What Makes the Dollar Shave Club Worth $1 Billion?
Business + Economy

What Makes the Dollar Shave Club Worth $1 Billion?

Consumer products giant Unilever is buying the Dollar Shave Club, reportedly for about $1 billion in cash. It’s a seemingly hefty price tag for cheap blades.

The Dollar Shave Club had sales of $152 million in 2015 and is on pace for more than $200 million in revenue this year, Unilever said. The business reportedly isn’t profitable yet, five years after it was founded.

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Might Unilever wind up with a $1 billion razor burn? Why is the world’s third-largest consumer products company interested in acquiring a relatively tiny startup with less than 1 percent of the men’s razor market?

It’s all about customer data and the ability to reach loyal customers directly at a time when more and more shoppers are getting their personal care supplies from sites like Amazon.com.

The deal “barely moves the needle on Unilever's annual sales,” Morningstar analyst Philip Gorham wrote in a research note Wednesday. “It does, however, signal that the mega-cap consumer staples manufacturers are taking seriously the risk of share loss from the shift to e-commerce. This acquisition gives Unilever a business-to-consumer platform, as well as management experienced in expanding a business in this channel.”

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The Dollar Shave Club allows its 3.2 million members to pay as little as $3 a month, including shipping, to get razors delivered on a regular basis — a model that’s seen as a low-profit business. But the Dollar Shave Club has cut into the market share of competitors like Gillette by collecting data on 100 million customers and potential customers and forging strong relationships with those men. It uses this information to tailor its ads to precise demographics. Unilever will now be able use Dollar Shave Club’s brand and its customer data to reach people who buy their products online, a “very specific” demographic, says Gorham.

In the statement announcing the deal, Unilever’s president of North American operations hinted at the value Unilever is looking to unlock. “In addition to its unique consumer and data insights, Dollar Shave Club is the category leader in its direct-to-consumer space,” he said. “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.”

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In other words, Unilever hopes to use the Dollar Shave Club’s data-driven, direct-to-consumer online model to reach out to customers instead of sending them to other sites like Amazon. “It’s a way for them to embrace the e-commerce platform while retaining the intellectual property” — the data — “for themselves and getting past the middle man,” says Gorham.

Unilever will be able to use the Dollar Shave Club service and data to expand into related personal care products. And if the consumer products giant can successfully expand the subscription service or develop other direct sales through the Dollar Shave Club platform, Gorham says the purchase could be a “game-changer” for the industry, which has seen customers move away from traditional stores and increasingly toward online marketplaces.

Gorham adds, however, that taking customers away from Amazon won’t be easy.

Unilever plans to keep the Dollar Shave Club operating as a distinct entity, with its co-founder Michael Dubin, seen in the ad below, as the CEO.