Yakima calls out Costco over gray-market sales

As more outdoor brands go global, its getting harder to keep control of distribution chains — some that lead back to U.S. discount retailers.
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Put the cuffs — or at least the kibosh — on Costco, says vehicle rack manufacturer Yakima.

Emphasizing its commitment to its authorized specialty dealers, Yakima said recently discovered that Costco Wholesale has been offering two unauthorized Yakima SKUs at its retail locations, and is taking action to get them off the big box’s shelves.

“Costco is not an authorized Yakima dealer,” said Yakima sales director Jason McGibbon. “It sourced our products through one of our international distributors, which was supposed to sell the product within its territory only.”

JasonMcGibbon_Yakima

This isn’t the first time Yakima, or other outdoor brands, for that matter, have dealt with so-called gray market sales. SNEWS reported on similar happenings, again involving Costco, during Outdoor Retailer Summer Market 2011.

In this latest incident, Yakima officials say they were first alerted to the unauthorized distribution by a member of its sales team in early March. “We learned that two Yakima SKUs were being offered by Costco on a limited scale,” McGibbon said. “We immediately tried to mitigate the exposure but were unable to come to an agreement, so now we are working to minimize the impact.”

One effort it’s undertaking is instigating a new pricing policy and brand protection agency to ensure that retailer promotions are focused on product, brand-building activities and high levels of service, rather than discounting. “We are pursuing all options to ensure this activity is dealt with appropriately,” he told SNEWS, adding that Yakima is working with the distributor, freight forwarder and Costco to confirm the location of the goods and buy back the inventory.”

McGibbon added that Yakima has made significant gains into global markets recently, and that with this growth has come “more opportunities for unscrupulous purchasing activities.”

“We’ve identified Costco’s unauthorized distribution source and we are now taking all actions within our means to cease any further sales of these products,” he said. “We’re committed to our partnerships with authorized dealers and to cleaning up marketplace distribution, managing MAP pricing and eliminating opportunistic gray market sellers.”

While Costco was unavailable for comment, there’s no arguing against the fact the retailer is a giant in the sales world. It became the first company ever to grow from zero to $3 billion in sales in less than six years. Resuming the Costco name in 1997 after its 1993 merger with Price Club, the company has grown worldwide with total sales in recent fiscal years exceeding $64 billion.

McGibbon said that there are techniques manufacturers like Yakima can use to prevent this sort of thing from happening. “One is to ensure you have a strong understanding of your account base,” he said. “Know your customer's business, analyze their sales history and make sure the organization is clear as to how the gray market operates. As you expand distribution, develop a thorough due diligence process to validate and authorize new partners.”

“We are absolutely committed to our strategic retail partners and specialty retail dealers,” he said. “They’re the ones that have helped build this brand for the first 35 years and will be the focus for our next phase of growth.”

--Eugene Buchanan

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