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Shaving the competition

Power Pitch

"Everyone wants a great shave - they just don't want to pay millions for it," said Phil Masiello the co-founder of 800Razors.com.

CNBC gave Masiello 60 seconds to “Power Pitch” his online razor company to investment advisor Nikisha Alcindor, Lightbank partner Paul Lee and CNBC host Mandy Drury. See whether the panelists thought the pitch was a clean shave or left some razor burn.

Shaving shift

Masiello and his co-founder Steven Krane came up with the direct-to-consumer razor idea while on a work trip in 2011. The airline lost their luggage, and they spent more than $30 for just eight cartridges on the road.

"My business partner and I were outraged at the prices we were paying for razors," Masiello said.

After researching the industry, they realized that they could easily lower prices by cutting out retailers. But in order to compete with the established razor companies, they would also have to find a manufacturer to create a product of equal quality.

"[We have] an exclusive agreement with one of the world's largest razor manufacturers who is right here in the United States," Masiello said.

Razor race

Americans spent $3.7 billion on razors, blades, shaving products, and shaving accessories last year - a 2 percent drop from the prior year. In fact, in 16 out of the last 17 months, razor sales have fallen, according to Nielsen data.

Whether scruff is in, or people are just tired of paying high prices, fewer dollars are being spent on the category, but the competition remains fierce. E-commerce players such as Dollar Shave Club and Harry's have name recognition, branding, and notable venture capital investments.  Even traditional retail player Gillette (PG), which holds 66 percent of the market, has started an online subscription service.

But despite all the competition, Masiello believes he can capture 10 percent of the market in the next 2 years.

"The other guys [online subscription services] that are out there sell a less expensive product because it's a less quality product," Masiello said. "Customers want a great shave for a fair price."

“Power Pitch” panelist and investment advisor Nikisha Alcindor and CNBC host Mandy Drury pressed Masiello about his margins. "You've got free shipping, you're trying to undercut your competitors, how do you make money?" asked Drury.

Masiello’s edge – selling in bulk to lower shipping costs. Customers buy more cartridges per purchase, and as a result, they don’t need to make as many purchases. "We're selling 12 cartridges at $19.95, which is about a four-month supply...so our margins are about 60 percent," explained Masiello.  

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Dollar Shave Club sells four cartridges for $9 per month (its most expensive plan), while Harry’s sells eight cartridges and two creams for $31. The customer can choose if they want a shipment every two, six, or eight months.

Masiello said the company has sold close to 1 million cartridges to date and the customer base was doubling every month until November 2013. Since then it has been doubling every two weeks.  

In the future, the company expects to add shaving cream for men and women to its product line and will also be moving into skin care, accessories and other personal care items.

800Razors.com was founded in November 2011 and has raised under $1 million with investments from John Sculley and David Sculley.

-Additional Reporting by Joanna Weinstein and Kelly Lin

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