There May Be Life In Those Old Products Yet!

So Xtra-vision finally succumbed to the harsh realities of life in the DVD rental business with the closure of its operations in Ireland last week and the loss of 580 jobs. But perhaps the most interesting aspect of this event was that it took so long to come to pass. Video/DVD rental has been on life support for over two decades now and twenty years is a long time in any business.

Xtra-vision was a company with a chequered history. Founded by an ex-courier, Richard Murphy, the fledgling company opened its first store in 1980. Murphy had a flair for doing things differently and with a team of attractive young ladies in short skirts getting the publicity, he quickly grew the business which went public in 1989 and saw its share price quickly double. At the peak of its powers, the company had 317 stores in Ireland, the UK and the US. But when it became apparent that the shelf life of a video was much less than the estimated 30 months, sentiment toward Xtra-vision quickly changed and its stock fell like a stone. The company changed hands several times throughout the next two decades, even surviving examinership in 2011 before finally succumbing to the inevitable last week.

In spite of its roller coaster ride and the obvious challenges to its business model, Xtra-vision was still generating a very respectable sales volume of €85m in 2012, half of it coming from movie rental and sales and half from games and music. It even managed to outlive a much more efficiently run (and one-time owner) global video rental company – Blockbuster which collapsed in 2010. Its survival was no doubt helped by the slow pace of making the prospect of video on demand over the Internet a reality – it was 2007 before Netflix began to offer this service. So even in declining industries, returns can be healthy and persist for many years. But when the inevitable death comes it is usually swift. Xtra-vision sales fell to €38.5m last year and there was no coming back from that.

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Does The Growth of Beards Spell Bad News For Shaving Firms?

Facial hair is back with a vengeance. After years of tentative stubble growth, the full-blown 19^th century beard is making a comeback particularly on rugby fields and other places where real men hang out. So does this new fashion spell bad news for the shaving firms and what are the appropriate strategic responses that they should be considering?

First off, this trend illustrates again the fluid nature of markets. Change is a constant and nothing can be taken for granted. The tipping point for beards to make a comeback is unclear but for now they are here and very visible. A truly market-led firm stays on top of these types of developments and is unthreatened by them while others panic and become defensive. As it is, the shaving industry is dominated by a giant of market orientation – Gillette. This is a company that is a true exemplar of how to run a business. It has dominated its industry for over 100 years, still holding a global market share in excess of 70 per cent. Despite being in a relatively narrow product category, it is currently one of the Top 20 global brands with a valuation in excess of US$25 billion. Its success has been predicated on three key pillars, namely, continuous product innovation – the three blade Mach 3, the five blade Fusion and Venus for women, continuous investment in marketing with endorsements from David Beckman to Roger Federer to Jennifer Lopez and a great business model – separating the razor and blades. The razor locks customers in and the blades delivers margins in the region of 3000 per cent.

So is all this facial hair taking the glow off this story? Not really. The shaving products industry has seen relatively flat levels of growth for a number of years now. The trend towards the casual unshaven look is probably more important in the medium term than the growth of beards. But while facial hair is becoming more acceptable, having hair anywhere else is becoming less so. Body shaving is a significant growth area and in February the Gillette Body range hit the shops. Growth in this space should counter any losses elsewhere. What about margins? Yes, low price competitors in the form of online businesses such as DollarShaveClub.com, own-brands such as Lidl and Aldi and cheap imports from Asia are all gaining prominence but as yet their share of the market is pretty small. Meanwhile the Gillette machine trundles on. New products like the ProGlide Styler keep coming and Messi and Federer will give the brand significant online and traditional media coverage as the countdown to the FIFA World Cup in Brazil continues.