
$1B for Dollar Shave Club: Why Every Company Should Worry - e15ctr0n
http://www.nytimes.com/2016/07/27/business/dealbook/1-billion-for-dollar-shave-club-why-every-company-should-worry.html
======
Stasis5001
This article just rambles, and I'm not really seeing what point it's trying to
make.

Point one, I think: something about inequality because DSC has 190 employees.
But it still takes the same order of magnitude number of people to make and
sell a razor; they just don't all work at DSC. There are still employees at
the Korean manufacturing center, and it's not like they would have gotten rich
if they were owned by DSC. How many people were made millionaires by Gillette?

Point two: big companies should be afraid of disruption. If Gillette was
really afraid of DSC, well, we know how much it costs to buy them, and
Gillette was worth 57x more, 11 years ago. I think a more likely explanation
is Gillette had almost a monopoly but didn't find a way to use price
discrimination, and DSC picked up where they left off.

~~~
msane
Thats odd because it looks like you understand the article. I didnt have any
trouble understanding the thesises which were called out in the introductory
paragraph either.

~~~
mattmanser
Not true, it starts out looking like that's what the article is going to be
about and then simply meanders to nowhere. It also only had dollar shave club
as an example.

~~~
msane
It doesn't tell the story of the company, how it runs, the disruption in its
industry? Was it not true to the headline?

------
rdoherty
I'm not sure why Gillette should be (very) afraid of DSC. Gillette had $7B of
sales in 2015, compared to ~$240 million by DSC. The real questions that
should be asked are:

\- Did Gillette's revenues decline because of DSC? If so, by how much?

\- What is DSC's growth now?

\- What is DSC profit margin? (Hint: it's < 1%)

\- With > $160 million in investment in DSC, what % did the 190 employees own?

While DSC had $240 million in sales, a huge percentage of that money did not
go into their bank account. Since they were buying razors from a 3rd party,
easily 40-60% of the costs go to the razor manufacturer, plus shipping &
handling costs, taxes, etc. According to Forbes they weren't even profitable!
([http://fortune.com/2016/05/16/dollar-shave-
club-2/](http://fortune.com/2016/05/16/dollar-shave-club-2/)) Gillette's
profit margins are ~30%, for comparison, even with massive marketing, sales
and distribution costs.

I do love DSC's model and attitude, but claiming the sky is falling because
they were purchased for $1B is hyperbolic. Look at the numbers and do the real
math :)

~~~
petra
DSC has 15 percent of the market, by volume. The low revenue numbers is
because they sell so cheaply .

As for profits, it's hard to evaluate those since DSC is in growth mode. But
in general DSC as the owner of the customer relationship will get all the
market power and considering razors cost pennies to make , DSC will probably
have a decent future.

But that's outside of the matter. It's about turning a large market into a
much small one, and in the process stealing leadership from gillete.

~~~
dingaling
> DSC has 15 percent of the market, by volume.

I'm struggling to see how that's possible.

\- The highest count of their subscribers I've seen is 3 million. Let's round
that to 5 million.

\- There are about 160 million adult males in the USA.
[http://countrymeters.info/en/United_States_of_America_(USA)](http://countrymeters.info/en/United_States_of_America_\(USA\))

\- Assume that only half shave with a cartridge razor: 80 million.

\- Using such conservative figures, at a ceiling that means DSC has 5 / 80 of
the possible subscriber market, or 6.25%.

Unless each subscriber is buying nearly three times as many blades as
normal...?

~~~
petra
Yes, you're probably right, Stratechery which usualy does good work estimated
this at 15%, but europmonitor - which this kind of thing is their job,
estimate is at 5%.

------
YokoZar
The real threat to Gillette isn't new business models, it's the Mach 3 coming
out of patent in the next two years. Soon after that you'll see off-brand Mach
3 compatible blades flooding discount retail outlets, and the whole "razor and
blades business model" starts to break down.

That's why Gillette has been trying to transition people onto newer shaving
systems (with however many blades) for the past decade. But people keep buying
Mach 3, because it's great.

~~~
homero
What's patented?

~~~
YokoZar
I believe the entire handle, head, and connector bits. Probably also parts of
the manufacturing process. When I bought a Mach 3 handle about 10 years ago
there were at least 12 patent numbers printed on it.

There's a reason you haven't seen generic Mach 3 blades yet. The product came
out in 1998, and blades from 1998 can still fit the system today -- no matter
how many new patents Gillette chases, others will soon be able to reproduce
exactly that.

------
sna1l
I use a double edged safety razor and have around a thousand blades, which
cost about $0.02 per blade. I've always thought that disposable razor blades
were an outrageous racket. Also DE safety razors make for a much smoother
shave!

~~~
bunderbunder
They are a racket, but my 3-blade cartridge razor still gets more use than my
safety razor. The main reason is that it's still more convenient - with a
safety razor you can get a great shave, but you have to take your time at it.
With the cartridge razor I can just stumble out of my bed and groggily whack
the hair off my face without needing to employ any executive brain function. I
don't even bother to put my contacts in first because I don't really even need
to be able to see what I'm doing.

The price of cartridge razors also comes way down after you realize that, as
long as you keep the blades dry so that they don't corrode, you can make 'em
last forever. I think my record is something like 4 months on a single
cartridge.

~~~
reitanqild
I cut myself equally much with both but maybe on cartridge blades it is
because I try to eke out on more shave of it before tossing it.

------
foobarian
It's interesting to compare this to the Harry's Razors model, who bought their
own factory in Germany[1]. By carving out a larger vertical they might be able
to differentiate themselves better, not unlike Apple.

[1] [https://www.harrys.com/our-factory](https://www.harrys.com/our-factory)

------
hanoz
All this says to me is that style over substance funded by outrageous markup
is still the name of the game in this industry. Just swap glossy Roger Federer
ads for quirky YouTube videos. For the price of two months club subscription
you could have two years worth of high quality DE blades delivered, if you can
live without being told how great you are for buying them every month.

~~~
petra
Maybe people don't want to use Double edge blades ?

------
ismdubey
Is it only me thinking that DSC were undervalued? I think that DSC is worth
way more than 1 Billion. I mean, this product occupies a much larger mindshare
than some of its much bigger competitors. Unless there are operational or
growth issues, I can't understand why only 1B??

~~~
rblatz
I thought they were over valued. Their marketing and branding teams are on
point, but besides that they resell Dorco razors, and blades then wrap them in
brown paper.

And at this point what's to stop say Gillette or any other company competing
with them at a loss selling the exact same razor?

~~~
ismdubey
Branding is the single biggest defense against any incumbent. Universally
agreed, branding is a very strong defense. They had sales of 150 Million.
Merely six times? Consider that against some Bay Area startups valuation !!

~~~
rblatz
True, but at the point when a competitor can say we sell the exact same
product made in the same factory on the same lines. But we charge less,
branding isn't as important. In fact your brand can work against you.

~~~
ismdubey
I dont quite agree with that statement. If thats the case, what stops Pepsi
from taking over Coca Cola's marketshare? In fact in blind tests, its very
hard to tell which is what b/w coke and pepsi. But, Coke commands the
marketshare? Why? I think its their branding.

~~~
toast0
Coke and Pepsi may be similar, but they are not the same product made in the
same factory.

Who are they getting to do these blind tests? Coke, Pepsi, and RC cola have
distinct flavors -- the generics do too, although I don't have enough
experience to identify them. Cans, bottles, and fountains don't taste the same
either. Branding and affinity certainly influence which vendor is preferred,
but the drinks are not the same.

------
davidf18
According to Fast Company DSC has 1.7 million subscribers so Unilever
purchased 1.7 million subscribers in a totally new market for them at a cost
of about $600 per subscriber.

They have a nice pipe and they just need to feed more products/higher value
products through the pipe over time. If many are younger (which might be
possible given the sort of company) then these can be subscribers/customers
for a long time and possibly disposable income will increase over time thus
converting lower revenue users to higher revenue ones.

The $57 billion P&G spent for Gillette in 2005 is $70 billion in 2016 dollars.

Eventually, I predict Amazon will start selling their own high quality brands
first marketing to Amazon Prime.

Amazon will compete with a lot of P&G products with their own brand
eventually.

I can't wait for Amazon or Google or Apple to remarket Verizon mobile phone
service. They just raised their plan rates!

~~~
mdasen
Loads of people re-sell mobile phone service. The question is whether Amazon,
Google, or Apple would sell it to you for cheaper.

Right now, you can get Google Fi will give you 4GB for $60 rather than $70
from Verizon. Not a huge savings there. StraightTalk will give you 5GB for
$45/mo on Verizon's network (or 10GB for $55). Why not switch to that?

Sometimes you pay more to stick with brands, but there are companies all over
the place offering cheaper alternatives if you're willing. As the article
notes, DSC is just a re-seller of Dorco blades. StraightTalk will se-sell you
Verizon. Amazon already has Amazon Basics for many items.

~~~
davidf18
Thanks....

No Amazon Basics quality men's razor that I could find.

Google fiber is considerably less money for better service over the
competition. Mobile is a far larger expense and I was hoping for a similar
disruption.

------
nitwit005
Having read this, I Googled "Dollar shave club razor brand", and sure enough
there are articles like this one explaining how to order the product directly:
[http://lifehacker.com/5903771/forget-dollar-shave-clubbuy-
th...](http://lifehacker.com/5903771/forget-dollar-shave-clubbuy-the-same-
high-quality-razors-for-a-third-of-the-price)

It seems like their success is essentially a marketing success. That's not
exactly a new phenomenon, excepting the use of web video instead of TV/radio
ads. Plenty of companies are essentially marketing entities that "rebranded"
existing products.

~~~
URSpider94
That's the point. Indeed, it's nearly a 100% marketing success. Just because
you CAN buy the same razors another way, doesn't mean that any normal
consumers do. As another HN post pointed out, DSC was able to combine existing
tools like AWS, Facebook, YouTube to build a $250MM business in a matter of
years, exceed $1M in revenue per employee, and sell it for $1B. A decade ago,
this would have been completely unheard-of -- think how much you'd have to
have spent on building your own tech stack, display/print/TV/direct mail
advertising, phone operators, etc.

------
ourmandave
Look out! They're the model to disrupt every over priced product in the
market. I'm looking at you inkjet printer ink.

So how many outrageously over priced products are there? (Besides everything
the Pentagon buys and _anything_ health care related.)

~~~
johansch
Daily disposable contact lenses.

~~~
rblatz
I feel like getting into selling prescription devices is a bigger hurdle than
say reselling razor blades.

Also is there an FDA approved factory that white labels contact lenses?

Edit: after thinking more aren't contact prescriptions written for a specific
brand? I know mine is written for Biofinity Toric lenses and that's the only
type I can get. So you would need to bring in optometrists and convince them
to fit their clients to your new line of contacts.

~~~
calvano915
I've worn contacts for years and it was never mandated which brand/type I
could buy. When you get a contact lens exam, it just says what size and power
they should be. Perhaps your insurance only covers that brand, but an exam and
prescription should allow purchase of any lens brand.

~~~
PhantomGremlin
_it was never mandated which brand /type I could buy_

I'm sure regulations vary by country, and probably? by state. In Oregon a
contact lens prescription is for an exact brand and type of lens.

That makes sense to me, because different lenses have different oxygen
permeability (and probably other differences as well).

When my daughter's doctor changed her brand, he wanted her to come back in for
another visit to confirm they were tolerated equally well. And this was at an
HMO type organization (Kaiser Permanente). They don't get paid per office
visit, so they're not incentivized to bring you back unnecessarily. (I really
like that aspect of KP).

------
gjkood
I buy a pack of bic disposable blades for a few dollars. Use each one for
several shaves. A packet lasts for several months.

Yeah, so what if my chin is not as smooth as a baby's ...? I will survive.

The shaving blade industry is a racket of the highest order.

~~~
paublyrne
I'm not a very hairy guy, but those basic disposable razors are horribly on my
face. I tried the Wilkinson sword a few times, the big competitor to Gillette
in the UK, and they really were inferior.

I now use a Mach 3 or Mach 3 Turbo, which they introduced more than 10 - 5
years ago. I'm sure their newer, fancier brands are better, but for me they're
overkill.

~~~
akvadrako
The fancier ones with battery powered vibration are more effective. You can't
really classify that as overkill because since the blades stay useful longer,
it saves money in the end.

~~~
Broken_Hippo
I'm not convinced the battery powered ones are more effective in actual
shaving quality, but they do seem to make the blades last longer plus I get
less irritation from them.

------
gkop
Is this an editorial? It's not clear from the page or the Dealbook FAQ [0]. It
certainly isn't hard news:

> It means that the riches will be split among the select few who have the
> education and skills to be at the heart of the new decentralized company.

And is it just me, or does it seem like the author is cribbing somewhat on the
pg essays on wealth inequality?

[0] [http://dealbook.nytimes.com/2006/03/01/dealbook-
faq/](http://dealbook.nytimes.com/2006/03/01/dealbook-faq/)

------
omarforgotpwd
"Every other company should be afraid, very afraid.

The deal anecdotally shows that no company is safe from the creative
destruction brought by technological change."

This is news to who, exactly?

------
maverick_iceman
Does anyone know what was the valuation of DSC prior to this sale? They raised
$163M - if that corresponds to a 20% stake then this sale doesn't increase the
price by much.

------
mdasen
The article strikes an odd tone when talking about the number of employees
that Dollar Shave Club employs directly. Yes, DSC doesn't directly employ
Dorco employees, but increasing demand for Dorco razors means more production.
If Dorco had seen direct demand rise by the same amount, it would have had a
similar impact on their workforce. The article seems to bemoan that, "The
Korean razor company [Dorco] that manufactures Dollar Shave’s razors will not
be sharing the $1 billion deal price with its employees." But realistically,
if Gillette finds a way to increase sales via a new marketing or distribution
system, I don't think the rank and file employees get a piece of that action.
Gillette would have found a way to increase profits for its investors. For
employees, maybe there's more job security because of the increased demand and
maybe new people get hired to meet the demand, but hourly wage isn't likely to
move.

The amount of labor needed isn't changing just because the company directly
employs few people. The difference is that different functions (marketing,
sales vs. manufacturing) are being done by different companies rather than one
company that does both. This means that a company like Dorco which is
seemingly terrible at marketing can still get high sales for their product.
Similarly, a company like DSC which doesn't manufacture things can put their
talents to use.

It's a scary time for companies because now companies don't need to be good at
everything to succeed. But that's good for consumers. It means that a company
that manufactures a good product won't die because it's bad at marketing,
logistics, customer support, sales, etc. - they'll get white-labeled by
someone else, but the good product can get to market.

But DSC's success might simply be Unilever over-paying for something. Another
commenter brought up Harry's
([https://news.ycombinator.com/item?id=12198431](https://news.ycombinator.com/item?id=12198431))
which decided to buy their own razor factory. They can create a product that
you can't get elsewhere. I can go to dorcousa.com and buy razors direct (and
they often get them nearly half off via coupon). I now no longer need DSC.
Dorco's razors are behind a lot of store-brand razors and so I can simply go
to my local shop rather than paying for DSC. So, Unilever bought a subscriber
list and a brand. As another commenter pointed out
([https://news.ycombinator.com/item?id=12198614](https://news.ycombinator.com/item?id=12198614)),
their margins are basically zero with most of the money going into buying the
razors and the expense around shipping and logistics.

The article just hates to see success by a company that seems more fluff than
substance. That's fair, but then the argument is that they're over-valued.
They haven't produced anything of substance and are shipping all their revenue
back to third parties. If they have produced something of substance, then
maybe they are worth the money and are providing employment indirectly to
Dorco employees, shippers, and such.

I think the real fear is just that it's easier to test the waters for product-
market fit than it used to be. If they had to handle everything themselves, it
would be hard to start DSC. Here, they could prove product-market fit without
requiring extremely high levels of capital. But that's a good thing. It means
that good ideas can get out there.

~~~
velox_io
Dorco are the real winners here. They get DSC's massive marketing campaigns
(pitching them against premium razors), while selling directly to budget
conscious consumers. Dorco sells blades either way.

There's quite an interesting lesson in branding here, many believe strong
branding is a vital asset. Yet, the right white-label deal can be better -
Essentially getting people to pay to market your product. Plus Dorco didn't
jump into the partnership (I'm sure DSC asked for exclusivity deals in the US
and Europe), a smart move indeed!

I'm now scratching my head wondering why someone would pay so much for DSC..

