King of Shaves founder Will King issues 5,000 bonds to his customers
UK shaving products firm King of Shaves has hit upon a novel way of raising capital. From today, it will issue 5,000 bonds to customers, costing £1,000 each, in an attempt to raise £5m. Founder Will King says the money will be used to finance marketing and "brand development". The bonds will pay a yield of 6 per cent per year, over a three-year period. "There is a cost, but it's far less expensive than issuing a prospectus," says King. "It's half a million pounds to get going on AIM."
King says other small firms with a recognizable brand could turn to bond issues as an alternative to bank loans. "Raising money conventionally, going out to HBOS, or RBS or Lloyds at the moment would be very covenant-heavy, potentially very restrictive. I know there's a big backlog of applications with credit committees at the moment because my bank tells me there is."
King says the bond issue is not purely about finance. He also sees it as a cost-effective marketing ploy aimed at increasing awareness of the brand. "We're a challenger brand, and challenger brands need to do things differently," he says. "We want to take King of Shaves to a wider audience in terms of awareness. I'm interested in those 5,000 people across the UK telling two, three, four or five of their mates about this opportunity and spreading that word of mouth. Tapping into social networks from a community perspective is incredibly exciting."
King has in the past focused his promotional efforts on social networking sites, such as Facebook and Youtube. He says he spends around £7m a year on advertising, a figure dwarfed by rivals Gillette and Wilkinson Sword. "Our competitors are spending upwards of £30m a year, if not more, on marketing," he says
King says last year's launch of the company's first razor, the Azor, has nonetheless been a success. "When we launched I figured we'd get about five per cent of the handle market in year one and about one per cent of cartridges." Instead, year one has seen the company take 10 per cent of the handle market and "two to 2.5 per cent" of the market for cartridges. "And that's with only 65 per cent distribution. We're up to 85 per cent now."
The conventional business model for shaving products is to loss-lead the razor handle and make the revenues back on repeat sales of cartridge replacements. Since the launch of the Azor, Gillette has retaliated by discounting its Fusion handle, in some cases by up to 50 per cent. In response, King has taken 25 per cent off all King of Shaves products over the Fathers' Day period, including cartridges. It promises to be an engaging battle. "If I was the FD at [Gillette] I would be looking at the numbers thinking 'this is carnage'," says King. "If they start re-pricing the replenishment business model downwards, given that the business was acquired by P&G for 57 billion dollars, that's un-chartered territory for these guys."
The company is weeks away from launching the brand in the US, Brazil and South Africa. King says the bond issue could be seen as a way of testing the water for a future share offering. "As a fast-growth private limited [company], to me it's possibly a pre-cursor to a much larger event further down the track, more of a conventional IPO." But if the bond issue goes well, there may be no need. "It could well be that we're oversubscribed 10 times," he says. "£50m, I wouldn't know what to do with it."
Posted 23 June 2009 : Director.co.uk
