Olaplex doesn’t sell in mass retail, but you can find its products there. Here’s why.

When you see salon-grade or premium beauty and personal care products being sold at not-so-premium locations, like mass retailers, drugstores, or grocers, it’s possible they’re not really supposed to be there.

This is often the result of product diversion—when third-party distributors sell products to retailers they weren’t authorized to—which is an issue that’s plagued the category for decades. Paul Mitchell, L’Oréal, and Unilever are among many who have dealt with it over the years.

The latest victim is Olaplex, whose products are currently listed online at retailers like Walmart at discounted prices despite Olaplex stating in its first-quarter earnings call that it doesn’t sell in grocery or mass retail.

• A combo pack of its 8.5-fluid-ounce No.4 Bond Maintenance Shampoo and No.5 Bond Maintenance Conditioner is currently being sold on Walmart’s website for $49.99—about $10 less than the price on the brand’s website. Walmart did not return Retail Brew’s request for comment.

When asked about whether the brand was sold at Walmart at the Goldman Sachs Global Staples Forum last month, Olaplex CFO Eric Tiziani confirmed that, “What you’re seeing there is a diverted product into those customers.”

“This is very common in the professional hair care category; you’ll see other brands in those channels through diversion as well,” he said. “We have levers that we do seek to pull legally, operationally…and we intend to root that out. It’s not easy to do overnight.”

So how does this happen, and what can brands do to stop it? With lots of changing of hands during the distribution process, it’s tough to keep track of, but there are a few things brands should keep in mind.

Diverting expectations: Product diversion happens most often in beauty because of the products’ wide price ranges (foundation could be $4 or $100) and therefore wide margins, compared to categories like food, noted David Schneidman, senior director in Alvarez & Marsal’s Consumer and Retail Group. Beauty also has a unique channel strategy, with brands selling in specialty stores like Ulta and Sephora and online retailers like Credo Beauty before launching in mass retailers.

“You want what you can’t have. And so all of a sudden, when a distributor has a product like this and is willing to sell it, a lot of retailers take the opportunity,” Schneidman said.

Reputation era: First and foremost, diversion could impact a brand’s reputation, Lauren Beitelspacher, associate professor of marketing of Babson College, said. “Consumers might think…if it’s right next to Pantene or something, what’s the difference? And why am I gonna pay more?” she said. It could also damage their relationships with authorized retailers, particularly in the salon channel, as consumers would question why they’d buy a product there when they could get it at a mass retailer or Amazon, she added.

There’s also a financial impact, as there’s $$ lost when the third-party distributor sells to an unauthorized retailer at a certain margin. Plus, brands don’t control their go-to-market, missing out on that “last moment of connection with the consumer,” Schneidman noted.

Ground rules: So is diversion legal? It depends. Per the “first sale doctrine,” when a manufacturer sells a trademarked product, the entity purchasing it can do whatever they want with it, including reselling it, explained Eric S. Engel, partner at Conkle, Kremer & Engel PLC—a California-based law firm that has represented beauty and personal care brands in cases of product diversion—to Retail Brew in an email.

However, that doesn’t apply to products that are stolen or otherwise fraudulently obtained, or “materially different” from the regular US products the manufacturer sells, i.e. they’ve been altered or had manufacturing codes removed (this was the case in a lawsuit involving Wella Company-owned salon brand Sebastian in 2001). Even if they weren’t altered, it can also be illegal to sell non-US label products intended for foreign markets in the US (such was the case when Moroccanoil’s non-US products were sold by a supplier in the US through channels like eBay and Groupon).

Prep and prime: Proving that a retailer fraudulently obtained a product is difficult because the product has “changed hands several times before it got there,” Engel noted.

So to prevent diversion in the first place, Engel said brands should establish tight distribution agreements restricting products from being sold to unauthorized channels, even imposing “salon contracts” that keep purchasers at the salon and beauty supply level from reselling. Plus, they should “design products and practices with anti-diversion in mind,” he said.

• Olaplex said it uses QR codes on its bottles for consumers to trace the product, but both Schneidman and Beitelspecher said that may not be the strongest solution, because they’re asking “consumers to police things, and that’s a tall ask of consumers,” Schneidman said.

The main focus should be retailer and distributor relationships…though some products may always slip through the cracks.

“This happens more than people are aware,” Schneidman said. “You need quality governance, but there will always be a tail of distribution that is always not ideal.”