The Gillette Company

views updated

The Gillette Company

Prudential Tower Building
Boston, Massachusetts 02199
U.S.A.
(617) 421-7000
Fax: (617) 421-7123

Public Company
Incorporated: 1917 as Gillette Safety Razor Company
Employees: 30,400
Sales: $3.82 billion
Stock Exchanges: New York Boston Midwest Pacific London Frankfurt Zürich

The Gillette Company offers a wide range of personal-care products for men and women, including deodorants, shampoos, and hair spray. Acquisitions of other companies have added pens, stationery supplies, and small appliances to its product line. Shaving equipment, however, still accounts for slightly over 70% of Gillette’s profits, and the company’s ability to compete effectively in that area will determine if it will look sharp into its second century.

One summer morning in 1895, an ambitious traveling salesman found that the edge of his straight razor had dulled. King Gillette later said that the idea for an entirely new kind of razor, with a disposable blade, flashed into his mind as he looked in irritation at his dull blade.

King Gillette had been searching for the right product, one that had to be used—and replaced—regularly, around which to build a business. His innovation in shaving technology was just such a product. Another safety razor, the Star, was already on the market at the time but, like the straight razor it was meant to replace, its blade needed stropping before each use and eventually had to be professionally honed. Gillette envisioned an inexpensive, double-edged blade that could be clamped over a handle, used until it was dull, and then discarded.

Gillette spent the next six years trying to perfect his safety razor. Scientists and toolmakers he consulted were pessimistic, and thought the idea impractical. Gillette, 40 years old at the time and a successful salesman, inventor, and writer, did not give up. In 1901, he joined forces with William Nickerson, a Massachusetts Institute of Technology-educated machinist. Nickerson developed production processes to make Gillette’s idea a reality, while Gillette formed the American Safety Razor Company to raise the estimated $5,000 they needed to begin manufacturing the razor. Gillette became president of the company and head of a three-man directorate. Production of the razor began early in 1903.

The renamed Gillette Safety Razor Company began advertising its product in October 1903. The company sold 51 razor sets at $5 each and an additional 168 blades—originally at 20 for $1— that first year.

In 1904, Gillette received a patent on the safety razor and bought a six-story building in Boston. By 1906 the company had paid its first cash dividend. During the years before World War I Gillette steadily increased earnings through print advertisements, emphasizing that with his razor men could shave themselves under any conditions without cutting or irritation.

At the same time, Gillette was expanding abroad. He opened his first foreign office, a London sales branch, in 1905. By 1909 he had established a small manufacturing plant in Paris and offices in Germany, Austria, Scandinavia, and Russia. By 1923, foreign business accounted for about 30% of Gillette’s sales, and today the company earns about half its profit abroad.

In 1910 King Gillette decided to sell a substantial portion of his controlling share of the company to the company’s major investor, John Joyce. Gillette had succeeded in fighting off challenges for control of the company from Joyce in the past, but this time he took approximately $900,000 and bowed out. Gillette retained the title of president and frequently visited foreign branches, but he no longer played an active role in company management. Joyce was made vice president, a position he used to manage day-to-day operations. When Joyce died in 1916, his longtime friend, Edward Aldred, a New York investment banker, bought out the Gillette shares left to Joyce’s estate and took control of the company. Aldred kept on Joyce’s management team.

During World War I the U.S. government ordered 3.5 million razors and 36 million blades to supply all its troops. In order to meet military supply schedules, shifts worked around the clock and Gillette hired over 500 new employees. Gillette thus introduced a huge pool of potential customers to the still-new idea of self-shaving with a safety razor. After the war, ex-servicemen needed blades to fit the razors they had been issued in the service.

In 1921, Gillette’s patent on the safety razor expired, but the company was ready for the change. It introduced the “new improved” Gillette razor, which sold at the old price, and entered the low-priced end of the market with the old-style razor, renamed the Silver Brownie razor, priced at only $1. Gillette also gave away razor handles as premiums with other products, developing customers for the more profitable blades. Expansion and growth continued.

The company also continued to expand abroad. In 1922 Gillette became royal purveyor to the prince of Wales and in 1924 to King Gustav V of Sweden. More favorable publicity followed when the Paris office gave Charles Lindbergh a Gillette Gold Traveler set the day after he completed the first transatlantic flight.

By the end of the decade, Gillette faced its first major setback. Auto Strop Safety Razor Company, owned by Henry J. Gaisman, filed suit for patent infringement after Gillette produced a new blade using a continuous-strip process similar to one originally presented to Gillette by Gaisman.

Gillette resolved the suit by merging with Auto Strop, only to face another problem. When Gaisman checked the company’s financial records, he found that Gillette had overre-ported its earnings for the past five years by about $3 million. Confidence in Gillette fell, as did its stock. From a high of $125 early in 1929, the stock bottomed out after the disclosure, at $18.

The crisis led to management reorganization. King Gillette resigned as nominal president, and died 14 months later at age 77. Gaisman from Auto Strop became the new chairman of Gillette and Gerard Lambert, son of the founder of the Lambert Pharmacal Company—makers of Listerine—and a former manager there, came out of retirement to become president of Gillette. Lambert agreed to work for no salary with the guarantee of company stock if he could bring earnings up $5 per share.

Under Lambert, The Gillette Company made a bold advertising move: it admitted that the new blade it had brought out in 1930 was of poor quality. The company then announced what became its most recognizable product, the Gillette Blue Blade. Made under Gaisman’s strip-processing method, the Blue Blade promised uniformly high quality.

The Blue Blade kept Gillette the leader in the field, but profits remained disappointing throughout the Depression, as men increasingly turned to bargain blades. Lambert resigned in 1934 without meeting his goal of improving earnings and without receiving compensation from the company. He was replaced by a former Auto Strop executive, Samuel C. Stampleman, who had no more success. With profits at their lowest since 1915, the board of directors appointed Joseph P. Spang Jr. president in December 1938 in an effort to invigorate the company.

Spang immediately restored the company’s advertising budget, which had been cut to save money. Under this policy, Gillette’s trademark sports advertising developed. Spang purchased radio broadcast rights to the 1939 World Series for $100,000. Despite a short series, in which the Cincinnati Reds lost four straight games to the New York Yankees, sales of Gillette’s World Series Special razor sets were more than four times company estimates.

This success encouraged more sports advertising. By 1942, the events Gillette sponsored were grouped together as the “Gillette Cavalcade of Sports.” Although it eventually included the Orange Bowl, the Sugar Bowl, and the Kentucky Derby, in addition to the World Series and the All-Star game, the “Cavalcade of Sports” is perhaps best known for bringing boxing to U.S. men. Spang attributed Gillette’s continuing success to the sports advertising program, and sports programs remain an important vehicle for Gillette advertising.

During World War II foreign production and sales declined, but domestic production more than made up for those losses. Almost the entire production of razors and blades went to the military. In addition, Gillette manufactured fuel-control units for military-plane carburetors. The backlog of civilian demand after the war led to consecutive record sales until 1957.

During the profitable postwar period Spang began to broaden Gillette’s product line. The company had introduced Gillette Brushless shaving cream, its first, non-razor, non-blade product, in 1936. In 1948 Spang began to diversify by acquiring other companies when he bought The Toni Company, a firm that made home permanents. In 1955 Spang purchased Paper Mate Company, a manufacturer of ball-point pens.

When Spang retired in 1956, Carl Gilbert became CEO. During the 1960s Gillette faced a threat to its bread-and-butter product, the double-edged blade. In 1962, the English Wilkinson Sword Company began to export stainless-steel blades to the United States. Wilkinson had developed a polymer coating that made it possible to put an edge on stainless steel, which resists corrosion, increasing the number of shaves from a blade.

Two of Gillette’s domestic competitors—Eversharp, which makes Schick blades, and American Safety Razor—rushed versions of the stainless-steel blade onto the market. Gillette, the market leader, was left behind without a stainless-steel blade of its own to compete, and profits slumped in 1963 and 1964. Gillette recovered much of its market share through a simple strategy: develop a better blade and initiate aggressive advertising campaign emphasizing quality. After its own blade hit the market, Gillette’s market share stabilized at 60% to 65%, compared to 70% to 75% before the challenge.

Vincent C. Ziegler, head of the company’s North American razor operation, had developed the razor-marketing strategy, and when Gillette reorganized in July 1964, Ziegler was named president. He took over as chairman of the board in 1965. The stainless-steel blade controversy taught Ziegler not to rely on one product. He saw Gillette as “a diversified consumer products company,” and promoted both internal development of new product lines and acquisition of other companies.

During the later 1960s Gillette pursued this strategy actively, but with mixed results. A new line of Toni hair-coloring products failed, as did Earth Born shampoos, luxury perfumes, and a line of small electronic items such as digital watches, calculators, smoke alarms, and fire extinguishers. Many of the companies Gillette acquired, such as Eve of Roma high-fashion perfume, Buxton leather goods, Welcome Wagon, and Hydroponic Chemical Company—which produces Hyponex plant foods—never found the fit with Gillette comfortable. The acquisitions led to shrinking profit margins.

Gillette did have some successes. The Trac II twin-blade shaving system introduced in the 1970s was a success, and the 1970 acquisition of the French S.T. Dupont gave Gillette the disposable Cricket lighter, which Gillette introduced to the U.S. market.

By the mid-1970s Ziegler was ready to retire, and began to groom outsider Edward Gelsthorpe to succeed him, but Gelsthorpe left Gillette to join United Brands, now Chiquita Brands, 15 months after his appointment as president. Ziegler next tapped Colman M. Mockler Jr. to replace him when he retired in 1975. Mockler had been at Gillette since 1957 and had an entirely different background and style than Ziegler. He had come up from the financial end of the business rather than sales.

Mockler moderated Ziegler’s diversification policy. He concentrated on a limited number of promising markets, particularly high-volume, repeat-purchase consumer items, selling Ziegler’s least sucessful acquisitions and pumping money into promising companies compatible with already-existing manufacturing or distribution capabilities. Mockler stuck with the Cricket disposable lighter even though high introductory marketing costs and a costly price war with the Bic Pen Corporation, owned by the French Société Bic kept it from showing a profit.

Mockler also held on to the West German Braun company. Ziegler had bought the family-owned business in 1967 to gain entry to the European electric-shaver market and for the quality and style of its small-appliance designs. Mockler pared Braun’s less profitable lines and rode out a Justice Department antitrust suit against the acquisition. The suit eventually prevented Gillette from introducing Braun shavers in the U.S. market before 1984. Mockler also increased Gillette’s advertising budget and undertook companywide cost-cutting measures in all other divisions. Before the results of those policies could be seen, Mockler faced other problems. Growing fear of fluorocarbons, which deplete the earth’s ozone layer, affected sales of products in aerosol cans during the 1970s.

Gillette eventually developed new product-delivery systems to replace aerosol cans, such as non-aerosol pumps and rollons, for Gillette’s already-established product line, and he put advertising dollars behind the products, which included Right Guard and Soft & Dri deodorants and Adorn and White Rain hair sprays. He also started development of a new deodorant product, Dry Idea, which feels dry when applied. Dry Idea was launched in 1978 after two years of development at a cost of $118 million. It quickly recovered a quarter of the deodorant market for Gillette.

Gillette faced a more serious threat from Bic. In the 1960s Bic came to the United States with a 190 disposable pen, which made dramatic cuts into sales of Gillette’s 980 Paper Mate pens. In the 1970s Bic attacked Gillette’s Cricket disposable lighter with its own disposable lighter. Since the Cricket was more expensive to make—it had more moving parts than the Bic—Gillette was losing the price war. Lighters and pens, however, produced only 15% of Gillette’s pretax profits; razor blades accounted for 71% of profits. When Bic began producing disposable razors and purchased American Safety Razor, with its 13% of the blade market, from Personna and Gem blades, Gillette had to respond. Gillette countered by competing with Bic on price while emphasizing the higher quality of its products. Gillette brought out the Eraser Mate pen despite marketing studies that questioned demand for an erasable pen, and sales soared. By 1980 Gillette had improved profitablity despite the attack by Bic.

Mockler’s policies led to a higher profit margin and a surplus of cash. That in turn led to a new threat in the mid-1980s: the threat of takeover. In 1986 Ronald O. Perelman, head of Revlon, offered $4.1 billion for Gillette. He was attracted by Gillette’s well-known personal-care brands, the possibility of combining the sales and distribution systems of the two companies, and Gillette’s expertise in marketing abroad.

Gillette rejected Revlon’s offer of $65 a share and bought back stock from Perelman at $59.50 a share and paid some expenses, for a total of $558 million. Revlon made two other unsolicited requests to buy the company in 1987, both of which were refused by the Gillette board of directors.

In response to the takeover threats, Gillette reorganized top management; thinned out its workforce through layoffs; modernized its plants while shifting some production capacity to lower-cost locations; and sold many smaller and less profitable divisions.

That was not the end of the takeover threats. In early 1988 Coniston Partners announced that it had acquired approximately 6% of the company and was determined to replace four members of Gillette’s 12-member board so it could influence company policy. Members of the partnership said they would actively seek offers to sell or dismantle Gillette if they managed to get representation on the board. Coniston Partners’s battle to get shareholders’ proxy rights was intense, but in 1988 Gillette came out on top with 52% of the votes for directors to Coniston’s 48%. The matter was finally resolved when Gillette instituted a stock repurchase for all shareholders, which included 16 million of Coniston’s 112 million shares at $45 a share.

Finally, in August 1989, Warren Buffett’s Berkshire Hathaway bought $600 million of Gillette convertible preferred shares. The deal potentially placed 11% of Gillette’s stock with Buffett, who had agreed to give the company the right of first refusal on the block, should he wish to sell it. The friendly agreement decreased the threat of takeover, though it tightened up cash flow at the company. Buffett’s dividend was $52.5 million a year.

With takeover threats behind it and restructuring completed, Gillette returned to emphasizing its powerful brand names and its bread and butter, shaving products. While toiletries and cosmetics are low-margin items and profitable stationery products account for only 9% of the company’s total profits, razors and blades still account for a little over 70% of profits. Gillette has brought in a new head of shaving operations, John W. Symons, formerly head of European operations, and developed new ad campaigns to emphasize the more profitable shaving systems over disposable shavers such as its own Good News.

In October 1989, Gillette unveiled the Sensor shaving system, which features thinner blades mounted on springs by lasers so they can follow contours. The blades, to be used in a permanent shaving system, cost close to $200 million to develop and commanded about $100 million in advertising.

Gillette made another effort to expand its presence in shaving when it attempted to buy the U.S. and non-European operations of its old competitor, Wilkinson Sword, early in 1990. The Justice Department blocked the sale of Wilkinson’s U.S. interests since Gillette controls about half the U.S. market and Wilkinson is number-four in the market with about 3%. The company is still investing about $150 million in an attempt to enhance its position in shaving products.

Gillette’s reorganization indicates that the company is willing to take the necessary steps to remain highly profitable. The company is emphasizing traditional strengths in shaving equipment through technological development and acquisitions. The company is also returning to a heavy use of advertising in support of its shaving products. If these trends continue, Gillette should remain on the cutting edge of the personal-care business.

Principal Subsidiaries

Compañia Gillette de Argentina; Gillette (Australia) Pty. Ltd.; Braun Inc.; Gillette Beteiligungs— GmbH (Germany); Gillette do Brasil, Inc.; Rio Manufacturing Co.; Gillette Canada Inc.; Gillette de Colombia S.A.; Colton Development, Inc.; Colton Gulf Coast, Inc.; Colton East, Inc.; Colton North Central, Inc.; Colton West, Inc.; Gillette Capital Corporation; Gillette Direct Response Group, Inc.; Gillette Española, S.A. (Spain); Gillette Foreign Sales Corporation Ltd. (Jamaica); Gillette France S.N.C. (99.9%); Compañía Giva, S.A.; Compania Interamericana Gillette, S.A. (Panama); Gillette Internile S.A.E. (Egypt, 80%); Inversiones Gilco (Chile) Limitada; Gillette Italy S.p.A.; Jafra Cosmetics, S.A. de C.V. (Mexico, 74%); Gillette (Japan) Inc.; Gillette de Mexico, Inc., Mexico Manufacturing Co.; Gillette del Peru, Inc.: Lima Manufacturing Co.: Gillette (Philippines), Inc.; Gillette South Africa Ltd.; Gillette (Switzerland) A.G.; Gillette Industries Ltd. (U.K.); The Gillette Company.