PG Procter and Gamble Co

Online startup steals in-store sales after it gets shelf space alongside P&G

By Sharon Terlep and Khadeeja Safdar 

When Target Corp. opened its razor aisles to an online upstart, Gillette paid the price.

In August, Harry's Razor Co., a three-year-old business that started out selling razors online, put up prominent displays in Target's nearly 1,800 stores that included four-foot-tall, orange fixtures in the shape of a razor.

Within weeks, Harry's grabbed a 10% share of the retailer's cartridge sales and about 50% of razor handle sales, according to Nielsen data covering the four-week period after the displays launched in August. Procter & Gamble Co.'s Gillette sales in Target stores declined in September from a year ago, according to Target spokesman Joshua Thomas.

Those are outsize numbers given that Harry's had a 2% share of the overall market for men's razors last year in the U.S., according to Euromonitor.

Jefferies analyst Kevin Grundy said Harry's presence in Target represents a clear challenge to P&G. "Any time you have a supplier and they have some 75% of market share, it benefits you to kind of keep that supplier off balance," Mr. Grundy said.

The once-steady $3 billion market for razors and cartridges is in upheaval. Gillette's overall share of the U.S. market has dropped from about 70% to 60% since Harry's and its larger online rival, Dollar Shave Club, came on the scene a few years ago. In response, P&G started selling subscriptions directly to consumers with its own online service, the Gillette Shave Club.

P&G declined to discuss Harry's presence in Target. A P&G spokeswoman noted that Gillette's razor subscription service gives consumers the option to make the purchase through Target's website. The company in a statement said it is working to connect with consumers in "meaningful and relevant ways."

Target executives expressed concern in meetings in the months after P&G announced its direct-to-consumer offering in 2014, according to a person familiar with the matter. In January 2015, Gillette poked fun at the idea of having to go inside a store to buy razors in social media posts.

"Going to the store to buy blades is so 2014," read the ads, which ran on Facebook and Twitter.

Retailers like Target have been trying to lure customers who are increasingly going online to buy household staples. Razor sales produce slim profits for the chain but are important because they draw consumers to the store where they buy higher-margin products like apparel and home items.

In recent months, Target has seen fewer shoppers coming in for fill-in trips, which are usually made to buy consumables. The retailer recently reported its first decline in existing store sales in two years and its stock has fallen about 12% over the past year. Sales of Target's shaving products, excluding electric razors, are down 5% for the 52-week period ended Oct. 1 compared with a year ago, according to Nielsen figures.

"The guest is asking for something different," said John Butcher, Target's senior vice president of beauty and personal care. "We think Harry's is filling a niche that wasn't currently being met."

The idea to sell Harry's blades and cartridges in Target stores came from Target executives, said Harry's co-Chief Executive Andy Katz-Mayfield. The two companies started seriously discussing a partnership around the summer of 2015, he said. Harry's executives kept the Target talks quiet, giving it the code name "Project Wildcat."

Harry's viewed Target as a way to expand sales beyond its online niche, he said. The company has limited offerings at other retailers and, Mr. Katz-Mayfield said, could continue to increase its in-store presence. Harry's has a roughly 10% share of the online razor market, behind Dollar Shave Club's 51% and Gillette Shave Club's 23%, according to Slice Intelligence, a market research firm.

Harry's, which collects rafts of data and feedback on its subscribers, found that many men like buying razors and refills at stores, but are turned off by the high price of quality razors and the hassle of the process.

Jefferies' Mr. Grundy attributed the success to the prominent displays and demand for razors that are seen as a middle ground between ultra-pricey and cheap. Harry's products on Target's website range between $5.99 and $15.99, while Gillette products run from $1.89 to $44.99. But he said Harry's share will likely decline once the flashy display runs its course.

Write to Sharon Terlep at sharon.terlep@wsj.com and Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

November 11, 2016 02:47 ET (07:47 GMT)

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