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October 1998 Vol. 13, No. 10   RSS Feed for Undercurrent Issues
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The Gear Gray Market

how mail order companies buy and sell brand names?

from the October, 1998 issue of Undercurrent   Subscribe Now

Pick up any Skin Diver magazine and ads by Leisure Pro and similar firms will tout products from Scubapro, U.S. Divers, Dacor, and other manufacturers.

Yet these companies deny that they sell their goods to mail-order discount firms and refuse to honor warranties on equipment they sell. In fact, U.S. Divers' shops now have a placard to display saying if the customer bought the equipment from a mail order or web firm, U.S. Divers won't stand behind it. So the discount firms offer their own warranties.

Just how do these companies get new Scubapro BCs or Dacor regulators? To protect their retail prices, these manufacturers sell only to retail dive stores that will accept their pricing guidelines.

Often one hears that the discount companies get their inventory from dive stores that have gone out of business. But that's not enough for the big mail order firms to stock marketable quantities.

Dive shops have relationships with manufacturers that often require them to maintain a specific volume of business to keep the product line. However, if a dive shop decides to discontinue a product line or even go out of business, the mail order houses are quick to make an offer.

Eugene Mendelorts, President of Leisure Pro, told us that "there are dive shops that need money or are going out of business and they contact me. I make a deal with them for equipment. I know they don't want to lose their primary line, like Scubapro, for example. I am not out to hurt the shop guy's business. But we both know that it is a cat-and-mouse game with the manufacturers. If they trace the serial numbers back, then the shop will be cut off.

"There is enough margin in the markup allowed by manufacturers to allow both the shop and my company to make a profit and still sell at a price that is good for the consumer. The shop guy is getting nickels right now instead of maybe quarters -- if he can sell all the stock from his shop."

A dive retailer playing the game may even go to the representative of a company that he doesn't carry or one that he does carry and doesn't care if he loses. He places a $50,000 order. When it comes in, he doesn't even open the box. He slaps a label provided by the mail-order firm on the box and ships it to them. The mail order company then sends a check to the retailer to cover the bill, plus ten percent.

The mail order house sits on equipment, while the dealer places several more orders. Using this method a dealer can buy and sell as much as $250,000 of equipment before the manufacturer figures out what's happening and cuts him off. An unscrupulous dealer might then just pick up another line and do the same thing again.

So the dive store has made $25,000, and, depending upon his credit, may have never put up a nickel. The manufacturer's rep makes his cut by selling it to the dive store. The manufacturer sells a quarter of a million dollars of inventory. And the mail order house sells brand-name merchandise at a discount.

The only loser in this scheme is the nonparticipating dive store who must compete with mail order and web sales, especially since mail-order buyers often bring in their equipment for repair under warranty. Many dive shops have tightened their warranty procedures, so that unless the diver can prove he bought the gear from a shop, he doesn't get the service. That tosses warranty service back to the mail order firm -- a story we'll perhaps tell another day.

--Ben Davison

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