FTC's move to block Harry's deal could impact ad spending
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