Gillette's (NYSE:G) campaign to put rival Energizer Holdings' (NYSE:ENR) razor business, Schick, to the sword is not going smoothly. In the latest round of legal disputes, Schick is suing Gillette for infringing on three of its razorblade patents. Last week's legal filing comes only a month after Gillette lost its own patent injunction against Schick.
The lawsuits are not mere publicity stunts. No, instead they offer a glimpse into the kind of warfare tactics that Gillette will face in the coming year.
The stakes are high. While Gillette controls 70% of the U.S. market, Schick has been nipping at Gillette's heels since drug giant Pfizer (NYSE:PFE) sold it (Schick) to Energizer Holdings last year for $930 million. The four-blade Schick Quattro has been the No.1 selling razor since its launch in the fall. This comes at the same time that Gillette is fighting another battle with Energizer to defend the market share of its Duracell battery business.
Shaving, unlike batteries, is not a commodity business. Gillette can look back on a successful history of innovation and marketing. Schick, though, has been an underperforming brand in the past.
Under Energizer Holdings' ownership, Schick will have to keep delivering a competitive punch. Having paid top dollar to buy it, Energizer needs to be aggressive here. And Gillette will have to respond in kind. In fact, because of the Quattro, Gillette will be pushing upgraded products into the market this year.
Higher marketing spending, combined with eroded market share, could reduce Gillette's earnings by 4% in 2004. That's certainly not the end of the world. But pinned down by a rejuvenated Energizer and forced to resort to down-and-dirty legal and competitive tactics, Gillette will have a tougher time maintaining its premium sector rating.
Motley Fool contributor Ben McClure spots stocks from the Great White North. He doesn't own any shares of the companies mentioned here.
