Sam’s Club Deal Angers Specialty Stores

We've seen similar cases before, but when this year's Morrow and Sims snowboards appeared at Sam's Club for 60 dollars less than what specialty retailers paid for them, we shuddered.

What in the world were two core brands doing there? More importantly, what was being done to fix the problem?

When SNOWboarding Business called the Sam's Club in Plattsburg, New York, Floor Partner Mark Lukasiewicz said the store was selling Sims and Morrow boards, assorted models and lengths, for 199 dollars. The store in Portsmouth, New Hampshire was completely sold out.

Since each Sam's Club has it's own area buyer, it's unlikely each of the 445 stores offer snowboards. But with SNOWboarding Business receiving calls from the Northeast, Midwest, and Rocky Mountain regions, it's clear the damage had been done.

While other brands were involved to a lesser degree, retailers seemed most upset about the Sims and Morrow boards, leaving the brands scrambling to placate retailers.

“It's a terrible concern,” says Sims COO Jeff Harbaugh. “I can't grow a specialty brand if I have product showing up in Sam's Club.”

Morrow Sales Manager Greg Hughes shares a similar viewpoint: “How many boards were involved? It doesn't matter if it were five. This is a situation that can't be repeated.”

Harbaugh blames this situation on the competitive climate of the sluggish European market. In order to be competitive with the big Austrian factories, boards from U.S. brands are often sold to distributors in Europe for far less than in the U.S. A situation ripe for the gray market but this time boards were coming into the U.S., not going out.

However, Hughes says Morrow has also traced the serial numbers on a few of the boards back to U.S. stores. Both brands say they know who is behind this, but declined to name names.

Dennis Nazari, owner of Salty Peaks Snowboard Shop in Salt Lake City, says this is the third season this has happened with Sims: “Every year they say it's shifty reps or something. The truth is, selling to those discount retailers is the quickest way to kill a brand.”

Harbaugh agrees, “Last year, the Sims management team at the time accepted some European orders that looked to me like gray market when I joined the company a few months later,” says Harbaugh. “No one's distribution will ever be pristine, but our retailers shouldn't have to put up with this crap. I won't be shipping those orders next year.”

Neither company would be specific about the number of boards involved. In fact, it's possible that only Sam's Club knows the true amount.

So how was Nazari's business affected? “People were coming in to our shop, checking out the line, and asking us to match the Sam's Club price that was 60 dollars below our cost.”

There are two Sam's Club stores in Salt Lake City within ten miles of Salty Peaks and both were carrying snowboards. Nazari said the Morrow boards were this year's Rail and Mach with bindings.

“I first saw this happening back in October and I called Morrow and gave them the option to either re-invoice us for the same price as Sam's Club or come and get their boards,” he says. “Morrow told us they were going to do some special promotions that never happened. I'm holding payment to both companies until the situation is resolved.”

Hughes says Morrow is trying to rectify the situation. “For those affeccted retailers we've put together a program where we're sending them free bindings they can mount on those models. Now they still make their margin while being competitive with Sam's Club.”

The strategy appears to be working. In a letter to Morrow, Country Ski & Sports Manager Kevin O'Shea of Fairport, Pennsylvania writes: “Country Ski & Sports had considered sending the Morrow boards we had in stock back, but will continue to stock and sell Morrow product because of the way Greg Hughes has handled the situation.”

Harbaugh says Sims has no plans to go in and buy the Sam's Club product (as it did at Costco two years ago), but says he's handling the situation on a case-by-case basis.

Both brands say next season won't be a repeat. “We've already scaled our numbers back for next year to compensate,” says Hughes. “The last place we want to be is Sam's Club. We don't want to lose our existing retailer base, and it cost us a lot of money to prove that.”

-Sean O'Brien and Robyn Hakes