Financial Myths: God Only Made A Few Perfect Heads, All the Others Need Hair – Part I

Michael McTague |

Procter & Gamble’s (PG) decision to move away from less attractive hair care and beauty products provides a great deal of material for investigation. Strategically, Procter & Gamble (P&G) has decided to focus on more profitable lines and to stay closer to the types of businesses it has mastered. The consumer giant enjoys a close relationship with consumers who seek the best products of their kind. However, the skittish quality of high-end fragrances and beauty products veers off from P&G’s mastery of marketing Tide and other household items.

Investors worried that the afternoon television behemoth was involved in too many quirky and low margin business lines. In the manner of many companies over the last year, P&G drew a line in the sand to keep the products that yield significant profit and market share and chop off those that do not. Apple (AAPL) makes forty-six products spanning hardware, software and accessories; they all do well financially. In only a few cases, their product is priced a bit above its real value such as the Mac Mini, which yields a mere one-third profit margin. Few companies would look down on 33% profit. Hewlett Packard’s (HP) split into two companies also came about to achieve greater strategic control of families of products and services.

P&G’s website says it retains 23 brands with annual sales of $1 billion to more than $10 billion, and 14 with sales of $500 million to $1 billion. Thirty-four beauty, grooming and hair care products are listed including Clairol, Head & Shoulders, Old Spice, Max Factor, Ivory, Lacoste Fragrances and Olay. They also make Gillette products, which ranks 26 in Forbes’s list of most valuable brands with annual sales of $8 billion. So, they cover men and women, bald and hairy! Keep in mind that the more standard products will stay on their slate. Among P&G’s most profitable products are Pantene hair care and Olay skin care products and Head & Shoulders. Within the company’s wide array of products, personal care is rising. According to IPWatchdog, P&G’s recent patent activity implies that a number of innovative hair care products are on the way. How about a new kind of hair dryer – more ergonomic? Or, a post shampoo scalp treatment? The myth – actually an overheard witticism -- is looking pretty good. People with hair chalk up big expenses and spin off opportunities for products and services.

The business openings offered by baldness pale by comparison to those for people with hair. The range of grooming, hair tonic, dies, shampoo, brushes and other hair care products is dizzying. It may also dizzy those who endure some of the treatments. And, yes, some who give the treatments are pretty dizzy as well. Observers will note that a large number of hair care and nail salons fail. There is no good news in that except that it shows the attractiveness of a business that makes people feel good by looking good.

Product Adjustment Fails To Help Anemic Stocks

The sell-off of these products has not given P&G the stock price boost it strongly desires. Investors will note P&G’s stock price has drifted downward this year falling about $20 in nine months ($90 in January to $70 in September). No wonder. The idea of dropping the less profitable brands has been in front of the market for many months. In addition, the move implies that P&G goofed by spending so much money on these acquisitions. Coty (COTY), who will be acquiring many of these P&G brands, saw its shares shift upward by about $9 since January. Note that Coty is more adept at managing these specialty lines.

A Thing of Beauty Is a Joy For Ever

Make no mistake; Keats was right. Hair care and beauty reap giant profits. The worldwide total for toiletries, perfume, shampoo, skin lotion and shaving cream exceeds $250 billion and the products are expanding rapidly outside the US. Kao Corp (TYO:4452), known as the P&G of Japan, grew 157% in the last five years. Almost everyone has some hair. Over 50 million men in the U.S. are said to suffer from hair loss according to The Huffington Post. “Hair loss” is not the same as baldness and most bald men are only bald on top. Being bald on the top of one’s head offers some interesting business possibilities. Men’s hairpieces and hair transplants yield a huge business also, more than half a billion dollars annually according to

Even shaving brushes, which sound as vestigial as buggy whips, are proceeding well including expensive lines of horsehair or badger hair (yes, from the animal, which is also the Wisconsin team namesake). These fall into the specialty category – popular for people who can’t figure out a gift for an older man and buy on impulse.

Considering this P&G decision and the Coty share price move, the myth holds up well. Except the few products that give completely bald men that waxy look and the possible need to buy more hats in cool weather, the perfect head – the one with no hair -- is looking like a true benefit. People may be better off if they do not spend piles of money on hair and other beauty products.

Next month, we will look at more absorbing tales that make us think about our strongest-held assumptions.


Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.   

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
AAPL Apple Inc. 116.60 -0.46 -0.39 23,192,665
COTY Coty Inc. Class A 23.00 -0.38 -1.63 10,782,524
HP Helmerich & Payne Inc. 66.48 -0.50 -0.75 1,602,557
PG Procter & Gamble Company (The) 84.33 -0.60 -0.71 13,974,139


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