Early humans used clamshells and sharp stones to remove unwanted hair but it wasn’t until the ancient Egyptians, believing hair to be uncivilised, first embraced the idea of what we know as shaving.
The idea caught on in Rome and Greece with Alexander the Great ordering his troops to shave off their beards so that their enemies had nothing to grab on to. His endorsement not only made shaving socially acceptable but also fashionable. It remains that way today. In fact, the rise of hipster culture and an increased desire for us all to look good has led to a shaving renaissance.
Enter Shaver Shop (ASX:SSG). It aspires to be the leader in ‘all things related to hair removal’ and is the latest float to debut on the ASX (ASX:ASX). Currently close to its IPO price of $1.05, it trades on an FY16 price-to-earnings multiple of 18 and an FY17 multiple of 14. Not cheap, but not expensive either.
Shaver Shop began life in 1986 and has since been transformed into a retailer of male and female personal grooming products, from electric toothbrushes, hair curlers, back massagers and pet grooming products to – you guessed it – shavers. It recently opened its 100th store and has a target of 145 in coming years.
Is it a Buy?
So, is Shaver Shop a buy at its current price? No. The biggest issue is competition. The prospectus notes there are no less than 21 major competitors, including Myer, DJ’s, Big W, Good Guys, Priceline, Coles and Woolworths (ASX:WOW). Online competition is also a headache. Companies like Catch of the Day, eBay and the Shaver Hut all offer a range of shaving products.
The razor industry is also facing disruption with the development of the ‘subscription’ model. For a monthly fee, members receive blades and shaving products delivered to their door. In the USA, Gillette is threatened by two online start-ups – Harry’s and Dollar Shave Club – which, between them, have over five million members. If Shaver Shop is looking for a competitive moat to maintain its margins, it may struggle to find one.
The trick will be in successfully growing its brand. Shaver Shop is the only significant bricks and mortar retailer focussed on the shaver and personal grooming market. This means it can offer a wide range of shaving products, some exclusive, all in one physical location. Customers can receive personal product advice from highly trained staff.
For potential investors, this is a key point. With gross margins at around 40% and like-for-like sales growth averaging 7.5% over the last five years, competitors will be looking enviously at this business. Shaver Shop’s challenge will be in maintaining these numbers.
It has a few advantages. With a bigger store network, Shaver Shop will benefit from economies of scale. TV advertising, for example, which has a fixed cost, delivers a greater impact the more stores it covers. The company will also benefit as recently opened stores mature (there were 16 stores opened in FY16) and sales per store slowly increase.
Nor is this industry going away. Warren Buffett, who at the time owned 10.8% of Gillette, famously said, 'I go to bed happy at night knowing that hair is growing on the faces of billions of males and on women's legs around the world while I sleep. It's more fun than counting sheep.'
But that’s only one side of the equation, a fact Gillette would be deeply aware of. Hair isn’t going away; nor is competition to remove it. At a price that cannot be described as cheap, this is another float we’re happy to watch from the shoreline.