COPENHAGEN, DENMARK — Major hearing aid manufacturer GN Hearing (GN ReSound), announced this past week in its Q2 Interim Report, to the surprise of many industry insiders, that it has lost its contract with Costco as the supplier of its Kirkland Signature-branded hearing aids. The company, which has managed to continue increasing its market share across the industry in recent years, has produced the past two generations of Kirkland-branded aids for Costco, and was expected by many in the industry to have its contract renewed by the retailer.
As a result, the company is expected to face significant challenges next year with its Costco business particularly, but is hoping to offset the losses through continued organic growth in other sectors, including the independent and VA markets, as well as in Europe, where GN has continued to make gains.
Costco, which has put increased emphasis on selling its own-branded devices, is currently the largest retailer of hearing aids in the US.
An advertisement for the Kirkland Signature-branded hearing aids available at Costco, currently manufactured by GN ReSound.
Costco Contract Has Benefited ReSound
Having the contract with Costco has been one of the key drivers to the company’s success in recent years, considering the major retailer’s hearing aid division has continued to grow at a rate close to 20% for the past several years. In a February 2015 Reuters article, Jyske Markets predicted a 6% drop in hearing aid sales for the company if GN lost the supply agreement contract.
Industry sources tell us the most likely supplier for the next generation Kirkland hearing aids is Sivantos, which currently has a presence in Costco under their Rexton label.
[Sivantos was officially announced as the supplier to Costco for the KS 7.0 at $1,699/pair, in late 2016]
Demant Looks to Cut Hearing Aid Production Costs
William Demant announced that it is looking to employ cost cutting measures through 2018, in order to improve efficiency and profits. This summer, the company closed its production facility in Minnesota and moved many of these operations to its facility in Somerset, New Jersey. Furthermore, it was announced that production at its new site in Mexico will be expanded.
“We consider cost-efficient and strong operations and R&D setups to be among the key drivers of future profit growth”
While the company said it will keep its headquarters in Denmark, the factory in Denmark will be closing by the end of 2018, which will result in the loss of 200 jobs. Additionally, Research & Development operations that are currently located in Switzerland, could possibly be shifting to Denmark and Poland as the company seeks to further streamline its operations.
The operational moves implemented through 2018 are expected to cost approximately $75 million, but the company is confident the measures will enhance its future competitiveness and increase profits in the increasingly competitive hearing aid industry landscape.
I had respect for GN even after they started selling under the private label Kirkland for Costco, but one of the problem with this industry is the continuing drive to cut cost while maximizing profits at the expense of true development of better products. With the GN reorganization, a long tradition of R&D in Denmark will be lost, and under the Rexton brand, they were always cost efficient. The jobs will be lost and there will be no one standing behind GN to pick up these jobs for those who have them or those who would succeed them. Moving to countries with lower taxes and lower labor costs, also means moving to countries where the new employees aren’t invested in the company and don’t care about quality or development of new technologies on the company’s behalf.
Hi John,
Just to clarify, the job cuts will be related to the William Demant Group, who owns Oticon, Bernafon and Sonic. It’s unclear whether GN’s contract loss with Costco (estimated to account for almost 10% of their hearing aid business) will result in any job losses in the near-term.
Thank you for your interest and comments!
Couldn’t be more deserved. A disgusting company lacking ethics, integrity with a self serving vision to benefit the growth of the company only.
Agree. GN lacks business moral. Their legal team and managers don’t honor contracts signed. Also my company lawyer has never witnessed anyboby like Danish GN Resound.