Shana Bush

Kristin Salerno
Rachel Cherne
Rich Zeck

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 Company: The Body Shop
Founder: Anita Roddick
Headquarters: Littlehampton
Main Industry: Toiletries and Cosmetics

Want to find out more about The Body Shop’s Background?

Check it
out!
The Body Shop:Company Profile
“If you have a company with itsy-bitsy
vision, you have an itsy-bitsy company.”
- Anita Roddick

Humble Beginnings...
• Founded by Anita Roddick in
Brighton, West Sussex in 1976.
• Why?
– Desire to sell cosmetics in cheap
bottles in a variety of sizes
Humble Beginnings... (continued)
– Desire to sell products from “natural
ingredients”
• Products:
– Started with 25 products composed of
natural ingredients
– Used plain, simple, and handwritten labels
• Marketing:
– Developed a policy of “no money spent on
advertising”
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 …and still going strong!

• Publicly listed on the London Stock Exchange

• 1,900 stores with over 300 in the U.S.
• Stores in 47 countries with 40 distribution
centers
• 6,000 employees worldwide, with over 2,800
at Littlehampton headquarters

…and still going strong! (continued)

• Facilities:
– Soapworks facility in Glasgow
– Company-owned shops in the UK
• Ownership:
– The Body Shop International: owns UK, US,
France, and Singapore operations
– Remaining 43: Independently owned and
operated
“It as head franchises.
is estimated that The Body
Shop sells a product every 0.4
seconds with over 77 million
customers transactions through stores
worldwide, with customers sampling the
current range of over 600 products and
more than 400 accessories.”
(www.bodyshop.com )
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 The Body Shop “Kudos”
• 1987: Company of the Year
(The Confederation of British Industry)
• 1989: Retailer of the Year & United Nations
Global 500 Award
• 1997: 28th top brand in the world, 2nd in the retail sector
(Interbrand)
• 1998: 27th most respected company in the world
(The Financial Times)
• 1999: 2nd most trusted brand
(UK Consumers Association)

The Body Shop “Kudos”

• 1985: Anita Roddick voted
British Woman of the Year

“I think all business practices would improve immeasurably

if they were guided by “feminine” principles – qualities like
love and care and intuition.”
– Anita Roddick

Click here for more Body Shop Background:

http://www.bodyshop.com/global/index.asp

The Body Shop Mission Statement:

 To dedicate our business to the pursuit of social and environmental change

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 To creatively balance the financial and human needs of our stakeholders:
employees, franchisees, customers, suppliers, and shareholders
 To courageously ensure that our business is ecologically sustainable:
meeting the needs of the present without compromising the future
 To meaningfully contribute to local, national and international communities in
which we trade, by adopting a code of conduct, which ensures care,
honesty, fairness and respect
 To passionately campaign for the protection of the environment, human and
civil rights, and against animal testing within the cosmetics and toiletries
industry
 To tirelessly work to narrow the gap between principle and practice, whilst
making fun, passion and care part of our daily lives. (www.bodyshop.com)

Company Values:
The Body Shop’s Values include:

http://www.bodyshop.com/global/values/index.asp

Internal Environment:
The management team includes:
Anita L. Roddick Non-Executive Director, OBE
T. Gordon Roddick Non-Executive Director

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 Peter Saunders CEO, The Body Shop International
Adrian D.P. Bellamy Executive Director
Alastair S.N. Murray Group Finance Director
Jack Keenan Non-Executive Director
Irene Miller Non-Executive Director
Ronald De Waal Non-Executive Director

The average age of the board is 53 years old. Many of the Executive Directors
have experience in retail industries including Gucci Group, Danone, The Gap
Inc, Williams & Sonoma, Kraft International, and the General Foods Group.

In the last quarter of 2001, there were several unsolicited offers to purchase the
Company. February of 2002 brought the decision to remain an independent
company and make some significant changes in the Board. Click on the
hyperlink for the full Press Release.
http://www.bodyshop.com/global/investor/pdfs/business_anouncement_feb.pdf

No Marketing?
The Body Shop has no marketing department and no advertising department.
They operate according to criteria, which places more emphasis on human
values than on strictly commercial considerations. Anita Roddick spends most of
her time doing the marketing activities such as campaigns and conferences. The
Body Shop never advertised in newspapers or magazines because this type of
promotion would increase the cost of the product. For The Body Shop,
the most effective and useful way of advertising is to use its shops and its
staff, as well as using issues awareness, such as “Activate Self-Esteem”.
The Body Shop launched a campaign using the “Ruby Doll” – a realistic
looking doll to promote real women. They used it in their stores, hosted debates,
funded research, and held conferences all related to self-esteem, all activities
that point back to The Body Shop.

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 The newest venture for The Body Shop is the "at home business",
where trained consultants come to your home and demonstrate the products.
This is available in four US states so far and is working on further expansions.

External Environment:
The worldwide cosmetics and toiletries market has a turnover in excess of $80
billion dominated by major companies like Proctor and Gamble, Unilever,
Shiseido, L’Oreal, Avon and Revlon. www.geocities.com/Athens/6667/body.html.

Other competitors include:

 Britain: Boots and Lush
 Ireland: Nectar
 U.S.: Bath & Body Works, Origins, and Aveda

The Body Shop was the leader in the natural products area, but now most of
their competitors have followed suit.

There is good news for The Body Shop because there is high growth potential in
their market. “The global toiletries and cosmetics market is estimated to be
growing at an annual rate of approximately 3%. This underlying growth in the
market, together with the opportunity to grow market share in markets around
the world, provides a solid foundation for the future growth of The Body
Shop.” (www.bodyshop.com)
Consumers:
According to Verdict Research, “shoppers are going to supermarkets
rather than retail cosmetics stores for beauty aids.” They also found that
supermarket chains will double their share of the health and beauty market to
60% in the next five years.” This means that The Body Shop is going to change
its strategies if it wants to compete.

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Click on the hyperlink for the 2001 Annual Report

http://www.bodyshop.com/global/investor/pdfs/ra2001.pdf

Financial Recap
• FY 01:
– 13% sales increase
– Did not meet expectations
– Loss of operating profit
• 50% less than previous year - due to
unplanned high exceptional costs

Financial Recap
• Why were expectations
not met?
– Lower margins on new products not
achieved
– Inventory levels had a negative impact on
warehouse and interest costs
– Overall lack of focus on product heritage

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 Keys to Success...
• Controlling operating expenses
– Body Shop Direct & mail order business
• New European currencies stabilization
– Reduce interest rate risk and lower liability
inequities
• Home Selling Focus
– 17% increase in sales last year

The positive note has been the quick response to each area that hindered the
company’s objectives. Product margins have been restored to last year’s new
product releases by reducing product costs and ensuring the same margins on
future releases. Inventory reductions have been made by decentralizing
management responsibilities to the regional level, which allows them greater
control over levels for their respective area. Lastly there will be a slow down in
introducing new products and a greater emphasis on core products.

Worldwide sales increased by 7% to nearly $500 million in every region.

The sales growth can be derived from the opening of 111 new store
which, bring s the total number of stores worldwide to 1,841. All regions
reported positive growth except the UK. Again although there was
increase in sales pre-tax profit was down from previous years. Worldwide profits
however reflected an improve performance in the Americas offset by lower
outcomes in the UK and particularly in Europe and the Middle East.

There are four major regions of investment of outlets of which there are 488
company-owned stores. The regions are UK & Republic of Ireland, Americas,
Europe & Middle East and Asia Pacific.

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In the UK & Republic of Ireland region there are 315 shops of which the
company owns 159. This region accounted for a 7% loss in overall operating
profit. The loss can be attributed to several factors like increase in store
overhead costs and markdown costs. Home selling through The Body Shop
Direct might be the diamond in the rough as it showed a 17% increase in sales.
There are over 2,250 registered consultants that held over 104,000 home
parties. This is an area to watch as it grows.

The Americas region comprises the United States, Canada and the rest of the
Americas. There are 413 stores of which 254 are company owned stores.
There were only 3 new store openings, which is not very active in a profitable
marketplace. Overall operating profit increased by 17%. There are a planned
15 new openings and 30 store refurbishments for the coming year. Home sales
will be experimented here in the states off the successful establishment in the
UK.

The Europe & Middle East region which, is the largest operates 684
stores with only 55 being company owned. The region comprises of 27
countries, with Germany, France and Austria having company-owned stores.
There has been strong growth with 48 new stores opening across the region.
Operating profit plummeted by 40% due in part to the weak Euro exchange rate.
There is strong growth in France, Saudi Arabia and Spain, which offset the poor
performances in some Middle Eastern and Scandinavian countries.

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The Asia Pacific region comprises of 13 countries across North Asia, South East
Asia and Australasia. There are 429 stores with only 20 company-owned. Retail
sales were strong yet operating profit was even. Japan and Taiwan showed
significant losses while Korea and Hong Kong showed strong growth.

The Body Shop can be found in 49 countries with the 281 stores in the US and
294 in the UK leading the way. Of the US’s 281 stores, 250 are company owned
and of the UK’s 294 stores, 150 are company owned. The impact and influence
is very strong as to the direction the stores takes from the home office.

Some financial problem areas that need to be taken into account from past
performances looking ahead to the future. Operating expenses relating to
company owned stores have taken a significant jump over the last period.
Overall expenses increased over 24% for reasons previously noted in the
opening comments. The single largest increase was with operating costs
involving the mail order business and Body Shop Direct. Due to the increase in
company owned stores the associated administrative costs also increased
further adding to the exceptional costs.

The stabilizing of the new European currencies will greatly enhanced the
financial outlook as it will reduce the interest rate risk and lower liability
inequities that are currently being experienced. Most of the current debts
held are due within one year, which will free cash for further reinvestment. The
recent acquisitions have dampened the short-term outlook but because of the
short term restructuring of the debt the financial outlook should return to
increasing returns quickly. The overall past five year financial outlook
performance has been average but has shown rebounding capabilities over the
last year. The coming year will be a slower paced growth year that refocuses

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the time and energies to what the company was built upon to return it to the path
forward.

The Body Shop operates on the belief that the key to improving performance
and raising standards is found through the measurement of the broad impact of
business activities. In order to drive long-term success and maintain the
stakeholder relationship, The Body Shop has developed a combined approach
to performance measurement and public reporting.

Though The Body Shop was unsuccessful in the implementation of last year’s
strategy, they have taken action to address each of the issues that prohibited
this success. Their current strategy is a coherent plan that’s based on the
feedback from their stakeholders. It focuses on medium and long-term results.
The overall strategy is to increase value for all stakeholders. There are three
principle objectives that play a role in the successful implementation of this
strategy.

Enhance The Body Shop brand value

• Strengthen unique
product heritage

Improve Operational Efficiency

• Expand customer
• Reduce
reach andproduct cost by working with
experience
suppliers to improve efficiencies within
of the brand
the supply chain

• Achieve reduction in overhead costs

• Reduce inventory holdings

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 Reinforce stakeholder culture
• Increase purchases from Community
Trade suppliers
• Reduce energy consumption and
commit to use renewable energy
• Increase awareness of climate changes
• Ongoing programs of stakeholder
consultation & public reporting

In addition to these objectives, The Body Shop’s new product plan focuses
on a small number of initiatives that are driven by market needs. They will
also be reintroducing some discontinued products due to customer
feedback.

The current investment strategy for The Body Shop focuses on “new stores and
store refurbishments, while…continuing to invest in point of sale systems to
improve operational efficiencies.” (Annual Report, pg. 14) Another channel that
will be further developed is home selling. Home selling has proven to offer great

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synergy with the store-based business and to be highly successful in the UK and
will be on trial in the US and in Mexico during the current year.

A core competency of The Body Shop is its stakeholder culture.

I would even argue that this is a distinctive competency for The
Body Shop. This culture includes everything from commitment
to the community, to the environment and to the protection of
animals. It is vital that they are successful in reinforcing this culture. The use of
stakeholder consultation in combination with public reporting is a great way to
assure that that organization is maintaining their commitment of delivering value
to the stakeholders.

A second major strength of the organization is it’s strong brand name. While the
name of The Body Shop already has strong loyalty from its customers and
worldwide recognition for its commitment to the environment and its superior
products, opening new channels to reach even more customers can’t go wrong.
The home selling that is being initiated at The Body Shop is a great example of
one of these new channels. There are so many people looking to work from
home and, at the same time, there are many people that want to “shop” from
home and skip the hassle of the mall. The opportunity has presented itself and
The Body Shop is taking advantage of it.

Given the growth of the organization and its recent restructuring, it is

critical for The Body Shop to focus on improving operational efficiency.
Reducing inventory holdings and improving efficiencies within the supply
chain are a great place to start. A potential weakness and threat for The Body
Shop exists in the price of their products. Often, a consumer can find similar
products at a fraction of the cost. However, individuals that buy The Body Shop
products are usually there based on the concept and The Body Shop’s
commitment to the environment, animals and the community. Focusing on this
“niche” market eliminates a lot of the threat and the weakness of their pricing.

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The Body Shop, thanks to the guidance and vision of Anita and Gordon Roddick,
created and sustained a new market, one that appeals not to commercialism, but
to activism. It has been imitated by numerous companies, touting use of “natural
products”, but The Body Shop has been able to differentiate themselves enough
to remain unique. However, remaining where they are could mean that they are
caught by the closest competitors. There are several key points to be considered
when contemplating new strategies for The Body Shop. They include:
• Importance of the “stakeholder culture”
• Necessity to improve operational efficiencies
• Current Strategies, such as Home Selling and Niche Marketing
We also know that the industry is expanding rather than contracting, The Body
Shop, as of February, is going to remain independent, and they are making
positive strides towards becoming more financially stable within the next year.

So what does that mean? What is the best strategic decision for The Body
Shop? The Body Shop has a consistent track record with a Differentiation
Business Strategy, inherent in their business, so the focus will remain on
Corporate Strategies. Three possible alternatives include:

Vertical Integration
Not just using “earth-friendly” suppliers, but owning them!

• Advantages: • Disadvantages:
– Strong selling point - – Open up for criticism
“knowing where the if environmental
materials originate” problems
– “World Community” – Increased overhead
involvement - strike a costs
chord with key – High initial
stakeholders expense

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 Horizontal Integration
“Shouldn’t all your beauty products be “earth-friendly?”

• Advantages: • Disadvantages:
– Strong Brand loyalty – Weakened Branding
– Choose products – Increased Costs
based on issues – New staff to develop
• Self-Esteem enhancing products
clothes, vitamins, etc.
– Stores are already
• Ikea-style bathroom
furniture - safe for full!
environment
– Easy to expand Home
Sale products

Unrelated Diversification
“Shouldn’t all yourpurchases be “earth-friendly?”

• Advantages: • Disadvantages:
– Strong Brand loyalty – Loss of
– Issues Based Differentiation
• Self-Esteem enhancing – Increased Costs
dolls/toys, children’s – 9/11: Travel difficult
products
to sell
• Travel: Trips that make
a difference – Established markets
– Roddick’s Reputation difficult to
penetrate

After considering the advantages and disadvantages of the three strategies,

Vertical Integration makes the most sense for where The Body Shop is at right

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now. Instead of watering down their strong branding with other products,
whether industry related or not, they can look towards vertically integrating their
operations. The company already touts the fact that they purchase their supplies
from Global Community suppliers, and partnering or owning some of the
operations would only strengthen their position. Also, since they have a major
focus of reducing their operational expenses, having some control over their
suppliers would reduce middleman expenses.

This strategy could look two different ways. The first way is through partnerships
with globally conscious suppliers. The second is through outright purchase of
supplier operations. The best tactic for The Body Shop would be create some
key partnerships in the upcoming year to “test out the waters”, especially since
the next fiscal year is going to be a “recovery” year financially. Then the
foundation would be there to move into ownership positions with the suppliers.

The controls for the strategy would take place through evaluating the
operating efficiencies, ROI, and the impact on the company as a whole.

The Body Shop would need to ask the question:

Both parts will need to be visible to be a good strategy for The Body Shop. The
company has come a long way since 1976. The unique mix of cheap products
and socially conscious behavior has made an impact on the industry and the
world we live in. As The Body Shop moves forward, it must keep their values in
mind and an eye on the numbers to continue to make an impact in today’s world.

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