Gillette History that was not so Glamorous (1920s - 1930s)

Here are some articles on just how cut throat Gillette was and how the tables were turned on the company. The Gillette management team was ousted due to bad business decisions and financial malfeasance. Gaisman and Auto Strop gained complete control of the company after 1931.

Articles sourced from Time and Popular Mechanix.

 

From the Sep. 12, 1927 issue of TIME magazine : Bogus Blades
The Gillette Safety Razor Co. prints on the tasteful green wrappers of its blades, besides a handsome portrait of King C. Gillette, the words "NO STROPPING NO HONING." Timid users of Gillette blades, especially women, think these words are a command, forbidding the shaver ever to have a Gillette blade salvaged once it wears out. Other people ignore the legend or interpret it as gentle self-ingratiation by the Gillette Co., meaning, "Whoso uses a Gillette razor, he strops not, neither does he hone."

On the Gillette blades themselves, all doubt is dispelled. There the Gillette Co. abruptly says: . "Not to be resharpened." Nevertheless a certain bold percentage of Gillette users frequently have their blades honed and stropped, or do it themselves on machines made especially for that purpose.*

There is another legend on the Gillette blade wrappers, the last and smallest line of all. It needs no emphasis nor interpretation, being firm and final. It says: "Reg. U. S. Pat. Off." The company needs hardly worry for feat purchasers will defy those words.

Yet last week, detectives who followed an automobile from Irvington, N. J., † to Newark, where the men in it passed several packages to a woman in a window in a mean street; and police who later raided the so-called Peerless Blade Corporation's factory in Irvington, found the Gillette Co.'s smallest, most serious legend had indeed been defied, grossly. In the Peerless factory they found many hundreds of thousands of counterfeit safety razor blades, modeled on the Gillette design, ready to be wrapped in tasteful green wrappers with the handsome portrait and the two legends. At other hiding places, raiders seized more of the imitations; two million blades in all, which had cost perhaps $10,000 to manufacture out of cheap metal, which would have retailed as genuine Gillette blades for $150,000.

The Gillette Co. had traced the bogus blades after hearing that the South American market was flooded with them. Eight suspects were held for questioning.

*As everyone knows, safety razor manufacturers derive the bulk of their profit, not from razors, but from the replaceable blades.

† Not to be confused with Irvington, N. Y.

 

From the Dec. 1, 1930 issue of TIME magazine : Gillette Ratified
In all the world there are 800,000,000 males with shaveable beards. Only one-third of these are in the condition called "civilized." Hence a great majority of the world's male population is still a potential new market for razors. And in the U. S. alone every year, 400,000 youths gaze into a mirror and realize they have come of shaving age. For many a year Gillette Safety Razor Co., oldest in its field, has led all competitors in supplying existing markets, and in prying into new markets.

In South Boston last week some 200 persons gathered in the big Gillette recreation hall. They were owners of 242,000 Gillette shares, also held enough proxies so they had 1,545,000 votes out of Gillette's total 1,982,000 shares. By the overwhelming tally of 1,399,654 to 895 they approved Gillette's expensive acquisition of AutoStrop Safety Razor Co. (TIME, Oct. 27). Gillette thus retains the supremacy which AutoStrop's patents threatened. And gratifying to Gillette stockholders was the news that the New York Stock Exchange, reported displeased by the great publicity regarding Gillette's accounting, had consented to list the new stock to be issued in the transaction.

Although last week's vote assures consummation of the deal it does not remove two ugly thorns from Gillette's venerable hide. First of these thorns is the widespread knowledge that Gillette's reported profits for the past several years were not all real profits. Sales to foreign subsidiaries were billed at prices just under the U. S. market price, apparently for the purpose of letting the profit fall to the U. S. company at once to avoid high foreign income taxes. If all the razors and blades sold to subsidiaries had been resold to the foreign consumers at once, the profit would not have been overstated. Upon readjustment of the figures to a fully consolidated basis, accounts receivable shrank from $17,000,000 to $4,000,000 while inventories soared from $5,000,000 to $12,000,000. The total profits from 1925-29 under the old system were $69,500,000, an overstatement of $11,000,000. This sum was subtracted from Gillette's surplus, as was $4,600,000 used to develop the much advertised new razor and blade.

The second thorn concerns the act of Gillette directors in selling stock to the company at a price far in excess of the present market. A group of minority stockholders sued for damages because of this, threatened to restrain the merger until they were assured that approval of the deal does not waive the directors' liability. The directors claim that all but one have taken back the stock at the same price the company paid, that the single exception is King Camp Gillette, who last week was too ill to be approached on the subject.

 

From the Apr. 21, 1930 issue of TIME magazine : Patent War
With fanfare of a $10,000,000 advertising campaign, Gillette Safety Razor Co. (oldest, largest) last month announced a new razor, a new blade, promptly proceeded to distribute them. Last week gloating Gillette advertisements said: "We had planned to produce 80,000 of the new razors daily. We have found it necessary to increase this to 100,000 a day." Earnings for their first 1930 quarter were $2,164,348, compared to $4,531,218 in 1929. The decrease was attributed to the cost of preparing the new blade and razor. Jubilant none the less sounded Gillette though, as nearly everybody knew, there was a butterfly in its ointment. This was the Probak "butterfly" blade (so called because of a filigree design in its center), invented by Henry J. Gaisman (also inventor of the autograph system used in Eastman Kodaks), chairman of AutoStrop Safety Razor Co., manufacturers of Probak. This blade, which fits the Gillette razors, was patented in 1928; a patent was reissued for it in January 1930. New Gillette blades bear the legend "Patents Pending," are, therefore, not patented.

Fortnight ago what every razorman had been expecting occurred. AutoStrop filed suit against Gillette for patent infringement, asked I) that Gillette discontinue manufacture of its new blade & razor; 2) that Gillette turn over to AutoStrop all profits earned from the new blade & razor; 3) that Gillette pay damages to AutoStrop for loss of AutoStrop sales caused by Gillette's blade & razor. Gillette had been awaiting the suit. In March a statement to shareholders said, in part: "We are not only prepared for any legal controversy but we invite it." As in the case of the Youngstown-Bethlehem steel merger the law became the final and most important arbiter in a business battle.

Rumors that AutoStrop had surreptitiously obtained plans of the new Gillette razor, had quickly designed a blade to fit it, are roundly denied. AutoStrop claims that its blade will fit any double-edge razor. In November 1929 when first AutoStrop's Probak blades were marketed they fitted the following razors: Elite, Loew, Renard, Darwin, Holtz, H & T, Kace, Via and, of course, Gillette. Probak manufactures its own holder but has not advertised it.

 

From the Oct. 27, 1930 issue of TIME magazine : Price of Peace
"In 1895, when I, King Camp Gillette, was 40, I first thought of the safety razor." So, a decade ago, wrote the father of a great company, a great industry. The proud ring in his words was justified. His invention was no haphazard one. For years he had pondered the possibilities of finding some cheap article that would be used daily, and have a constant replacement demand. The growth of Gillette Safety Razor Co. had been fast and sure, accomplished out of earnings. Into all countries had gone packages of blades, carrying the dollar-proud face of King Camp Gillette. Last week he still had reason to be proud. Gillette Safety Razor Co. is the undisputed world-leader in the industry. But also justifiably proud was another inventor, likewise a razor-maker: Henry Jaques Gaisman, founder and head of AutoStrop Safety Razor Co. Inc. Last week Mr. Gaisman brought to what seemed a triumphant conclusion the corporate battle between his company and mighty Gillette.

Since early boyhood Inventor Gaisman, a bachelor, 60, has been having brilliant ideas. More than 1,000 of them have been patented. Swivel chairs, men's belts, carburetors have benefited from his inventions. And inventors are still spurred on by the memory of the $300,000 George Eastman paid Inventor Gaisman in 1914-for his writing-on-film patent. But his most profitable inventions have been in the razor field. He has created processes for making blades, has designed blades and razors. In 1906 he founded AutoStrop Safety Razor Co. which soon became important in the industry. Its chief product was the Valet AutoStrop Razor. For years the relations between AutoStrop and Gillette were as between any two competitors. But last winter, as shavers great and small remember, Gillette prepared to market a new razor & blade. And by a strange coincidence, Probak Corp., an AutoStrop subsidiary, was ready with a blade that fitted the new Gillette razor. Thus began the greatest razor-war of all time.

Chronicle of the Battle. The Gillette-AutoStrop battle dates back really to the year 1921, when came an important milestone in the Gillette history: the expiration of most of the Gillette patents. But a few extracts from the course of events in 1930 serves to tell the story of the battle. And the gradual reversal of position of the stocks of the two companies shows how Wall Street, always eager to forecast, reached a correct verdict.

January 9 Every wheel in the Gillette plant at South Boston stopped at noon. Razor No. 115,272,539 had just been completed. A half hour later the wheels started moving again. Razor No. 1 of the new type was made. Great secrecy marked the brief ceremony. That day Gillette closed at 102½, AutoStrop at 38⅜.

January 14. Mr. Gaisman received further patents on his new blade, assigned them to Probak Corp.

February 7. Chairman John E. Aldred of Gillette: ". . . Rumors have been circulated, mainly in stockmarket circles, in regard to the Gillette Co. . . . Based upon the advice of our attorneys we are pleased to assure you that the patent situation ... is being developed in a usual and orderly manner and that we anticipate no delay or difficulty." By then, Gillette was $97½, AutoStrop $45.

February 28. Boston News Bureau: "Public response to the new Gillette razor and blade has exceeded expectations by the management."

March 8. Gillette began a $10,000,000 advertising campaign.

March 18. Gillette announced: "We are not only prepared for any legal controversy, but we invite it."

April 2. Probak accepted the invitation, filed suit asking an injunction restraining Gillette from making further blades of the new type, also asked damages on blades already sold. Gillette stock was then down to $912, AutoStrop up to $51.

May 29. Gillette answered by saying Probak's patents were invalid and void. Stock prices: Gillette $87½; AutoStrop $53⅞

July 25. Rumors that there would be a merger on a share-for-share basis. Auto-Strop, earnings up 95% over corresponding period last year. Gillette, $68½ Auto-Strop, $53.

September 25. Case would come up in December, it was announced. Merger negotiations reported not dropped. Gillette $58¼; AutoStrop $75.

October 16. Plans for the merger announced. Gillette drops to $43!, the next day makes a new low at $38½ AutoStrop strong at $72.

Merger. Though last week's merger plan had yet to be formalized by stockholders' vote, statisticians began to compute the financial ramifications of the deal. Two facts stood out: the cessation of patent litigation is a costly peace for Gillette; Gillette has paid far more to get AutoStrop than AutoStrop is receiving.

In anticipation of the deal, perhaps expecting a share-for-share exchange, Gillette in July and August bought in a large block of its stock at average cost of about $79 a share. This expectancy, if it existed, was shattered by subsequent events. What AutoStrop actually wanted was share-for-share, to be sure, but it wanted dividends guaranteed, so that AutoStrop stockholders could get AutoStrop earnings whatever might happen to Gillette. AutoStrop agreed to take 310,000 shares of a $5 cumulative preferred stock for its growing business, which may earn $2,000,000 this year. Gillette, left with its block of stock and a big paper loss, decided to "reclassify" the block into preferred. A $20,000,000 bond issue was decided upon, to pay off loans made to buy this stock. This issue costs $1,000,000 a year in interest, would be retired should Gillette common sell over $100 again. The new, preferred stock will cost Gillette another $1,550,000 a year in dividends, is convertible into common share for share. These prior charges are partially offset by the reduction of Gillette common outstanding, but the altitude of the price Gillette is paying for patent peace is obviously impressive.

Viewed in the perspective of a long future, however, Gillette is well off indeed.

In obtaining AutoStrop it gets, besides good products and profits, several strategic plants, valuable sales machinery, smart management. More than that, Gillette avoids the costs of a long law suit, is totally insured against the calamity that a verdict against the company would have been. To date 14,500,000 of the new Gillette razors, 200,000,000 of the new blades have been manufactured. Should royal ties have been awarded to Probak, they probably would have mounted to staggering sums this year, next year, every year that Gillette continued its present razor.

With the razor a huge success from the start, protection was vital.

Probably never answered will be the question that the situation suggests: Did shrewd Inventor Gaisman plan from the first to use the Probak blade to force Gillette to buy AutoStrop? If so, he succeeded brilliantly, with only one consideration not obtained: The greatest name in safety razordom is still King Camp Gillette, not Henry Jaques Gaisman.

 

Here is an article printed Jan 1931 written before Gaisman and Auto Strop took over Gillette and removed its management. This was a battle that Gillette would lose due to their patent infringement of the Probak blade design.

http://blog.modernmechanix.com/razor-blade-giants-battle-for-supremacy/

 

The impact on the stocks of the companies before the induced merger. Here is a chart on the stocks of the two companies (share price wise) before the merger, and the two new released stocks post merger.

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Broken down into better detail below.

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The effects of the fraudlent activites, the patent infringement, stockholders suit clearly took its toll and the new management team lead by Henry Gaisman stabilized the combined company and led it through the depression years intact.

 

From the Feb. 18, 1935 issue of TIME magazine : Earnings

Almost the only thing about Gillette Safety Razor Co. and Gillette blades which has not been changed since Depression is the bewhiskered photograph of King C. Gillette, who died in 1932. With most of its patents long exhausted, the company was reorganized after merging in 1930 with AutoStrop Safety Razor Co. when AutoStrop's subsidiary, Probak Corp., produced a blade that exactly fitted Gillette razors. Last year, despite heavy inroads of cheap competing blades and a reduction in the price of both Gillettes and Probaks, Gillette Safety Razor Co. earned $4,188,000 against $3,659,000 (unaudited) in 1933.

 

Great write up Sir and very accurate detail....A few months after the AutoSrop merger King Gillette was relegated to his living room chair where he sat and croaked it a broken man..........The Ruthless King Gillette met his match....

Billy....

 

A very interesting read. Thanks for posting.

 

Actually King Gillette was not anywhere near as ruthless as his management team was. Gillette before he moved into developing the razor was a utopian visionary who felt that technology could be used to solve mankinds problems. The mangement team however that was positioned, due to requirements from major investors, was at best a fraudlent bunch. They were exposed and ousted while Gillette squander his fortune away in bad real estate ventures before his death.

Gillette suffered from beliefs as many at the time held that benevolent corporate control via large massive economies of scale would lift mankind up, and free them for more worthwhile purposes. He believed his invention and company was one of many that would provide this utopia.

https://en.wikipedia.org/wiki/The_Human_Drift

http://urbanplanning.library.cornell.edu/DOCS/gillette.htm

 

s

Yeah, I read his work when I was at University some years ago Sir....It would appear that he was a man of paradoxes like a lot of Utopian Visionary's...He certainly was a controversial writer that wasn't very well received in the Cooperate world...It was also apparent to me that he wasn't unlike the Great Socialist Writer Robert Shaw whom paradoxically was part owner of the Great British Indian Trading Company that Raped Two Thirds of the World.....

Billy

 

Great write-up Gary. Do you have a job as an investigative reporter?

 

So ol' King was a utopian technocrat? Must've been on good terms with H.G. Wells.

 

He doesn't let this out often but for some years he's been pursuing the story of a "hulk" and the mysterious John Doe connected with him who reportedly resembles Tim O'Hara.

 

Somehow it seems that certain salesmen sometimes have the big dreamer syndrome and the set of big dreamer blinders as well. I feel we have many who are that way today, both in business and in politics, but we won't stray into the political realm.

 

... nah!

 

Yeah....You are right on there Sir....

Billy...

 

Nice. Thanks for the info. I take it this was the introduction of the "New" razor?

Greg W.

 

Yes. That razor was one that caused the issue for infringment. The "New" became a long selling item for the merged company.