Dollar Shave Club's retail disruption
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Who would have guessed that the lowly men's razor would be at the cutting edge of retail innovation in 2016? said Bhaskar Chakravorti at Harvard Business Review. In a deal that has shaken the stodgy consumer products industry, Unilever announced last week it will pay $1 billion to acquire Dollar Shave Club, a scrappy five-year-old firm that delivers no-frills disposable blades to subscribers for as little as $3 per month. Since launching in 2011, the Venice, California–based startup has grown to 3.2 million subscribers — earning $152 million in revenue last year and becoming a case study in how a disruptive innovator can "break into a highly profitable and overserved industry." The global razor business has long been built on convincing people they need more and more blinged-out blades at higher and higher prices, said Sharon Terlep at The Wall Street Journal. Dollar Shave Club's "simple, low-price razors have upended" that model. The startup now claims 5 percent of the U.S. men's shaving market, long dominated by the colossus Gillette, a property of Unilever rival Procter & Gamble. Since 2010, Gillette's market share has fallen from 71 percent to 59 percent.
Dollar Shave Club's success "shows that no company is safe from the creative destruction brought by technological change," said Steven Davidoff Solomon at The New York Times. Once upon a time, challenging a market leader like Gillette would have required factories, sophisticated distribution, an enormous and experienced sales force, and a TV-marketing blitz. "But the internet, mass transportation, and globalization destroy everything." Dollar Shave Club doesn't actually make any of its products; it contracts with a South Korean razor manufacturer and then sells the blades directly to consumers over the web, bypassing retail middlemen. Because of this lean approach, Dollar Shave Club has just 190 employees. Thanks to YouTube, its initial advertising was essentially free. The company's first irreverent viral video, promising "f—ing great" razors at affordable prices, was responsible for 12,000 orders within 24 hours. Since then, the video has been seen more than 20 million times. When startups can get free advertising through YouTube, easy distribution through the mail, and low-cost sales via the web, "every other company should be afraid, very afraid."
Consumers are the clear winners of this brave new business model, said Farhad Manjoo, also at The New York Times. Just as Dollar Shave Club has made buying razors cheap and convenient, Warby Parker has done the same for eyeglasses, Casper for mattresses, and Primary for kids' clothes. "By cutting out the inefficiencies of retail space and the marketing expense of TV, these companies can offer better products at lower prices." And because brands born online live and die by their reputation, their customer service is fast and friendly. Small wonder then that Unilever is eager to "buy its way in," said Catherine Piner at Slate. P&G is also playing catch-up with its own Gillette Shave Club, and has launched the Tide Wash Club, which sends consumers detergent refills for a monthly fee. Both firms are eyeing Amazon, which aspires to provide regular deliveries of everything from diapers to groceries through its "subscribe and save" program. The future of retail is coming, and it's arriving via the mail.