to stop this practice, they will need to find the authorized distributor who is selling to Costco.
The day will come when Crocs will beg Costco to take their product direct. They should be careful about angering Costco today, when they will need them tomorrow. Crocs are a fad, and fads slow and eventually die.
Joel Warady, Principal, Joel Warady Group
Often, suppliers are only worried about selling as much as possible, not who is buying, until it is too late. They force/encourage retailers to buy more than they need to make their sales numbers. This is frequently done with deal money.
Retailers may forward buy, sell the goods or divert. Anytime a retailer is overloaded, they will look for options. In apparel, this is frequently done at the end of the season. Costco is smart. It uses small quantities to keep the treasure hunt going. At the same time, it buys slower selling items and end-of-the-season/year merchandise to offer consumers good value. So far, diverting is legal except in a few small cases. Don’t expect Costco to back down on a winning approach.
W. Frank Dell II, CMC, President, Dellmart & Company
If Crocs management feels it is important to control the retail presentation of their brand--and that is a very legitimate point of view--then the answer is equally at hand. It is called "Crocs - the Store." It can also include the Crocs Catalog. Crocs.com. And other direct-to-consumer outlets I'm sure I've missed. But if you are going to take advantage of third party distribution outlets to reach your consumer, then deal with the realities of that decision and move on.
Ben Ball, Senior Vice President, Dechert-Hampe
Read the entire story and RetailWire discussion at:
http://www.retailwire.com/Discussions/Sngl_Discussion.cfm/12838
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