The Gillette Company Business Information, Profile, and History

Company Perspectives:

The Gillette Company is a globally focused consumer products marketer that seeks competitive advantage in quality, value-added personal care and personal use products. We are committed to building shareholder value through sustained profitable growth.

History of The Gillette Company

The Gillette Company is the world leader in the men's grooming product category as well as in certain women's grooming products. Although more than half of company profits are still derived from shaving equipment--the area in which the company started--Gillette has also attained the top spots worldwide in writing instruments (Paper Mate, Parker, and Waterman brands) and correction products (Liquid Paper), toothbrushes and other oral care products (Oral-B), and alkaline batteries (Duracell products, which generate almost one-fourth of company profits). Gillette maintains 64 manufacturing facilities in 27 countries, and its products are sold in more than 200 countries and territories, with more than 60 percent of sales occurring outside the United States.

Entrepreneurial Beginnings

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, with the first ad appearing in Systems Magazine. 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; sales rose to 90,884 razors and 123,648 blades that year. The following year the company bought a six-story building in South 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 manufacturing plants in Paris, Montreal, Berlin, and Leicester, England, and offices in France and Hamburg, Germany. By 1923, foreign business accounted for about 30 percent of Gillette's sales.

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 remained on Joyce's management team.

Wartime Production

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 over-reported 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 became the new chairman of Gillette and Gerard B. 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 Great 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" became best known for bringing boxing to American men. Spang attributed Gillette's continuing success to the sports advertising program, and sports programs remained 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.

Postwar Diversification

During the profitable postwar period Spang began to broaden Gillette's product line. The company had introduced Gillette Brushless shaving cream, its first, nonrazor, nonblade 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 ballpoint 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 made 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: developing a better blade and initiating an aggressive advertising campaign that emphasized quality. After its own blade hit the market, Gillette's market share stabilized at 60-65 percent, compared to 70-75 percent 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 on a product line basis 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 produced 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 1971 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 1971 Gillette had four domestic divisions: the Safety Razor Division; the Toiletries Division, which featured Right Guard deodorant and antiperspirant; the Personal Care Division; and the Paper Mate division.

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 through sales.

Diversification Moderated Starting in the Mid-1970s

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 successful acquisitions--including Buxton in 1977, Welcome Wagon in 1978, and Hyponex and the Autopoint mechanical pencil business in 1979--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 nonaerosol pumps and roll-ons, 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 19¢ disposable pen, which made dramatic cuts into sales of Gillette's 98¢ 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 percent of Gillette's pretax profits; razor blades accounted for 71 percent of profits. When Bic began producing disposable razors and purchased American Safety Razor, with its 13 percent 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 profitability despite the attack by Bic.

Takeover Threats in the 1980s

Mockler's policies led to a higher profit margin and a surplus of cash. Some of this cash was used in 1984 when Gillette added oral care products to its product mix with the $188.5 million purchase of Oral-B Laboratories, Inc.--the leading maker of toothbrushes in the United States--from Cooper Laboratories, Inc. The excess cash, however, also 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 percent 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' battle to get shareholders' proxy rights was intense, but in 1988 Gillette came out on top with 52 percent of the votes for directors to Coniston's 48 percent. 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 percent 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 represented low-margin items and profitable stationery products accounted for only 9 percent of the company's total profits, razors and blades still accounted for a little over 70 percent of profits. Gillette 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 featured thinner blades mounted on springs by lasers so they could follow contours. The blades, to be used in a permanent shaving system, cost close to $200 million to develop and were launched simultaneously in the United States and Europe, backed by a $100 million advertising budget. Sensor's touted superior shave was a huge success with consumers, and the product garnered several awards. The Lady Sensor soon followed in 1992, with sales for both products exceeding $500 million that year.

Early to Mid-1990s

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 controlled about half the U.S. market and Wilkinson was number-four in the market with about 3 percent. Also in 1990, as part of a realignment of its shaving and personal-care units in North America and Europe, Gillette sold its European skin and hair care operations to Nobel Consumer Goods AB, a division of Nobel Industries of Sweden, for $107 million.

Despite the Wilkinson setback, the 1990s proved to be extremely fruitful years for Gillette thanks to an aggressive program of new product development coupled with the pursuit of targeted acquisitions. Mockler, who had had a very successful term as CEO and chairman and who planned to retire at the end of 1991, died unexpectedly in January of that year. Alfred M. Zeien, Mockler's heir apparent who was president and chief operating officer, replaced Mockler in both of his positions. Also in 1991 Gillette launched another award-winning product, the Oral-B Indicator toothbrush, which had bristles that change color to show when a new toothbrush is needed. This popular feature was added to all Oral-B toothbrushes the following year.

Significant new product introductions and a major acquisition highlighted 1992. Gillette's personal-care product division launched the Gillette Series line of men's toiletries, which included 14 "high-performance" products in the deodorant/antiperspirant, shaving cream, and aftershave categories. The company announced the acquisition of Parker Pen Holdings Ltd. for £285 million ($484 million), with the deal being consummated in May 1993. The addition of the Parker brand to Gillette's Paper Mate and Waterman brands moved the company into the top position worldwide in writing instruments.

Late in 1993 Gillette took an after-tax charge of $164 million for a reorganization of its overseas operations, including the integration of Parker Pen facilities into Gillette's structure. About 2,000 jobs were eliminated as a result of the reorganization.

Just four years after the debut of Sensor, Gillette in late 1993 launched in continental Europe and Canada its next-generation shaving system, SensorExcel, which promised even closer and more comfortable shaving based on its skin guard made of "five soft, flexible microfins." After its successful debut, SensorExcel was rolled out in Japan, England, and the United States in 1994. Other 1993 and 1994 product introductions included Braun's FlavorSelect coffeemaker; the Oral-B Advantage toothbrush, which was designed to remove plaque better than other toothbrushes; and Custom Plus men's and women's disposable razors with pivoting heads.

Gillette returned to acquisition mode in 1995 and 1996. In late 1995 Oral-B's position in Latin America was bolstered with the purchase of the Pro oral care line. Near the end of the year Gillette acquired Thermoscan Inc., a leader in infrared ear thermometers. Thermoscan promised to provide a base for Gillette to expand into the rapidly growing personal home diagnostic products area. Then in late 1996 the company made its largest acquisition ever when it paid $7.1 billion for Duracell International Inc., the world leader in alkaline batteries. Gillette thus added its first major product line since the purchase of Oral-B; in fact, batteries immediately became the company's second-leading product line in terms of sales, trailing only razors and blades. Duracell batteries had been underdistributed outside the United States, so Gillette planned to achieve sales growth by leveraging its existing marketing channels, which reached more than 200 countries by the mid-1990s. More immediately, the Duracell merger led Gillette to record a fourth quarter 1996 charge to operating expenses of $413 million to eliminate overlap between Gillette and Duracell operations.

In 1996 the company also launched more than 20 new products, including SensorExcel for Women. That year, a whopping 41 percent of Gillette sales came from products that debuted during the previous five years, a testament to the company's new product development strength. And an improvement on the SensorExcel was already in the works. Sales neared the $10 billion mark, as 1996 revenues were $9.7 billion, and net income--despite the Duracell charge--was a healthy $949 million.

Razor Wars: Late 1990s and Beyond

Gillette introduced a significant innovation in shaving technology--the first major innovation in safety razors since the beginning of the 1970s--with the Mach 3 in 1998. The new safety razor system introduced a third blade into the twin-blade system that had dominated the wet-shaving market for the previous quarter-century. The blades were set at an angle so that each blade shaves closer to the skin, allowing shavers to use fewer strokes to get the same close, comfortable shave. The shaving cartridge was set on a pivot, allowing the head of the razor to move with the angle of the jaw and skin. In addition, the cartridge itself was designed to facilitate cleaning, and the handle was ergonomically designed to make the razor more comfortable in the hand.

The entire Mach 3 system, protected by 35 patents, cost Gillette $35 billion just to bring to market. As a result, the corporation set the price for replacement cartridges about 35 percent more than its previous best-selling razor, the SensorExcel. Marketing strategy was slanted to persuade current Gillette product users to trade up their previous equipment in favor of the newer, more expensive models because of their improved performance, offering a closer shave with fewer nicks and cuts.

Despite (or perhaps because of) the expense of the expense of introducing the new razor, Gillette saw its worst economic performance in almost a decade in 1998. Sales during the third quarter of the year alone dropped 15 percent. In October, Gillette management announced staff cuts of 4,700 jobs, about 11 percent of its total workforce. Lowered sales in key markets such as Brazil, Germany, and Russia also contributed to the loss of income, and share prices dropped by 11 percent virtually overnight.

Gillette's underperformance continued in 1999 and 2000, in large part because of currency-exchange differences. Its stationery and small-appliance businesses showed the greatest losses and the battery and toiletries businesses provided most of the profits. In October 2000 Gillette's managing board responded by firing CEO Michael Hawley and announcing a world-wide restructuring effort that would be led by former Nabisco CEO James M. Kilts, who joined the firm during its centennial year, in January 2001. Kilts, who had earned a reputation as a fixer of troubled companies, needed all his skills. Gillette's battery business, which had dominated the top of the market, lost market share to other brands (Energizer and Rayovac) that offered similar performance at a lower cost. In addition the company lacked fiscal discipline and used an antiquated quarterly tracking system. As a result of these and other expensive practices, Gillette's earnings continued to perform below expectations. Stock prices fell by about 60 percent in the months between early 1999 and late 2001.

Gillette's control of the toiletries market was threatened early in 2003 when rival Schick-Wilkinson Sword introduced the Quattro, the world's first four-blade shaving system. Gillette claimed that the Quattro illegally infringed on Gillette's patents for the Mach 3. The violence of the company's reaction was explained in part because the Quattro actually increased Schick's market share from about 14 percent to about 17 percent. At the same time Gillette's market share slipped by a similar amount--although the Boston-based firm still held a commanding 63 percent of the total wet-razor market. Although Gillette lost its attempt to ban sales of the Quattro in court, it nonetheless saw sales of its products increase. By the end of the first quarter of 2004, Gillette was able to report a 43 percent increase in profits, much of which was provided by its mens' and womens' wet razors, the Mach 3 and Venus systems. The company's grasp of its core businesses--toiletries and oral care--remained strong.

Principal Operating Units: Blades & Razors; Duracell; Oral Care; Braun; Personal Care.

Principal Competitors: Colgate-Palmolive Company; The Proctor & Gamble Company; Societe BIC; American Safety Razor Company.

Chronology

• Key Dates:
• 1901: American Safety Razor is founded by King C. Gillette.
• 1904: King Gillette's safety razor is patented.
• 1918: Gillette manufacturers razors and blades for soldiers during World War I.
• 1942: The Cavalcade of Sports program is formed to oversee the company's various advertising and promotional activities in athletics.
• 1967: Braun AG is acquired.
• 1971: Company is organized into four domestic divisions: the Safety Razor Division; the Toiletries Division (featuring Right Guard antiperspirant); the Personal Care Division; and the Paper Mate division.
• 1991: Gillette ranks 20th among the Fortune 500.
• 1996: The company acquires battery manufacturer Duracell.