By Serena Ng And Paul Ziobro
The fast-growing online market for razors and blades is creating
some hairy challenges for the world's largest shaving brand.
The online market for razorblades barely existed a few years
ago, yet Americans have taken to it quickly: Web sales of men's
shaving gear in the U.S. have nearly doubled in the 12 months
through May to $263 million, according to estimates from Slice
Intelligence, a market research firm. That is about 8% of the
roughly $3 billion market and a big surprise to people who follow
the market.
"It's kind of incredible that happened all in a year," said Tim
Barrett, analyst at Euromonitor International, a research firm.
The pace continues to quicken. In the first five months of 2015,
online sales amounted to $141 million, more than double that a year
ago, according to Slice.
The shift in shopping habits has caught market leader Gillette
off balance. The brand's U.S. online sales are rising quickly, but
rivals are growing faster. The Procter & Gamble Co. unit
commands more than 60% of the much bigger but contracting retail
market. In the growing online market, it controls just a fifth of
the pie.
The mismatch is forcing a number of adjustments at Gillette.
Among them, Gillette is now trying to compete on value, a shift for
a business that has long pulled in premium prices for its
five-bladed cartridges and swivel-head razors.
The online leader is Dollar Shave Club. Three years ago the
company was an untested startup with provocative videos in which
CEO Michael Dubin said, "Our blades are f------ great." But it has
built an audience for its monthly mailings of blades in plain
cardboard envelopes with the promise that subscribers will save
money over the leading brands.
It now has two million people paying anywhere from $1 to $9 for
its blades at least every other month and is on track to generate
$140 million in sales this year, according to Mr. Dubin, the
company's 36-year-old founder. The closely held company is valued
at $615 million after closing a new $75 million funding round,
according to people familiar with the matter.
Other online sellers have sprouted up, including 800Razors LLC,
Harry's Razor Co. and Shave Mob LLC, also touting lower-priced
blades than Gillette's. Their ambitions are being fueled by
private-label makers of razors and blades that are finding a more
fruitful marketplace online than in stores, where Gillette and
Energizer's Schick brand dominate.
P&G has responded by ramping up promotion of its Gillette
Shave Club's online subscription plans. It claims men can spend
significantly less on its razorblades--around $5 a month for its
priciest Fusion ProGlide blades, compared with $9 a month for
Dollar Shave's top plan, which includes shipments of four
cartridges with six blades each.
But Gillette's math presumes users change cartridges only once a
month, with an average of three to four shaves a week. Otherwise,
its blades are a lot more expensive--around $5 apiece for its top
of the line, five-bladed Fusion ProGlide compared with $2.25 for
Dollar Shave Club's six-bladed Executive.
Rob Springer, a 37-year-old who works for a granite company in
Atlanta, said he shaves three or four times a week and used to buy
Gillette Fusion five-bladed cartridges before he signed up for a
Dollar Shave Club subscription last October.
"The Gillette razors were wonderful, but the problem was that
they were around $20 for a pack of four," he said, adding each
blade lasted him only a week. "It's done in a week, no matter what
brand I use," said Mr. Springer, who sports a beard and shaves his
head and neck. He now pays $6 monthly for a set of four
cartridges.
Winning online customers is increasingly important to Gillette.
P&G predicts online razor sales will settle into an average
annual growth rate of 25% over the next five years, said Sonia
Fife, who oversees Gillette's business in North America.
"The growth has been very significant, and consumers' needs and
habits are changing," she said.
It is also a very different world than the one Gillette
conquered after being founded in 1901 and acquired by P&G in
2005. Inside stores, the advantage goes to companies that can
afford prominent shelf displays and flashy packaging, and which
have deep ties with retailers. In that arena, Gillette has marketed
its products on claims that they work better. P&G also has been
trying to get retailers to unlock display cases where razorblades
are kept. While the cartridges are prime targets of shoplifters,
the locked cases are a turnoff for shoppers.
To compete online, it is effectively telling buyers not to
change blades so often.
Energizer Holdings Inc., maker of Schick razorblades, has
complained that Gillette's approach is hurting overall industry
sales.
"One of the major manufacturers in this industry is talking
about 'longevity communication,' both on-pack and in broadcast
media, essentially telling consumers that they can use these
products longer, which has had some effect on product use-up
rates," Al Robertson, chief marketing officer for Energizer's
personal-care division, said during a company presentation earlier
this month.
In response, a Gillette spokeswoman said the company's view is
that men should change their razorblades "whenever they're not
getting a close and comfortable shave."
Sales from P&G's grooming business, which principally
consists of Gillette, fell 3% for the nine months ended March to
$5.75 billion. The decline was due to currency swings, even as
Gillette benefited from higher selling prices and sales thanks to
its launch last summer of a premium-priced razor handle with a
swiveling ball hinge called the FlexBall. The company said the new
handle also helped sales of its priciest cartridges and increased
Gillette's market share, which IRI data shows was largely at the
expense of rival Schick.
But overall razor and blade sales have been declining in recent
years as well, in part because of broader social trends like the
greater acceptance of stubble and beards in the workplace. Sales in
the U.S. fell to $2.96 billion in 2014 from $3.08 billion in 2012,
according to market research firm IRI, whose data is based on sales
in brick and mortar stores. At least some of the decline is a
result of shoppers migrating online, Energizer's Mr. Robertson told
investors earlier this month.
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