The Federal Trade Commission said Monday it would sue to block Edgewell, the maker of Schick razors, from buying Harry's, which sells shaving products by subscription.
Why it matters: "Disruptors" like Harry's — companies that aim to reshape stable markets with new products or tactics — often end up selling to bigger, more established brands. If the FTC's move discourages that, the advertising and marketing industries might take a bite, since many of those companies rely heavily on digital marketing to grow.
The big picture: Most direct-to-consumer (DTC) upstarts launch with venture-capital investments, and aim to eventually reward investors by going public or by selling to another company.
- The FTC's intervention could make it harder for companies to sell.
- At the same time, DTC companies have struggled in public markets, making it less likely for some of them to see going public as a viable option.
Be smart: Most DTC companies spend lots of money on digital ads to acquire customers, and put off worrying about turning a profit.
- If opportunities to either sell or go public seem less likely, those brands may have to proceed with more caution.
By the numbers: It's hard to directly attribute how much DTC brands spend on marketing, because the category is hard to define. The Kantar consultancy estimates that the top 300 DTC brands spent roughly $4.5 billion on advertising from January to September 2019.
Yes, but: "DTC companies which are not themselves efficiently growing (meaning: profitable at a modest scale) are always going to be relatively less attractive to buyers, regardless of the buyer’s position in a given market," says veteran advertising analyst Brian Wieser, the global president of business intelligence at GroupM agency.
- "A bigger issue to consider is that incumbents in consumer goods are not necessarily going to want to overpay for start-ups that built scale that won’t necessarily last, or scale which is not as profitable as the traditional businesses those incumbents are in, even if they are growing slowly. "
What's next: Wieser suggests that it could be that the exits are still likely to occur if the buyers "are more broadly focused consumer and packaged goods companies who want exposure to a new sector."
Go deeper: Shaving giants sweep up the disrupters
