I could write a whole article on the Ad that turned Dollar Shave Club into a billion-dollar company. The ad was hilarious, but also communicated the company value proposition very well : quality razors delivered to your door at a fair price. But instead, I want to go over Unilever’s announcement to sell the majority of its stake in Dollar Shave Club to Nexus Capital Management.
Back in the days, the company’s disruptive direct-to-consumer (DTC) model was a little revolution, and a major success. The company’s journey took a sharp turn when it was acquired by Unilever in 2016 for $1 billion. Fast forward to today, Unilever is stepping back, and sold Dollar Shave Club, while retaining a 35% share. Let’s take a closer look at the latest news on this strategic move, see how the DTC model has changed since the early days of Dollar Shave Club, and try to understand what motivated the decision to sell.
Refocusing on Core Strengths: Unilever’s Strategic Pivot
Following the success of Dollar Shave Club, the acquisition of the company by Unilever was a clear signal that the DTC model had potential. The intention was to capture part of the booming ecommerce space, and expand its presence on the growing male grooming market. However, it appears that integrating the disruptive startup into Unilever’s wide portfolio of massive, established brands was more challenging than initially expected. A year before selling Dollar Shave Club, Former Unilever CEO Alan Jope said during an earnings call in 2022, “Dollar Shave Club did not deliver as expected, and the economics of the DTC model changed.”. The recently appointed CEO, Hein Schumacher, was not satisfied with the company’s competitiveness, despite Underlying sales growth of 5.2% for the third quarter of 2023.
It seems like Unilever’s new strategy will be to focus on its core brands, such as Dove or Hellman’s. “Prioritizing these brands will give us a real opportunity to improve Unilever’s growth profile,” said Schumacher. He also mentioned Dollar Shave Club. “Dollar Shave Club is an example of unsuccessful attempts to move away from our core.”
While the financial terms of the deal were not disclosed, Nexus Capital Management seems optimistic about the company. “We are thrilled to acquire Dollar Shave Club, based on its strong brand loyalty, pioneering DTC model, and omnichannel presence. We see growth potential and will invest in cutting-edge marketing, product quality and new innovations,” says Michael Cohen, Partner at Nexus Capital Management.
Dollar Shave Club’s Blueprint: the DTC Approach
Direct-to-Consumer (DTC) in ecommerce is a business model where companies sell products directly to customers, bypassing traditional retail channels such as third-party stores or distributors. Dollar Shave Club is a prime example of a successful DTC business, selling directly to customers tired of paying for overpriced blades. Their success was followed by many brands. Selling directly to customers has several advantages compared to selling through a 3rd party, including the following.
Branding and customer relationships : Companies selling DTC have better control over their brand image, the messages and interaction with customers. Their identity is stronger than if their product was sold on the aisle of the grocery store next to a million other brands, and they can build better relationships with customers.
Agility: Brands can be faster when implementing changes in their offer, pricing, or strategy. For example, this model allows companies to easily create subscriptions to their product and control the customer experience.
Profitability: Eliminating middlemen means brands can potentially enjoy higher profit margins.
Omnichannel Strategies Redefining Retail
That being said, many brands that originally started as purely DTC expanded into omnichannel. Dollar Shave Club did that in 2020, and customers can now find their product in retail stores, including at Target and Walmart. There are many more examples of originally DTC brands who now sell on other channels. The footwear brand Allbirds initially started as a DTC brand, but now opened physical stores and sell their products through retailers like REI, Dick’s or Nordstrom. Warby Parker expanded its product line from its early days, but also opened its own retail stores. Physical stores can help them reach new customers who prefer shopping in person, and give customers a chance to touch and feel the product before buying. It also gives the brand more visibility.
On the other hand, there are some very established brands that are now setting up DTC channels. Even though Nike started selling its products DTC through its website in 1999, they keep growing their own channel, especially since the Covid-19 pandemic. Under Armour’s DTC strategy has been part of its business model for several years, they also operated their own retail stores. The omnichannel model keeps growing in popularity, and these examples show the blurring lines between traditional retail and originally DTC brands.
Cultural Fit Challenges: When Startup Meets Corporate
As we see most brands going with omnichannel strategies, and with Unilever extensive experience with DTC brands such as Hourglass or Graze, can we really say that Dollar Shave Club’s origins in the DTC space caused them to not be a good fit for Unilever? It might be a simplistic answer. The real reason may be a combination of other factors. Dollar Shave Club was a fast growing startup, with a distinct, entrepreneurial culture and agile mindset. It may have been challenging for them to integrate with a corporate empire like Unilever. The added complexity has made it challenging for them to grow and scale. There could also be a lot of other economic and market dynamics factors. Finally, Unilever made it clear that they are shifting their strategy, and need to refocus on their strongest brand. Although they sold Dollar Shave Club, they retain 35% ownership, sending a clear signal that they still see potential in the brand.