First came beard-loving Millennials. Now Razor makers face a close shave with steel tariffs
Published 25 October 2018
Well-known razor makers like Boston-based Gillette already face strong headwinds from changing consumer habits. Now, razor makers are dealing with the problem of tariffs on the specialized steel they import.
Gillette, Band Aids, and Kleenex – Global Household Names
For almost 120 years, Gillette has been nearly synonymous with razors. Headquartered in Boston, Forbes ranked Gillette as the 32nd most valuable brand in the world with a value of $17.1 billion, ahead of other giants like Starbucks, Audi, or IKEA. While not as glamorous and high profile, nearly every person at some point in their lifetime may need to purchase a razor, making it a big business globally. Gillette is a classic American brand name, but it has long been a global giant. In fact, in some countries Gillette is the term for a generic safety razor much like Band Aid, Kleenex, or Aspirin.
In the United States, Gillette is the market leader, with a 54 percent market share in 2016. Despite such a massive market share, Gillette faces strong headwinds from changing consumer habits – fewer men are shaving as regularly now that beards are more in fashion. Competition is steeper too, especially from online subscription services like Dollar Shave Club or Harry’s offering similar or better products at cheaper prices. Anyone who’s ever shopped for razors (myself included) knows that they are pricey. That 54 percent market share in 2016 represents a significant drop compared to Gillette’s 70 percent market share in 2010.
The Best Steel a Man Can Get
Despite the shifting market, Gillette has been known for over century for its safety razor. Founder King C. Gillette patented a specific type of safety razor, improving upon earlier designs to use a disposable blade of thin, high quality steel for a close shave. Since then, Gillette has refined their products and sold hundreds of millions of razor blades to supply ‘the best a man can get,’ per their slogan. Gillette, like most razor companies, relies on a type of high quality stainless steel known commonly as razor steel.
Razor steel is a precision product. It must be milled to a certain minute thickness, maintain a smooth surface, have high strength for accurate and effective sharpening, and must have low non-metal content to prevent rust and corrosion. Much of this razor steel is manufactured overseas, particularly in Japan and Europe, and imported to the United States by razor manufacturers like Gillette and Schick.
Shaving Profit Margins
On March 1, 2018, President Trump announced 25-percent steel and 10-percent aluminum tariffs under Section 232 of the Trade Expansion Act of 1962. Section 232 gives the president the power to impose tariffs on goods that are deemed essential to national security. All steel imported from numerous countries, including the EU and Japan, is now subject to a 25 percent tax on top of their value, drastically increasing the price of the raw material.
Razor steel is included under the tariffs. For the two major razor producers in the United States, Gillette and Schick, the additional tariffs were a significant drag on their profitability just as the companies are facing decreasing profits from a changing marketplace. Both companies are cutting prices (and profits) to compete with the online start-up retailers. Gillette told the federal government that the tariffs could damage their U.S. manufacturing operations, putting jobs at risk, and pushing up prices.
Procter & Gamble, Gillette’s parent company, imports high-grade razor steel from Japan and Sweden for its Gillette and Venus razor brands. Procter & Gamble and Edgewell Personal Care Co, the owner of Schick, both submitted a request for an exemption to the steel tariffs, arguing that U.S. steel manufacturers could not supply Gillette with the precision steel needed for razors. On October 9, the Department of Commerce informed P&G that its exemption application was accepted, and it will no longer have to pay the 25 percent tariff on the steel it imports for Gillette razors.
Make Shaving Great Again
Gillette is a flagship American company, proudly headquartered in one of the country’s most historic cities, but it’s also a global company, dependent on global supply chains and customers who live all around the world for its success. Whenever you pick up your razor and stare in the bathroom mirror, you’re handling not just a century of American heritage and ingenuity, but a truly global product.
For the nearly 30,000 people employed by Gillette and its hundreds of millions of customers globally, the U.S. steel tariffs were a close shave and a reality check that the trade policy decisions made in Washington, DC can have real costs.
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