Why every company should worry
An excerpt from a New York Times article by Steven Davidoff Solomon
05 September, 2016
Unilever is paying $US1 billion for Dollar Shave Club, a five-year-old start-up that sells razors and other personal products for men. Every other company should be afraid, very afraid.
The deal anecdotally shows that no company is safe from the creative destruction brought about by technological change. Dollar Shave Club is a phenomenon in the men’s grooming industry. The idea is simple. Instead of paying $US10 or $US20 a month for disposable razors, a Dollar Shave Club subscriber could go online and set up a regular order to be shipped to his home monthly at a fraction of the retail cost.
Gillette had previously dominated the razor business, and was so dominant in advertising and shelf space that Procter & Gamble paid $US57 billion for the company in 2005.
Everything changed in 2012 when Dollar Shave Club posted a free ad on YouTube. The ad went on to get over 20 million views and rocketed Dollar Shave Club to over $US240 million in revenue. From there, Dollar Shave Club raised $US160 million in venture capital, captured about eight percent of the market in only a few years, and expanded into other personal care products such as wet wipe toilet paper.
It used to be that if you wanted to sell razors, you needed a factory, a distribution centre, a sales force, a research and development team and a marketing budget. But the internet, mass transportation, free advertising, low-cost and easy distribution and globalisation destroy everything.
This means all companies should be fearful, but not all is lost. In this world, intellectual property and unique assets become paramount. Gillette sued Dollar Save Club for patent infringement, but it is hard to patent a simple razor. Unique technology or assets mean you have a right that cannot be taken away or commoditised.
Fisher Funds comment: We agree with this analysis which reinforces our insistence on a competitive moat or sustainable advantage that each of our portfolio companies must possess if they are to make the grade.