Razor test: Gillette vs. Dollar Shave vs.Harry"s
Oneof the darlings of theLos Angeles start-up scene is cashing in on a$1-billion payday a rise fueled by a disruptive business model and a series ofoffbeat viral ads.
But this company doesnot traffic in virtual reality headsets, video games or disappearing messages. Its business, instead, focuses on one of mankinds oldest gadgets: razors.
Dollar Shave Clubs sale to consumer products titanUnilever, announced Tuesday, is the biggest acquisitionever of a venture-backed start-up in Los Angeles. And its a vote of confidence inthe citys start-up scene one that has quietly emerged as a hub for e-commerce.
Neither Dollar Shave Club nor Unilever disclosed terms of the deal, but two sources familiar with the matter, who were not authorized to discuss it publicly,said the privately held start-ups shareholders will divvy up the sumin cash.
Born out of a holiday party conversationin 2010, founder Mike Dubin launchedDollar Shave Club a year later.Since then, the subscription razor servicehas amassed 3.2 million customers and expanded witha line of mens hair and skin products as well as wet wipes.
Backed by more than $160 million in venture capital funding,Dollar Shave Club had been valued at about$630 million prior to the sale.
Dubin, who is to remain at Dollar Shave Club as chief executive, said the two sides had been talking for months about an investment. Those talks evolved into discussions about an acquisition after Dubin acknowledged how Unilever could help Dollar Shave Club grow into a global brand, beyond its current operations in U.S., Canada and Australia.
It was a flight we didnt want to miss, Dubin said.
Dollar Shave Club will remain largely independent to build its brand, which was made famous by a series of tongue-in-cheek viral videos starring Dubin. The companyalso will get to retain all 190 of its employees, Dubin said.
Though Dollar Shave Club has yet to turn a profit, thecompany had revenueof $152 million last year and was on track to exceed $200 million this year. It invests heavily in marketing, including paying for a commercial during the Super Bowl this year.
Unileverhad nearly $60 billion in sales last year in 190 countries. Among its best known stable of brands are Dove, Axe, Lipton and Ben & Jerrys.
Dollar Shave Club is an innovative and disruptive male grooming brand with incredibly deep connections to its diverse and highly engaged consumers, Kees Kruythoff, president of Unilever North America, said in a statement. We plan to leverage the global strength of Unilever to support Dollar Shave Club in achieving its full potential in terms of offering and reach.
The massive deal helps bolster Southern Californias reputation as a rising hub for venture-backed companies, with Silicon Beach home to hundreds of start-ups.
Its a bit of a wake-up call for whats happening in L.A., said Jim Mills, a Deloitte partner who leads the consumer business practice in Los Angeles. Silicon Valley obviously gets a lot of attention, but this highlights the fact that L.A. can hold its own.
Although tech firmssuch as Snapchat get most of the buzz, analysts said there is huge potential in firms such as Dollar Shave Club, which have stripped much of the hassle and a chunk of the costs by sellingconsumer products online.
Los Angeles has carved out a niche for companies injecting technology into shopping, said Greg Bettinelli, a partner at Upfront Ventures, which has invested in local e-commerce companies such as Loot Crate, trading incollectibles,and Combatant Gentlemen, sellingmenswear.
L.A. is arguably at the center of retail innovation, Bettinelli said. The region has built out unique skill sets in marketing, technology and product design for next-generation commerce.
Dollar Shave Club is one of the most prominent subscription-based start-ups, in which members receivea box of products every month. Hundreds have popped up in recent years,but many are now struggling amid a downturn in venture capital investment. Makeup service Birchbox has gone through two rounds of layoffs this year.
But Dollar Shave Club has thrived by solving an especially bothersome shopping experience. Traditional grooming brands like Gillette operate by giving away razor handles, sometimesfor free, but charging high markups for the blades themselves. At many drug and grocery stores, razor blades are kept under lock and key.
By mailing razors directly to consumers at a lower cost,Dollar Shave Club managed to capture more than 10% of the razor market in just a short time, said Sucharita Mulpuru, a retail analyst at Forrester.
When you sell directly to consumers, you get much better margins, she said. Its appealing but hard to do.
David Pakman, a partner at Venrock Partners, which led severalearly fundraising rounds, said Dollar Shave Club has "been a company of fascination for many in the consumer products industry.
Traditional consumer-products companies and retailers are hungry to get into thedirect-to-consumer business. Acquiring a company that already has provedsuccessful, Mulpuru said, allows a business like Unilever, which has no major razor brand, to skip over years of product development and marketing costs.
It would take a billion dollars for them to get to a 10% share anyway, she said. They are essentially buying it.
Dollar Share Clubremains enmeshed in a lawsuit with rival Gillette, which started its own online subscription service in 2014. Gillette, which is owned by Procter & Gamble, alleges Dollar Shave Clubstole one of its patents to reduce wear and tear on its razor blades.
Dubin declined to comment on the lawsuit and whether it had an effect on the sale to Unilever. Investors in Dollar Shave Club said the sale would help in the fight withProcter & Gamble.
Dubin started his business after complaining about the hassles of shaving with eventual co-founder Mark Levine, father of a friends fiancee, at a holiday party. The two later partnered with Santa Monica start-up accelerator Science Inc.
During those early days,Dubin would staff the printers at Science, printingpostage labels and affixing them to boxes filled with blades.
He"s humble and just gets it done,Peter Pham, co-founder of Science,said of Dubin. He had a vision, he executed it and he won . It shows L.A. can compete and build great companies.
Dubin has hopped around in his career, starting his career as a page at NBC, before eventually moving into marketing for publications such as Life and Sports Illustrated. In the mid-2000s, he founded astart-up that was a social network for travelers.
In 2012, Dubin started making a name for himself and Dollar Shave Club with YouTube videos that gained an audience thanks tooddball humor and the co-founders off-kilter charm.
The first video featured Dubinwielding a machete and atoddler shavinga man"s head.
Do you think your razor needs a vibrating handle, a flashlight, a back-scratcher and 10 blades, Dubin demanded at one point. Your handsome grandfather had one blade and polio.
Largest mergers and acquisitions of L.A. County start-upsDollar Shave Clubs acquisition is topped in Southern California by Facebooks $2-billion purchase of then-Irvine-based virtual reality company Oculus in 2014, but its the largest deal ever in Los Angeles.
Source: PitchBook
Top mergers and acquisitions of venturecapital-backed e-commerce companies worldwideNote: Only includes deals since 2009 with a disclosed valuation
Source: CB Insights
Times staff writer Paresh Dave contributed to this report.
david.pierson@latimes.com
Twitter:@dhpierson
shan.li@latimes.com
Twitter: @ByShanLi
UPDATES:
July 20, 4:30p.m.:This article was updated to add charts.
July 20, 3:20 p.m.:This article was updated to include additional context and reporting.
July 20, 1:15 p.m.:This article was updated to include additional context and reporting.
July 20, 9:40 a.m.:This article was updated to add a graphic.
July 20, 9:05 a.m.:This article was updated with additional details.
9:40 p.m.:This article was updated with additional details.
This article was originally published July 19 at 7:40 p.m.
Source: http://www.latimes.com/business/la-fi-tn-dollar-shave-club-unilever-20160719-snap-htmlstory.html
