CPG titan Unilever has agreed to acquire men’s subscription grooming brand Dollar Shave Club, with the transaction being valued at as much as $1 billion in cash, according to Fortune. The high price tag could be a great sign for other industry disruptors breaking into verticals populated by few major established players, according to industry analysts.
Dollar Shave Club had a $630 million valuation as of November 2015, a number that’s even more impressive considering the century-long dominance of the Gillette and Schick brands, which are now owned by multinational CPG firms Procter & Gamble and Energizer Holdings, respectively.
The e-Commerce retailer’s subscription model bolstered its ability to stand up to these venerable brands, both by providing cheaper blades and by nullifying outdated advantages in advertising, distribution and technical superiority.
With that in mind, analysts point out that other upstart e-Commerce sellers should be thrilled at the news of the acquisition.
“I think the valuation on Dollar Shave Club is yet another validation that the path to glory for disruptive e-Commerce brands is to ‘build it’ not ‘run it,’” said Stefan Read, Principal Management Consultant at customer experience reinvention firm Jackman Reinvents in an interview with Retail TouchPoints. “You don’t need to get to scale, you don’t need to be profitable, you just need to demonstrate there is something there.”
“The $1B sale price compared to the work (and capital) required to get the business to profitable scale likely made this an easy decision,” Read added. “This isn’t a new insight, of course. Just another proof point that you can get paid well for being a credible threat (and get paid before the threat fully materializes) and developing capabilities that are ‘cheaper’ to buy than build.”
So far, the plans have worked like a charm for Dollar Shave Club. In 2015, the retailer had sales of $152 million and is on track to exceed $200 million in 2016. With the deal, Unilever would have 11% of the razor and blades market, according to Jefferies analysts.
What The Deal Means For Harry’s As Dollar Shave Club Gains ‘Unilever-age’
Harry’s, a major online competitor of Dollar Shave Club in the razor and grooming products category, will now experience the brunt of pressure as the only major men’s grooming brand without the backing of a multi-billion-dollar CPG conglomerate. While its last valuation was reported to be a whopping $750 million in 2016, don’t expect the retailer to get snatched up by a major player any time soon, according to Read. “If you’re truly buying the subscription direct-to-consumer capability, why go head-to-head with Unilever in the same category when there are plenty of other less competitive categories out there?”
Upon the transaction’s closing, Michael Dubin will continue to serve as CEO of Dollar Shave Club, which will operate its direct-to-consumer razor business as an independent entity. However, the acquisition should help Dollar Shave Club improve its distribution capabilities in existing markets, and even expand outside the U.S., Canada and Australia into new markets.
“Unilever is clearly trying to play ‘king maker’ with this acquisition,” said Read. “There are other similar male grooming subscription businesses out there, and all subscription businesses benefit from scale. Awareness is the first huge hurdle but can be overcome with the significant marketing clout Unilever would, one would assume, bring to the table. Factor in the cost benefits to be had from leveraging Unilever’s warehousing, manufacturing relationships, etc. and it becomes easy to see the path to profitability for Dollar Shave Club.”