The $175 Razor: A Sign of Economic Recovery?

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The place feels like a jewelry store. Wood furnishings give the display that luxury vibe; sterling-silver pieces sit inside glass-enclosed cases. But at the Art of Shaving, a 14-year-old retail outlet that sells high-end grooming products, shoppers aren't searching for diamonds and pearls. It's the razors that rule the room.

Want to pay $3,400 for a sterling-silver razor, stand and brush? Believe it or not, there's actually a store for you. The Art of Shaving has 36 outlets around the country, and is set to expand. While sales took a predictable hit during the worst of the recession, perhaps it's a positive sign for the economy that the Art of Shaving's revenues rose 19% during the last quarter of the year. If people will fork over insane amounts of money to properly trim their facial hair — in a New York City store, a razor with a nickel-plated brass handle costs $175 — perhaps national spending will finally loosen. "We're definitely linked to the economy," says Eric Malka, co-founder and CEO of the Art of Shaving. "As consumer confidence comes back and the stock market comes back, our consumers have been more willing to purchase our products."

In fact, Procter & Gamble, the $79 billion consumer-goods giant, is even taking a bet on the blades. The maker of mass-market products such as Tide detergent, Crest toothpaste and Ivory soap purchased the Art of Shaving in June for an undisclosed sum. P&G's move surprised some analysts, as it represented the company's first real foray into retail, which has struggled during the downturn. "You kind of wonder what they are doing here," says Linda Bolton Weiser, equity research analyst at Caris & Co. "When companies start to veer off their main focus, it often doesn't work out."

P&G might have picked the right product to push in stores, however, since it already owns Gillette, the dominant shaving brand. The Art of Shaving gives P&G yet another outlet in which to sell the Gillette blades, and perhaps give its products a more premium cachet. "This is alternative marketing, just another way to promote the Gillette brand," says William Chappell, an analyst for SunTrust Robinson Humphrey. "P&G has already done everything you can think of with traditional marketing. This isn't a core push into retail. Now, if you tell me that they are selling Tide and Pampers as well as Gillette, that's a different story."

Though it may not signify a major strategic shift for P&G, the Art of Shaving is one of the more intriguing chips in company's portfolio. While neither the store nor P&G will specify how many new outlets will open over the next few years, expect a surge. "P&G acquired this business, and obviously wants to grow it," says Malka. "P&G has a mission to win with men, and the Art of Shaving is an important platform to serve men in the premium marketplace."

Malka and his wife Myriam Zaoui founded the company in their kitchen while Zaoui was studying to be an aromatherapist. "She blended some oils for me to put under my shaving cream so that the razor glided over the skin and didn't grab hair," Malka says. "It worked magic for my skin and was the catalyst for starting the shaving business." They sold their BMW for $12,000 — "We were broke," Malka says — and opened up a small Manhattan store in 1996. The company sells its own Art of Shaving–brand products in its stores and other high-end retailers like Bloomingdale's, Neiman Marcus, Nordstrom and Saks.

On the surface, it seems outlandish that people would buy 5 oz. of shaving cream for $22. This stuff is a commodity that just sits on your bathroom shelf, right? But don't underestimate the importance of a smooth shave. "A lot of our customers suffer from shaving discomfort," says Malka. "So spending $100 on shaving products becomes very inexpensive once you realize the benefits our products have on your skin."

The Art of Shaving has corralled enough loyal customers to carve out a niche in the grooming sector. Heck, the company even sold some of those $3,400 sets this holiday season. "We're confident that the momentum we've experienced the last couple of months will continue into 2010," says Malka. "And now with our partners at P&G, we can take the business to another level." But in a still shaky economy, can the blade business avoid deep cuts along the way?