1

Shana BushKristin SalernoRachel Cherne

Rich Zeck

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?

2

The Body Shop:Company Profile

“If you have a company with itsy-bitsyvision, you have an itsy-bitsy company.”

- Anita Roddick

Check it out!

Humble Beginnings...

• Founded by Anita Roddick inBrighton, West Sussex in 1976.

• Why?– Desire to sell cosmetics in cheap

bottles in a variety of sizes

– Desire to sell products from “naturalingredients”

Humble Beginnings... (continued)

• 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”

3

…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 distributioncenters

• 6,000 employees worldwide, with over 2,800at 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 andoperated as head franchises.

“It 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)

Click here for more Body Shop Background:

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

4

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 votedBritish Woman of the Year

“I think all business practices would improve immeasurablyif they were guided by “feminine” principles – qualities like

love and care and intuition.”

– Anita Roddick

The Body Shop Mission Statement:

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

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

5

Internal Environment:

The management team includes:

Anita L. Roddick Non-Executive Director, OBE

T. Gordon Roddick Non-Executive Director

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

6

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.

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:

7

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.

Click on the hyperlink for the 2001 Annual Report

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

8

Financial Recap

• FY 01:–13% sales increase

–Did not meet expectations

–Loss of operating profit

• 50% less than previous year - due tounplanned high exceptional costs

Financial Recap

• Why were expectationsnot met?–Lower margins on new products not

achieved

–Inventory levels had a negative impact onwarehouse and interest costs

–Overall lack of focus on product heritage

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

9

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

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.

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.

10

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.

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.

11

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 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.

12

Enhance The Body Shop brand value

• Strengthen unique product heritage

• Expand customerreach and experienceof the brand

13

Improve Operational Efficiency

• Reduce product cost by working withsuppliers to improve efficiencies withinthe supply chain

• Achieve reduction in overhead costs

• Reduce inventory holdings

Reinforce stakeholder culture

• Increase purchases from CommunityTrade suppliers

• Reduce energy consumption andcommit to use renewable energy

• Increase awareness of climate changes

• Ongoing programs of stakeholderconsultation & 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

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.

14

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.

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:

15

16

Vertical Integration

• Advantages:– Strong selling point -

“knowing where thematerials originate”

– “World Community”involvement - strike achord with keystakeholders

• Disadvantages:– Open up for criticism

if environmentalproblems

– Increased overheadcosts

– High initialexpense

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

Horizontal Integration

• Advantages:– Strong Brand loyalty

– Choose productsbased on issues

• Self-Esteem enhancingclothes, vitamins, etc.

• Ikea-style bathroomfurniture - safe forenvironment

– Easy to expand HomeSale products

• Disadvantages:– Weakened Branding

– Increased Costs

– New staff to developproducts

– Stores are alreadyfull!

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

Unrelated Diversification

• Advantages:– Strong Brand loyalty

– Issues Based• Self-Esteem enhancing

dolls/toys, children’sproducts

• Travel: Trips that makea difference

– Roddick’s Reputation

• Disadvantages:– Loss of

Differentiation

– Increased Costs

– 9/11: Travel difficultto sell

– Established marketsdifficult topenetrate

“Shouldn’t all your purchases be “earth-friendly?”

After considering the advantages and disadvantages of the three strategies,

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

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.

17

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.

18