Venture capitalists see opportunity in facial stubble.
The shaving industry, long dominated by giants like Gillette and Schick, now includes a wave of well-financed start-ups. Dollar Shave Club, which just raised a $50 million round of venture capital, offers inexpensive replacement razor blades. Harry’s offers a similar product, but with stylish handles as well. Bevel products cater to African-American men, who are often pained by razor burn, according to the company.
The young companies are all angling for a piece of the $6.1 billion men’s grooming market.
But they are also part of a bigger push among e-commerce companies that see opportunities in selling products as varied as mattresses and eyeglasses, where the established companies are accustomed to plump profit margins.
“There’s kind of a game going on, where there’s way too much margin,” said David Pakman, a partner at Venrock, a venture capital firm that is an investor in Dollar Shave Club. “The big guys are overcharging you, while smaller companies like ours can give you the best products in the world for a fraction of the price.”
Razor blades being made for Harry’s, a start-up. Credit Benjamin Kilb for The New York Times
In 2004 Gillette reported a 60 percent gross margin before being bought by Procter & Gamble. Gillette’s blades now often cost $10 to $40, depending on the number of razor cartridges purchased.
This is where Michael Dubin, co-founder of Dollar Shave Club, saw opportunity. Mr. Dubin offered a subscription service online, shipping razors for $1 to $9.
The company said it expected to generate $60 million in revenue this year, triple its revenue for 2013. One million people receive the company’s products in the mail monthly or every other month through its subscription service.
Mr. Dubin said part of the company’s success came from men being more concerned about their grooming. The company has also found marketing success, including with a 93-second video released in 2012 that racked up more than 16 million views on YouTube.
“Gone is this stigma of being a metrosexual, sharing your grooming tips with one another,” Mr. Dubin said. “Am I buying motor oil, or am I buying something to put on my face to look and smell good?”
But most of all, Dollar Shave Club and the other e-commerce start-ups are distinguishing themselves by offering a lower price.
In shaving, Bevel, which is backed by the prominent venture capital firm Andreessen Horowitz, markets its old-school safety razor product set to African-American men, a demographic that the company’s founder, Tristan Walker, said had largely been ignored. Bevel’s starter kit, which includes a safety razor, shaving cream, priming oil and other facial accouterments, starts at $29. And Harry’s, the design-focused shaving start-up, offers its customers starter packages at $15 and $25.
Other start-ups offering less expensive consumer products include Casper, which sells mail-order mattresses to consumers online for as little as $500, nearly a tenth of the cost of high-end bed sets. And Warby Parker, the successful online eyeglasses retailer, offers a range of trendy eyewear for far less than the cost of many frames.
The products may be disparate, but the business models are similar.
Jeffrey Raider, a co-founder of Warby Parker, even went on to start Harry’s just three years after introducing the eyewear company. In January Harry’s raised more than $100 million in venture capital and bought its own razor factory in Eisfeld, Germany.
So far, the giants still dominate their markets. Unilever Home & Personal Care had a 27 percent share of the men’s toiletries market last year, according to Euromonitor, a market research firm. Procter & Gamble controls the men’s grooming market, with a 59 percent share in razors and blades.
Start-ups like Dollar Shave Club are much smaller, though Mr. Dubin says his company ships 8.8 percent of the razor cartridges in the United States.
To defeat the new competition, some of the giants are trying to mimic some of their smaller rivals’ tactics. Procter & Gamble, for instance, now offers an online subscription service for ordering its Gillette razors.
“New entrants to our category stimulate more conversation about shaving, which is positive for us as the market leader,” Procter & Gamble said in a statement.
Investors like Mr. Pakman say the big companies should not feel too reassured, though.
“The incumbents are kind of trapped,” Mr. Pakman said, partly because of marketing costs. For one new product, the ProGlide with FlexBall razor, Procter & Gamble reportedly set aside $200 million for marketing. “Gillette really can’t sell directly to customers because they can’t tick off the retailers. And they can’t cut their prices by two-thirds, because their whole business model would break.”
Now, the entrepreneurs behind the start-ups sense other opportunities in adjacent markets. Dollar Shave Club, Harry’s and others have moved into shaving cream, after-shave and men’s moisturizer products, a market that rose in 2013 to $261 million in the United States, 7 percent higher than the year before, according to Euromonitor.
And Casper, the mattress start-up, eventually plans to offer an array of sleep-focused products beyond its flagship mattresses.
As long as the margins remain high for the dominant players, analysts say there will be space for smaller competitors to chip away at the profits of those in the lead.
“Getting the price as low as you can get is really the way you can play in this market,” said Tim Barrett, a research analyst at Euromonitor. “Anybody that can underprice Gillette and Schick can do well.”
But shaving companies both large and small have a common enemy: The resurgence of the fashionable beard, a trend that, along with a greater acceptance of facial hair in the workplace, has eaten into overall razor blade sales, at least somewhat.
Mr. Dubin of Dollar Shave Club is undeterred.
“The beard trend is real,” he said. “But I’d say that the vast majority of American men still get up, shave the hair off their face and go to work.”
MIKE ISAACSEPT
