June retail data indicate Gillette's spring launches of Venus Divine and M3Power razors already have erased most of the share gains Energizer Holdings' Schick made last year with its Intuition and Quattro. Gillette also spent big on ads, shelling out $97 million last year to fend off its audacious rival.
Schick tried to stay the pace, spending $62 million in measured media last year. In fact, as the battle raged, the rivals heaped on an estimated $300 million in overall marketing spending-and that hurt the bottom lines of both companies, nicking Gillette's margins and slashing those of Schick.
Schick and Wilkinson Sword profits plunged 58% to $7 million globally last quarter, despite sales rising 12% to $230.1 million. Energizer Holdings missed earnings estimates last week, due in part to heavy marketing spending, and said it would cut 600 jobs.
Gillette's razor sales ticked up more modestly, 10% to $1.1 billion globally, and operating profits increased 11% to $420 million. But Gillette's marketing spending as a percent of sales climbed to 10.6% for the quarter, above its targeted range of 9% to 10%.
`we know who wins'
"At the end of the day we know who wins," said Deutsche Bank analyst Andrew Shore. "Gillette managed to survive with a 30% margin [actually 38% last quarter]. A major competitor decided to live with a 3% margin. Schick's strategy is absolutely unsustainable."
In all, Gillette's share of the category was off 2.8 points from a year ago to around 79%, according to analyst estimates. But Gillette still sliced away most of the nearly seven-point gain Schick opened up early this year.
Wall Street punished both companies last week. Energizer Holdings shares fell 15.7% over three days to close the week at $38. Gillette dropped 3.5% to $38.99 after reporting its results. Both sides surprised analysts with their heavy marketing spending, which analysts believe hurt bottom lines, though Gillette far less.
The outlays look to have built the category, which may ultimately benefit leader Gillette. The company said the U.S. razor systems and blade category-around $2 billion across all outlets-was up 14% in June over a year ago, though its own U.S. razor sales were up only 10%.
Schick's heavy promotion in advance of the Gillette's spring launches included newspaper coupons for free Intuition and Quattro razors, both handled by WPP Group's J. Walter Thompson Co., New York. Gillette, via Omnicom Group's BBDO Worldwide, New York, similarly stepped up direct mail and in-store razor giveaways last year to combat Quattro and has spent heavily on TV, online and radio the past two months behind M3Power in particular.
Last week, both sides signaled they're scaling back their assaults. Energizer, in a statement, promised marketing support would return to "normalized levels" over the rest of 2004. Gillette VP-Investor Relations Chris Jakubik said in a conference call that the negative earnings impact from its defense this year against Schick will fall on the low end of previous guidance of $40 million to $70 million.