A Diverting Practice

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When manufacturers make products available at a discount to wholesalers, they sometimes do so to enter new markets and the contract may stipulate where the product ends up. If the wholesaler diverts the product elsewhere, that may be a contract violation. In other cases, product diversion is perfectly legal. That’s how the discounted product may end up at a discount retailer. But this practice can present problems, according to the Loss Prevention Research Council (LPRC), because those retailers don’t always know whether the discounted goods are legitimate or whether they are stolen, counterfeit, or altered goods.

Complicating the issue, some retailers have their own “diverting desks,” or diversion operations, in which diverted products are both sold and bought, according to a study by the LPRC’s Read Hayes, CPP.

The study examines best practices for manufacturers, wholesalers, and retailers to make sure their diversion practices are legal. For example, if manufacturers want to ensure that goods discounted for sale in a specific country don’t get diverted back to the U.S. market, they might visibly differentiate overseas English-language packages from U.S. retail packaging with different panels or labeling.

Wholesalers should demand legitimate bills of sale or receipts for all products, and these should be regularly and randomly checked. Retailers should understand the corporate structure and leadership of their suppliers, assess their financial resources and solvency, and ensure that they provide appropriate assurances of product integrity and safety.