Gillette, Bleeding Market Share, Cuts Prices of Razors

Industries Dow Jones Newswires

(Reuters)

Gillette, which dominates the global razor business, has long followed a simple and lucrative strategy: Add new features and raise prices. 

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But the 115-year-old brand is changing tactics this month by slashing prices and putting a new focus on its cheaper products. The Procter & Gamble Co. unit hopes to stop defections of its U.S. customers to online startups like Dollar Shave Club and Harry's that sell lower-priced razors and blades. 

Gillette's plan to cut prices by as much as 20% jolted Wall Street. "An act of desperation on Gillette?" asked Barclays analyst Lauren Lieberman, in a research note soon after the announcement in February by P&G. 

New data show Gillette has lost U.S. market share for six straight years. Its share of the men's-razors business fell to 54% in 2016, down from 59% in 2015 and more than 70% in 2010, according to figures released Tuesday by data-tracking firm Euromonitor. P&G says its internal numbers show a lesser decline. 

Gillette razors and blades are important, high-margin products for P&G, which bought the business for $57 billion in 2005. The Cincinnati giant finds itself under the microscope after Trian Fund Management, one of the biggest activist investors, announced in February it had built up a $3 billion stake in the company. Trian has yet to say what changes, if any, it will push for at P&G. 

"We are very aware of what happening in the North American landscape and we are very focused on addressing some of the challenges that we face," Gillette spokeswoman Kara Buckley said. 

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The decision on pricing, she said, came as the company realized the drawbacks of its singular focus on creating ever-more sophisticated razors with higher and higher prices. "We need to do a better job of telling guys we are available for them at a multitude of price points," she said. 

Refills for Gillette men's razors range from around $2 to $6 per cartridge, depending on the features, when not bought in bulk. That compares with Schick's $2 to $2.75 per cartridge, when not bought in bulk. The cheapest Dollar Shave Club option features refills for 20-cents a cartridge. 

Even as lower-cost shave clubs entered the scene, P&G continued to roll out new, pricier products, such as a razor featuring a swiveling-ball hinge that allows the blade to pivot. Last month, the company filed a patent application for a razor cartridge that heats up. 

Among the items getting a price cut: cartridges for the Fusion razor that features five blades in a single head and a special trimmer on the back for hard-to-reach areas. A four-pack that was selling for around $19.50 will now go for closer to $15. On average, prices will fall by 12%, P&G says. 

P&G in recent years also launched its own competitor to online razor services, the Gillette Shave Club. 

Ms. Buckley said P&G will still offer and develop high-end products, but also will put more resources into marketing and expanding lower-priced product lines. The company's upgrade last year of its lower-end Mach 3 razors and blades was the first in many years. 

Ms. Lieberman, the Barclay's analyst, called Gillette's move a "full capitulation on price," and said she doubted it would stem the company's market-share erosion in the long run. "We think it will be very tough to switch users back from Dollar Shave Club & Harry's," she wrote. 

Both Dollar Shave Club -- acquired last year by P&G rival Unilever PLC for $1 billion -- and smaller competitor Harry's continued to grow substantially last year. Combined, the two companies' share of the U.S. market rose to 12.2%, up from 7.2% in 2015, according to Euromonitor, which estimates both online or in-store sales. 

U.S. sales at Harry's, launched in 2013, more than doubled to $113 million last year, according to Euromonitor. The growth in part came from a deal with Target Corp. to sell razors in its nearly 1,800 stores, the company's founders said last month. 

Harry's co-founder Jeffrey Raider said he was confident Harry's could retain customers even as Gillette cut prices. "People trust that our pricing is fair," he said. "And there is significant pent-up frustration among guys that Gillette has been methodically overcharging them for decades." 

Dollar Shave Club declined to comment on Gillette's price drop. The company said its internal data show a higher market share than Euromonitor. 

Edgewell Personal Care Co.'s lower-priced Schick is most vulnerable to Gillette price cuts given that the brands are sold side-by-side at retailers, according to analysts. The company also sells private-label razors, which are in growing demand. Edgewell chief executive David Hatfield said in a January earnings call that P&G "continues to do promotion levels that we've never seen" for Gillette. 

An Edgewell spokesman declined to discuss Gillette's move or Edgewell's plans. 

Write to Sharon Terlep at sharon.terlep@wsj.com