Startups shook up the sleepy razor ‘market’. What is next?

‘No category is immune to disruption’

NEW YORK, Sept 26, (AP): What do you hate shopping for? Toothpaste? Diaper rash cream? Sunscreen? The guys who founded Harry’s shaving club spend a lot time thinking about this question.

The startup, which took on razor giants Gillette and Schick with its direct-to-consumer subscription model, has since expanded into traditional retail and launched a line of body care products. Armed with $112 million in new financing to develop new brands, the company now is investigating what other sleepy products might be ripe for disruption.

“Our vision is to build a next-generation consumer brand company,” said Jeff Raider, who recently took on the role of CEO of Harry’s Labs, overseeing the development of new brands. “It might be better products, a better experience getting the products or a brand that appeals to who they want to be as people.”

There’s a reason why Harry’s investors are betting that reinventing the razor was no flash-in-the-pan idea. Insurgent brands are shaking up the way people buy everything from mattresses to prescription acne remedies, eating into the market share of big consumer product companies and leaving them scrambling to respond.

Eager venture capitalists, digital technology and social media make it easier for anyone with a good idea to enter the consumer goods market, according to a report on insurgent brands by Bain & Company, a management consulting firm. Contract manufacturing, which allows companies to outsource production and sometimes defray costs, also has made it simpler.

“The reality is that no category is immune to disruption,” the Bain & Company report said.

Product

Digital newcomers still represent only a fraction of the overall market share, according to the report, which analyzed sales data from IRI market research firm for 90 goods categories. Startup brands accounted for only 2 percent of market share across 45 product types they disrupted from 2012 to 2016, the report said. But such companies captured a quarter of the growth in that time.

Being small is often a tactical advantage, allowing fledgling companies the freedom to focus on a core product, shoring up visibility among a targeted group of consumers, while bigger brands are forced to defend their market share across a wider base.

Harry’s has captured about 2 percent of the $2.8 billion men’s shaving industry since its launch in 2013, according to Euromonitor market research firm. Its main shaving club rival, Dollar Shave Club, has about 8 percent.

It’s been a gut punch to the industry leaders.

Gillette controlled about 70 percent of the US market a decade ago. Last year, its market share dropped to below 50 percent, according to Euromonitor. The company, owned by P&G, was forced to slash its razor prices by an average of 12 percent last year.

No. 2 razor maker Schick has also been squeezed. Parent company Edgewell Personal Care reported a 3.6 percent drop in net sales from its North America shave business in its most recent earnings report.

Both major brands now offer subscription services on their own direct-to-consumer sites, which they are leveraging to promote their lower-end razors while also showcasing their edge in technological innovation.

“Our blades are known for their longlasting quality, which means you need less cartridges per year as compared to the other shave clubs in the market,” said Stephanie Lynn, vice president of Global eCommerce for Edgewell.

Pankaj Bhalla, brand director of Gillette North America, said increasing its online sales is a “key part of our strategy.” He offers a reality check for the shave clubs: While Gillette might be new to the direct-to-consumer game, the brand says it has 70 percent of the market share on online retailers like Amazon and Jet.com.

But critics say both incumbents were slow to respond to the new competition.

Different

“Initially, the biggest players underestimated the potential of these brands, and when they reacted either by dropping prices or by launching their own subscription models, the damage was done,” said Fatima Linares, beauty and fashion research manager at Euromonitor International. “It’s still unknown what these companies will do to revert the situation, or if that is possible at all.”

It was a different era when salesman King C. Gillette invented the disposable safety razor at the turn of the last century.

Clean-shaven faces were synonymous with virtue and manliness, a Western preoccupation that dates back to when Alexander the Great ordered his men to scrape off their beards before battling the Persian armies in 331 BC, according to Christopher Oldstone-Moore, historian and author of the book, “Beards and Men.”

Disposable razors “provided the tools for middle-class mobility, enabling the common man to meet the exacting grooming standards approved by corporate bosses,” Oldstone-Moore writes.

Gillette has since become one of the world’s most ubiquitous brands, with its razors sold in virtually every country. It has rolled out fancier and more expensive razors every few years.

But in a more relaxed era where stubbles and beards are making a comeback, premium razors started to lose their luster.

Dollar Shave Club beat Harry’s to the punch, bursting onto the scene with its 2012 viral YouTube video that ridiculed the technological innovations that have been a source of pride for Gillette.

The online startup’s sales soared from $4 million in its first year to more than $150 million by the time it was sold for $1 billion to Unilever in 2016, P&G’s main competitor.

While Dollar Shave Club started a price war, Harry’s founders set out to offer premium design at an affordable price.

CEO Andy Katz-Mayfield said the idea came him during a 2011 visit to a drug store, where he had to ask an employee to unlock a case to spend $25 for blades and shaving cream.

He soon called Raider, a friend who had already co-founded Warby Parker, the eyeglasses company that upended an industry virtually monopolized by Italian firm Luxottica. Katz-Mayfield persuaded Raider to do the same for razors.