By Steve Schweitzer & Kirk Deeter
For the fly shop owner, there are threats coming from all different angles at any given time. They come from increased prices from suppliers, new competition down the street, big boxes building the mega-complex across town, and now from (would you believe) wholesale discounters, namely Costco.
Since March 26, 2011, sixteen Costco locations in the west have been identified as stocking and heavily discounting selected Simms and Sage products. The products appear to be limited to three varying models of popular Sage Z-Axis fly rod and Simms G4 Pro Stockingfoot waders. The knee-jerk reaction Is to wonder if Simms and Sage sold direct to Costco. But, in the words of ESPN College Game Day commentator Lee Corso, “Not so fast, my friends.” It turns out that neither company sold anything to Costco. In fact, they appear to have been victimized.
In an exclusive phone interview for this article, Marc Bale, long-time director of sales for Sage/Farbank Enterprises, stated: “We are aware of the products impacted and the Costco stores participating in selling our goods. It is factual to say that we have pinpointed the issue with a freight-forwarder that transferred the goods to Costco. The freight-forwarder has since gone AWOL. We continue to investigate.” According to Mr. Bale, Sage did not sell direct to Costco, nor had any plans to do so. It appears the vigilante freight forwarder double-crossed Sage without their permission.
Angling Trade also interviewed Diane Bristol, director of marketing and brand management for Simms Fishing Products, and she explained that Simms learned of the issue on March 24, sent an E-blast advisory to its dealers soon thereafter, and then bought the waders from the various Costco locations at full retail price. Ms. Bristol said that Simms had identified the source of distribution to Costco, and while she opted not to give a specific identity at this time, she assured us that Simms had shut down that account. “If you are not an authorized Simms dealer, you do not carry Simms products, no matter who you are. This is an issue we take very seriously,” she said.
The two scenarios in which Costco procured Simms and Sage inventory for their stores appears as two distinct and separate events. The same players are probably not involved in both sets of transactions – in one case, an AWOL freight forwarder played dirty poker, and in the other, an industry insider acted as a Costco pawn. But behind the scenes is apparently a more crooked and sinister player – Costco. This situation does beg a closer look at Costco’s seemingly unethical purchasing methods.
Costco has played this hand before. The pattern: they target hot ticket items and ask the manufacturer to buy direct (with a clear message they will deep discount the item). If the manufacturer denies selling to Costco, then Costco seeks and buys sizeable inventory from third parties – dealers or shipping agents at wholesale prices, legally. The practice is called “diversion purchasing.” Richard Galanti, Costco executive vice-president and chief financial officer estimates 4 percent of the goods in Costco are diverted. Manufacturers and retailers beg to differ – claiming up to 12 percent is more realistic. The under-handed purchasing tactic may be legal, but is certainly strays far from being ethical. Just ask the myriad of companies bit by the Costco bug over the past 10 years: Packasport Car-top Carriers, Camelbak, Crocs, Janzen, Hurley, Lucky, OshKosh, Rollerblade, NordicTrack, Cannondale, Columbia Sportswear, Oakley, Rossignol, Teva and Trek have complained about the practice in the past, with several unsuccessful lawsuits. The list goes on and on. There are too many accounts and complaints on the web to cite – just google “costco diversion” and read to your heart’s content.
The bottom line is this purchasing practice is not new and it won’t go away until legal precedence deems diversion purchasing illegal. Don’t expect that to come anytime soon. It will take more than just the fly fishing industry to implement corrective action. In the meantime, awareness and unity are the best weapons to fight unethical purchasing practices. Simms and Sage are both correcting their value chain to build in stop-gap measures to fend-off and alert them of future guerrilla purchasing by the likes of Costco and others. The fly shop owner plays a critical part of that value chain alert system to industry VIPs like Sage and Simms of future diversion purchases. Be alert, be ethical and do your part in communicating suspicious activity.
The industry has just been preyed upon and we’ve walked away with just a scratch or two… and maybe a whole new education on how to fight off retail gorillas like Costco.
