By Sharon Terlep
American shoppers will buy almost anything online. But when it
comes to household mainstays, from razors to tampons, the
old-fashioned store still beckons.
That reality is hitting some of the world's biggest
consumer-products companies, which collectively have invested
billions of dollars in startups in recent years that sold directly
to consumers. Meanwhile, upstart brands are finding they must move
into stores to compete outside of niche territory -- for at least
two reasons, executives and analysts say. Big retailers can give
brands critical visibility, and consumers generally prefer buying
household staples in a single shopping trip to enrolling in many
subscription services.
More than three years after Unilever PLC, the European giant
behind Dove soap and Axe body sprays, paid $1 billion to buy Dollar
Shave Club, the razor subscription service still isn't making
money, according to people familiar with the matter.
Procter & Gamble Co. Chief Executive David Taylor said his
company is still figuring out how to turn recently acquired online
brands into profitable businesses. P&G has bought several
companies that originated as online-only brands, including Native
Deodorant and Walker & Co., which sells grooming products for
men of color.
"There are many, many launches that grow fast, and people call
them successes because they grow fast," Mr. Taylor said. "We're in
the world of having to create value, not just grow. A business
model that makes money is a higher challenge."
Dozens of online consumer-products startups are finding their
success depends on getting on shelves of Walmart Inc., Target Corp.
and other traditional retailers. Even some celebrity-fueled
startups have made the shift. Kylie Jenner's cosmetics brand, which
recently sold a $600 million stake to Coty Inc., started selling in
Ulta Beauty Inc. stores last year, although it didn't cite a reason
for the move.
"We gave up on the direct-to-consumer angle to work with
retailers," said Yanghee Paik, co-founder of Rael, which sells
organic maxi pads, tampons and other feminine-care products. "We're
already asking people to convert from conventional products made by
the P&Gs of the world. To also buy online is asking for a lot
of change."
Rael this year went on sale at Target, where it is sold along
with other formerly online-only brands, such as Harry's razors,
Native deodorant and Cora, a rival, organic feminine-care-products
company.
Some companies that sell online say demand is rising, and many
brands that have moved into retail are increasing sales online as
well. In addition to getting on store shelves, they are investing
in TV and print advertising, finding they can't rely on
social-media marketing alone.
Online sales accounted for roughly 15% of the $3.7 trillion in
U.S. retail spending last year, according to the National Retail
Federation. Where overall retail spending rose 4.6% from the year
earlier, online spending grew by more than 10%.
Interest in online-only brands took off roughly five years ago,
when Dollar Shave Club stunned industry watchers by grabbing share
from Gillette, P&G's razor behemoth.
In 2016, Unilever bought the startup, which was the antithesis
of Gillette's high-price, multi-blade razors. Another selling
point: Online subscriptions would save men from the hassle of going
to the store. Unilever said the deal was an opportunity to glean
consumer data and insights from more than 3 million consumers with
no retailer in the middle.
The venture proved more challenging than Unilever had
anticipated. Executives discovered the average expense of winning
each new customer was about the same online as in stores, one of
the people familiar with the matter said. And Unilever realized the
business would be faring even worse if not for an unusual quirk:
Many men were neglecting to cancel their subscriptions even after
they quit using the blades.
Dollar Shave Club is expected to break even next year, the
person said, but Unilever has concluded that selling staples as
online subscriptions doesn't make financial sense. The company
still values the data gathered from the direct-to-consumer
brand.
Razor rival Harry's Inc. focused on Target. Aided by flashy
displays and ample shelf space, Harry's accounted for about 50% of
Target's razor-handle sales within a few weeks of going on sale
there in 2016. Harry's was acquired earlier this year for $1.4
billion by the maker of Schick razors.
Along with its own shave club, P&G tested online
subscriptions on other products, most prominently with Tide laundry
pods. But consumers never bought in, and P&G recently scrapped
that effort.
"It was far too easy for people to just drop Tide in their
basket when they go grocery shopping, so subscription wasn't as big
of an idea," said Sundar Raman, P&G's president of fabric care
in North America. Instead, he said, P&G is trying to make its
products easier to find quickly in stores.
When P&G acquired Native Deodorant for $100 million in 2017,
it did so with an eye on retail. The brand was selling at Target
within a year. Native added bar soap and toothpaste, and sells at
Walmart and Walgreens as well. Roughly 40% of the company's sales
are at stores, CEO Moiz Ali said.
"In order to get all those consumers, you have to be where a
majority of people shop," Mr. Ali said, adding that the online
business is also growing.
Morgen Newman, co-founder of Cora, the organic feminine-care
brand that describes its products as all-natural, said investors
initially balked at the idea of a startup relying on big retailers
for sales. The company's retail sales have reached nearly 60% of
sales, up from 15% from its founding.
"Investors told us we were idiots for not being
direct-to-consumer," Mr. Newman said of the company's initial
fundraising attempts in 2016.
Among the investors to buy into the concept was Megan Bent's
Harbinger Ventures, which led a $7.5 million fundraising round this
spring. She said shoppers' connection to buying consumer products
at retailers is practical and emotional.
"The thinking has been that convenience is having something
dropped off at your front door," she said. "Really, it's 'I want
the product when I need it, where I need it,'" she said. "It can
feel expensive and out-of-control to have subscription at
home."
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
December 09, 2019 08:07 ET (13:07 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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