|1. Estimated. 2. Forecasted. Source: Mintel/Information Resources Inc. Food, drug and mass outlets excluding Wal-Mart Stores for razors, blades, disposables, shaving cream and depilatories.|
The economy isn't helping, but the real factors behind the slowing of the $3 billion-plus shaving business are an aging population, a decline in men shaving and better products that last longer, according to a recently released report by market-research firm Mintel.
Older men and women need to shave less because of hormonal changes. And older people, particularly men, prefer electric razors because they're easier to handle, said Kat Fay, editor-senior analyst on the Mintel project. Often those electric razors are ones they've had for years.
Younger men are shaving less often too, for fashion and lifestyle reasons.
The 'stubble look'
"You've got more telecommuting happening, and some of the offices we're seeing have gone from business casual to just plain casual," Ms. Fay said. "It's quite acceptable for many guys to shave every third or fourth day instead of every day, depending on whether they want that stubbled look. Just looking around my office right now, about half the guys haven't shaved within the past couple of days."
A digital and PR campaign Gillette launched shortly after P&G took over -- featuring a mythical group of women dubbed NoScruf who threatened to stop shaving if their menfolk didn't start -- doesn't appear to have had much impact.
Better products are also to blame. Gillette Fusion's blades last longer, which is part of the justification for their higher price.
In retrospect, it seems former Gillette Chairman-CEO Jim Kilts couldn't have found a better time to sell the company than early 2005, just ahead of what Mintel projects to be a steady decline in inflation-adjusted U.S. sales for shaving products that began in 2007 and is expected to last through at least 2012.
Trends depressing the U.S. shaving market were well known to Gillette executives when they sold the business, said one person familiar with the companies. That was one good reason to join Gillette to a company with a broader portfolio, he said.
But he said gains through trading people up from lower-cost systems or disposables in developed markets and expanding sales in developing markets should easily offset any U.S. slowdown.
Deutsche Bank analyst William Schmitz agrees. The U.S. razor market "isn't one of the top 10 problems facing P&G," he said. With global blade and razor sales up 6% last quarter, Gillette helped lift P&G results.
Still, the demographic and style factors explain one puzzling development -- how the 2006 Fusion launch could hit all its targets even as a U.S. shaving business dominated by Gillette remains sluggish.
Sales data are consistent with the underlying trends of younger men buying into Fusion, but older men buying fewer replacement razors for legacy systems and men of all ages shaving less, Ms. Fay said.
As Mr. Kilts predicted in September 2005, Fusion is on track to become a $1 billion global brand this year, P&G has said. Yet U.S. shaving sales -- including razor handles, replacement blades, disposables, shaving cream and depilatories -- rose a relatively modest 5.4% over the two years between 2005 and 2007 to $3.3 billion and actually declined 1.2% last year, according to data in the Mintel report (based on Information Resources Inc. data, including a panel-based estimate for Wal-Mart).
Razor-handle sales rose 0.5% from 2005 to 2007 and cartridges 5%, according to IRI scanner data (excluding Wal-Mart). But unit sales of cartridges declined 9.7% in those two years.
New razors such as the five-bladed Venus Embrace and four-bladed Schick Quattro with electric trimmers boosted razor-handle sales 28% in the first quarter of 2008. But handle sales were flat through most of the second quarter, according to IRI scanner data (excluding Wal-Mart) from Deutsche Bank. A long-term decline in unit sales of cartridges steepened to 7.9% year to date, according to IRI.
Overall, Gillette has fared better than its closest rival, with U.S. shaving sales up 7% from 2005 to 2007, while Energizer's Schick sales fell 2%, according to Mintel. Bic sales rose 28%, largely behind the 2006 launch of Soleil, its first nondisposable system.
Developing market slowdown
Mr. Kilts referred a call to P&G, and a spokeswoman for the company said in a statement: "We've seen the category slow down in developed markets, although last quarter saw historical growth levels. That said, developing markets remain strong with year-on-year double-digit growth, which results in solid global growth overall. Fusion remains a growth driver for Gillette, with more than 60 million razors sold to date in more than 80 countries worldwide."
Fusion, she said, has generated a combined $2.3 billion in sales since its launch in February 2006.
A spokeswoman for Energizer (which paid a relative discount -- less than 1.5 times sales for Schick vs. more than five times sales paid by P&G for Gillette) sees plenty of room left for growth in the U.S. She noted that Schick went from a $650 million global business when acquired from Pfizer in 2003 to $1 billion today.