Kitty More Business strategy

The Body Shop - Body and soul

20 October, 2006

The Body Shop has never been afraid to mix profits with principles. However, the company’s success has attracted a host of competitors boasting a natural platform. In danger of being left behind, The Body Shop has had to fight back with new products, store designs and marketing approaches.

When The Body Shop first came onto the market in 1975, the brainchild of entrepreneur Anita Roddick, the concept of selling toiletries based on natural ingredients coupled with strong ethical values was unique and it rapidly set a trend which many others were keen to follow. However, the burgeoning growth experienced by the company during the 1980s came to a grinding halt as the company struggled to assert itself against the competition. Today, The Body Shop still adheres to its original values but recognises the importance of change, so it is investing in new store design, innovative product development and a successful direct sales arm called The Body Shop at Home.

The Body Shop started business as one small shop in Brighton, on the south coast of England, selling around 25 hand-mixed products in distinctive green bottles which could be refilled in the shop. Founder and entrepreneur, Anita Roddick, had a vision of retailing home-made naturally inspired products with minimal packaging and wanted others to share it. Franchising allowed for rapid growth and international expansion as hundreds of entrepreneurs worldwide bought into Roddick’s vision. Thirty years on, along with her husband Gordon Roddick, Dame Anita Roddick continues to be involved in the company as non-executive director and also consults on product, marketing and values.

The Body Shop International plc now operates in 51 countries with over 2,000 outlets spanning 25 languages and 12 time zones. Over the years, The Body Shop became as famous for its campaigning as for its products, having championed human rights issues and protection for animals and the environment. It continues to lead the way for businesses to use their voice for social and environmental change.

In 2003/4, total retail sales across all The Body Shop Outlets reached £699.5m. For the 25 weeks to end August 2004, global retail sales for The Body Shop increased by 4% to £318.4m, although comparable store sales were down 1%. Some regions registered positive comparable store sales growth, led by the Middle East, which increased by 14%, South East Asia, up 8%, Australia, growing by 5%, and the US with a rise of 2%. The poorest performing markets were the UK, recording a 5% decrease in the first half, with Canada, Germany and most of Southern Europe, all down in terms of comparable store sales. However, there has been an improving trend in the UK during September and October, and Canada’s poor performance was explained by a move to company ownership in July. In Southern Europe, The Body Shop has been recovering in Spain and Turkey, from the aftermath of the terrorist bombings, and in Greece, where its Athens stores were affected by the Olympic preparations.

Earlier in 2004, in its AGM statement, the company warned that profit before tax would be lower in the first half which came in at £8.3m, down from £9.1m in first half 2003. Exchange rate movements negatively impacted on profit before tax by £2.4m, due mainly to the weakness of the US dollar.

Commenting on The Body Shop’s poor performance in the UK, Bill Eyres, head of corporate PR, explains: “Like for like sales in the UK have improved from –7% in the first quarter to –3% in the second quarter, so we believe we are moving in the right direction. However, the continued success depends on the roll-out of new stores and the revamping of existing ones using the ‘recycle me’ format, the implementation of our new identity, better product presentation and delivery systems, so we still have some way to go.”

A recent successful initiative has been the UK launch of the Love Your Body customer card in June 2004, which costs £5 to join for one year and gives customers 10% off all their purchases as well as free gifts, updates on in-store activity, special offers by email and exclusive member events. This same customer loyalty scheme has been launched in Germany where The Body Shop is running an aggressive sales and marketing campaign.

The franchise affair

The Body Shop, which is publicly listed on the London Stock Exchange, employs over 6,000 people worldwide with more than 600 based at its headquarters in Littlehampton, Sussex. The Body Shop International operates as head franchise in the UK, US, Canada, Mexico, Austria, France, Germany, Denmark and Singapore, with the remaining 42 markets owned and operated by independent head franchisees.

From time to time, some of The Body Shop’s franchisees wish to liquidate their investments. “In such cases we will review the request from the franchisee and determine whether we wish to make a strategic investment and acquire the business ourselves, or facilitate the acquisition by an acceptable third party,” states Eyres.

During the first six months of 2004, two acquisitions were completed. In June, the company purchased 75% of The Body Shop franchise in Hong Kong and Macau as the franchisee wished to remain involved in the business. Subsequently, the company acquired the Canadian business in July, which included 42 stores operated by the head franchisee, together with an additional 69 sub-franchised stores. The acquisition of the Hong Kong and Canadian head franchises contributed largely to The Body Shop’s net debt increase of £45.5m, up from £34.2m in 2003.

Examples of third party acquisitions include West Malaysia and Finland. “We will continue to manage these opportunities, if and when they arise, for the benefit of their shareholders,” explains Eyres.

The Body Shop’s global reach may already be huge, but it plans to open 300 new shops, notably in the UK, the US, Central Europe and Japan. In addition, there are further opportunities to break into new markets with prime targets including North and South Asia, South America and Eastern Europe.

New design

Shop Me, is a new store design which The Body Shop has been trialling since the beginning of 2004 in eight pilot stores around the world. The first two stores with the new store design opened in the UK in London’s Covent Garden and Thurrock, followed by an additional three stores in Singapore, Hong Kong and Germany, with two more in the US and one in France which were due to open before Christmas. Eyres explains the rationale: “The new store is designed to look and feel more contemporary with our product range more effectively promoted. It is based on best practice drawn from our existing stores from around the world as well as global design and visual merchandising best practice.”

The changes that have been trialled include a more flexible shop fit that is easy to install and modify, light stone flooring, fresh green walls and white ceilings, improved branding and a flexible perimeter system which incorporates back-lit moveable hemp panels to allow bamboo dividers to be positioned to frame each product category.

In addition, a new The Body Shop brand identity has been launched which encompasses an evolutionary new logotype, typography and colour specification, together with the “Made with Passion” umbrella for its values and product stories. “Made with Passion” will appear in all new and refurbished stores and on in-store promotional material and packaging from 2005 onwards.

The Body Shop is also testing the idea of recycling shop furniture, which transforms the existing store design to give a more contemporary look while maximising the use of the existing shop fit. This has taken place in four UK stores and five US ones with encouraging results so far. “The ‘recycled’ shop concept takes our traditional ‘green box’ and updates it with our current branding and layout principles while minimising destruction of the existing structure. We plan to roll out this concept over the next several years,” reveals Eyres.

A new make-up merchandising system is also being trialled in the eight new stores and others across the four regions. “It is a simple system, which enables the customer to easily view and experiment with the product range on offer,” says Eyres, who maintains that these changes will be an evolution rather than a revolution for The Body Shop in terms of brand identity. “We are confident that the changes implemented will increase the customer experience of shopping in our stores.”

New masstige positioning

Investment in The Body Shop brand has been vital, not just in terms of satisfying its shareholders, but also to retain a point of difference in today’s naturals-saturated market. “The brand is currently moving to a ‘masstige’ positioning by developing innovative and credible products for customers at affordable prices,” says Eyres. “Major developments this year have included two ingredient-led, technically advanced product ranges: a complete sun care range that combines 100% mineral sunscreens with advanced antioxidant and moisturising benefits; and a new hair care range which has been developed with a trichologist. It contains six Community Trade ingredients, including honey and beeswax from Zambia and sesame oil from Nicaragua, and has been expertly formulated to deliver outstanding results. We have also built on the success of our ingredient-led bath and body range with the extension of the range into new variants such as Papaya and Sesame.”

Another recent launch is Skin Focus which is a new facial skincare range of performance treatments, such as Re-Texturising Peel, Line Minimiser, Lip Enhancer and Face Illuminator, each promising an instant, visible improvement in the appearance of the skin. Skin Focus is a good example of how The Body Shop can no longer rely solely on its natural ingredient positioning but must back it up with a strong technology story. Other recent launches include Ultra Smooth Face Base, a new foundation with innovative leading edge technology, and the new Everyday Aromatherapy range, which features four of the most popular essential oils (ylang, ylang, lavender, peppermint and bergamot).

The Body Shop has also shown that it can be truly innovative by being the first high street retailer to offer a bespoke fragrance service for its customers. Invent Your Scent was launched in October 2004, a unique mass market concept which allows the customer to play at being perfumer by creating a bespoke scent combining two or three of nine edts. Each edt is made up of naturally inspired top, middle and base notes to create individually complex fragrances that can also be worn alone. A suggested menu of fragrance combinations is provided, but it is possible to layer any number to create an individual scent. In order to help customers make up their mind, they can purchase all nine fragrances in 3ml mini vials, or they can opt for full sized 30ml bottles.

Recycling appeal

The Body Shop was the first toiletries company to offer its customers a refill service, but has found that in recent years uptake has been poor. Despite promoting the service and using marketing incentives, fewer than 1% of customers globally brought their bottles back for refilling. Instead, The Body Shop is turning its attention to producing recycled packaging for its plastic bottles, jars and tubes. Advances in technology and improved recycling infrastructures means that plastic can be reused in the form of post-consumer recyclate. Since January 2003, all of its PET bottles incorporate 30% recycled plastic, which saves the equivalent of approximately four million virgin plastic bottles every year. While recyclate does incur energy costs, the overall benefits are positive. “We are committed to further reducing the use of virgin plastic in our packaging and are exploring the possibility of increasing the level of recycled plastic in PET bottles and introducing it into our HDPE bottles,” comments Eyres.

Home and away

The Body Shop is a multi-channel business operating in retail and direct sales, as well as via an e-commerce site just launched in the US.

The Body Shop at Home is the direct sales arm of The Body Shop, which employs independent sales consultants who hold product parties in people’s homes. It first launched in the UK in 1994, followed by Canada in 1995, Australia in 1997, and the US and Ireland in 2001. This division is outperforming retail sales and its sales grew by 51% during the first six months of 2004 to £21.5m. The Americas region has seen a 92% increase in sales, while Asia Pacific grew by 27% and the UK by 25% during this period.

Eyres explains how The Body Shop at Home operates: “The Body Shop at Home offers our customers the convenience of shopping in their own environment and among friends. It gives them the opportunity to have products fully demonstrated to them, to have make-overs and to experiment with the products before buying them. It also offers convenient shopping for those customers who do not live near a local store. The Body Shop at Home gives these customers the in-store experience, at home.”

He continues: “Direct and retail sales channels are complementary to each other and we find that many customers will use both routes to buy, choosing whichever is most convenient to them.”

At present, The Body Shop at Home represents less than 10% of sales, but the business is growing rapidly.

Cosmetic crusader

The Body Shop has been a leader in the trend to greater corporate transparency and has been a force for positive social and environmental change through its lobbying and campaigning programmes around five core principles: Protect Our Planet, Defend Human Rights, Support Community Trade, Activate Self Esteem and Against Animal Testing. The current global campaign running across its four regions is called Stop Violence in the Home, focusing on domestic violence.

“The Body Shop is committed to maintaining high standards of social and environmental performance,” explains Eyres. “We believe in doing business with integrity and transparency. This means using our ethical principles to inform the way we do business, setting ourselves and our business

partners clear standards of practice, engaging stakeholders behind our business aims and reporting on our performance and our intent to improve the overall context of our business strategy.” Details of the company’s social, economic and environmental performance globally are available via web-based stakeholder accounts, which build on the role The Body Shop played in spearheading the move for companies to report on their social and environmental performance in the 1990s. Its first Values Report was published in 1995 and was described by the United Nations Environment Programme as “trailblazing”.

The Body Shop was the first cosmetics retailer to operate a special purchasing programme sourcing from and supporting community-based enterprises. The Community Trade programme has been operating for more than 15 years and aims to help build livelihoods and to explore trade-based approaches by supporting sustainable development through sourcing ingredients and accessories from socially and economically-marginalised producer communities. In 2003, The Body Shop supported its Community Trade programme with £5.3m. The company trades with over 36 Community Trade suppliers in 23 countries, helping to support thousands of people building livelihoods for their families and has introduced educational and health benefits to many suppliers and their communities.

Some 490 products on sale in The Body Shop stores contain ingredients sourced through the programme. These include cocoa butter in Cocoa Butter Hand & Body Lotion, shea butter and olive oil in the popular Body Butter range, and accessories such as massagers from India and loofah products from Honduras.

Eyres comments: “We believe our values are entirely consistent with strong and sustained financial performance and that profits with principles must be achieved in order to sustain the long term future of the company.”

http://www.cosmeticsbusiness.com/story.asp?storycode=476