To Regis' Chagrin, Wal-Mart Enters Gray-Market Hair Care

Retailer's Largest Outside Tenant is Major Critic of Diverted Salon Products

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CINCINNATI ( -- Wal-mart stores is preparing a major push into gray-market salon hair care early this year, despite a potential conflict with its largest outside tenant, hair-salon operator Regis Corp.
Wal-Mart originally planned to stock professional brands such as L'Oreal's Matrix and Redken.
Wal-Mart originally planned to stock professional brands such as L'Oreal's Matrix and Redken.

Wal-Mart originally planned to add salon sections this month to about 500 mainly upscale suburban stores that would include professional brands such as L'Oreal's Matrix and Redken, which are sold to beauty salons and professional outlets under contracts that prohibit re-sale to mass retailers.

But those products are "diverted" by distributors such as Quality King to nonprofessional outlets routinely enough that high-end products intended for sale only at salons now account for more than 10% of mass-market hair-care dollars at chains excluding Wal-Mart.

With increased distribution now that Wal-Mart is joining the fray, sales of diverted product stand to climb -- a lot.

The Bentonville, Ark., retailer told vendors last month it's scrapped plans for the permanent salon sections, but it still appears to be interested in marketing diverted salon brands on end-of- aisle merchandising displays. Wal-Mart's Sam's Club unit also plans to test salon brands in some areas, said one supplier representative.

Wal-Mart declined to comment, saying it could not reach knowledgeable executives by deadline.

Buying and selling salon brands is perfectly legal for mass retailers, many of which, ironically, have said diversion is necessary to compete with Wal-Mart. But diversion critics, chief among them Regis CEO Paul Finkelstein, charge that diverted products may be counterfeit and defective-something Quality King and retailers deny.

"If it is so, we'll have to live with it," Mr. Finkelstein said of plans by Wal-Mart-the last major mass-market holdout against carrying diverted salon brands-to carry them.

Regis has salons in about 2,000 Wal-Mart Stores nationwide, where it sells sanctioned salon brands. Its contracts don't prohibit Wal-Mart from selling salon brands too, though they do prevent Regis from selling mass brands.
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