The Body Shop International Plc Business Information, Profile, and History

Company Perspectives:

The Body Shops strives to dedicate our business to the pursuit of social and environmental change; to creatively balance the financial and human needs of our stakeholders, employees, customers, franchisees, suppliers, and shareholders; to courageously ensure that our business is ecologically sustainable; 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; and to tirelessly work to narrow the gap between principle and practice, whilst making fun, passion, and care part of our daily lives.

History of The Body Shop International Plc

The Body Shop International plc is one of England's best known retailers of cosmetics and personal care products, with over 1,900 stores in 50 countries. The company is best known for pioneering the natural-ingredient cosmetics market and establishing social responsibility as an integral part of company operations. In fact, The Body Shop has historically received more attention for its ethical stances, such as its refusal to use ingredients that are tested on animals, its monetary donations to the communities in which it operates, and its business partnerships with developing countries, than for its products. This focus, however, proved to be costly as The Body Shop lost market share in the late 1990s to product-savvy competitors that offered similar cosmetics at lower prices. The company manufactures over 600 products and claims that a Body Shop product is sold every .4 seconds. Anita Roddick, founder of the company, built The Body Shop by flouting industry conventions. In 1991, Business Week quoted this cosmetic industry leader as saying: "We loathe the cosmetic industry with a passion. It's run by men who create needs that don't exist." After several years of faltering profits and sales, Anita and her husband, Gordon Roddick, stepped down as co-chairs in 2002.

Beginnings

Roddick entered the industry in 1976 when she used £4,000 to open a small stand-alone shop of natural-ingredient cosmetics and personal care products. Her goal was to support herself and her two daughters while her husband spent two years riding horseback from Buenos Aires to New York. Her store design, product packaging, and marketing approach all originated from her need to economize. Roddick painted the walls dark green to hide cracks, rather than to suggest respect for the environment, and the award-winning clear plastic bottles were actually urine sample containers purchased from a local hospital. When Roddick's original supply of bottles ran out, and she did not have enough money to buy more, the Body Shop's famous refill policy was born.

Other hallmarks of the company were born during this frugal period. Handwritten labels filled with product information established the Body Shop's candid approach to customer relations. For example, one of the first products, a henna hair treatment, sported a label explaining that the product smelled like manure but was great for the hair. Also during this time, Roddick developed an aversion to advertising; not wanting to spend the time or money on advertising, she instead relied on press coverage to spread the word about the fledgling company.

Success came quickly: Roddick's cosmetics store thrived, and she opened another before the company's first year was over. Returning home in 1977, Gordon Roddick joined his wife in the enterprise. They decided to franchise the operation during the company's second year, and by 1984 The Body Shop boasted 138 stores, 87 of which were located outside of the United Kingdom. Franchising outpaced the opening of company-owned stores over the years, until franchises accounted for 89 percent of Body Shop stores in 1994. The company's fast-paced development continued when it went public in April 1984. The Roddick's kept 27.6 percent of the company's stock. Gordon Roddick became company chairperson and handled the finances as well, and Anita Roddick continued as managing director, essentially determining the course the company would take.

Focus on Social and Environmental Awareness in the 1980s

During this time, Roddick decided to encourage and contribute to social and environmental change through her company. Although she first allied The Body Shop with established groups, such as Greenpeace, Amnesty International, and Friends of the Earth, she soon began her own campaigns, particularly ones that focused on recycling and on putting an end to animal testing in the cosmetics industry. Body Shops displayed posters and made petition sheets available to customers. By the mid-1990s, franchises were asked to support two to three campaigns a year for such causes as AIDS education, voter registration, and opposition to animal testing in the cosmetics industry.

In 1987, Roddick began The Body Shop's Trade Not Aid program. Combining the company's need for exotic natural ingredients with its mission of social responsibility, the program established business partnerships with struggling communities. By purchasing such ingredients as blue corn from the Pueblo Indians in New Mexico and Brazil nut oil from the Kayapo Indians of the Amazon River Basin, the Trade Not Aid program avoided exploiting native peoples and helped developing countries earn money selling renewable resources rather than destroying their habitat. The Body Shop's ethical practices also included aiding communities close to home. For example, the soapmaking factory the company founded in Glasgow returned 25 percent of after-tax profits to the economically depressed city. The retail store in New York's Harlem established a policy of giving 50 percent of store profits to local community groups. Other charitable activities included donating £230,000 in 1991 to start a weekly newspaper to be sold by the homeless in London.

The Body Shop fared just as well publicly as it had privately. In its first eight years on the London Stock Exchange, its stock price rose 10,944 percent. Between November 1986 and November 1991, investors realized a 97.2 percent annual return. In 1991, sales were up 46 percent from the year before to $238.4 million; net profits were $26.2 million, up 71 percent from the previous year. The company's notoriety also increased dramatically. Profiles of Roddick appeared in numerous magazines, from People to Forbes. The company was cited in Business Week as a pioneer in marketing. The magazine explained The Body Shop's appeal as follows: "Typical Body Shoppers are at the back of the baby boom, a skeptical group. They distrust advertising and sales hype, demand more product information than their elders, and are loyal to companies they consider responsible corporate citizens."

The Body Shop Enters the U.S. Market: 1988

The Body Shop opened its first stores in the United States in 1988; all were owned directly by the company. Deciding that the company needed to first adjust to the new market, particularly to selling in shopping malls, Roddick postponed franchising any stores until 1990. The first franchise opportunity prompted 2,000 applicants, whom Roddick screened through a written questionnaire, asking such unconventional questions as what books and movies the applicants liked and how they would want to die. "I want people who are politically aware and want a livelihood which is values-led," Roddick explained in Working Woman.

In the autumn of 1993, The Body Shop opened new headquarters in Raleigh, North Carolina, to help manufacture and distribute its U.S. product lines. The new facility was needed to reach and support the company's goal of 500 stores in the United States by the year 2000. Sales figures in 1994 supported that vision of aggressive growth. Sales in the United States had grown by 47 percent in the first half of fiscal 1994 to $44.6 million, with profits up 63 percent to $1.9 million. However, Allan Mottus, a U.S. cosmetics industry consultant, warned in Working Woman that The Body Shop would have difficulty in the coming years: "Opening new doors is one thing. Sustaining business is another. Americans are not as brand-loyal as Europeans. They will look at products and price."

Such competition was already challenging The Body Shop by the mid-1990s, both in the United States and elsewhere. H2O Plus, Goodebodies, Bath & Body Works, Origins, and Garden Botanika were also offering natural products in simple packaging but usually for a lower price. The company's two first major competitors appeared in 1990. That year, Estee Lauder Inc. introduced Origins, a product line with natural ingredients packaged in recycled containers. Leslie Wexner, owner of the Limited, opened Bath & Body Works in the United States in the fall of 1990; 18 months later he had 100 stores grossing $45 million. Although Roddick brushed off many of the U.S. lookalikes as too small to be a threat, she sued Wexner for copying her stores too closely. "It was becoming confusing between the two businesses," Gordon Roddick explained in Working Woman, noting that Body Shop customers "were bringing in Wexner's containers to be refilled." Roddick reports having settled with Wexner out of court. However, Bath & Body Works continued to pose a threat to The Body Shop in both the United States and England, where it opened its first shop in the fall of 1994.

In 1994, L'Oreal entered the natural-style product market with its Planet Ushuaia line of deodorants, shampoos, and other personal care products. Like Bath & Body Works, L'Oreal copied the bright coloring of The Body Shop packaging and emphasized exotic ingredients. The same year, Procter & Gamble, with its vast resources, also entered the fray with their purchase of Ellen Betrix, a German company that had introduced Essentials natural cosmetics early in 1994.

The Body Shop's phenomenal growth slowed somewhat in 1992. Fiscal 1993 profits (the company's year ends February 28) were down 15 percent from the previous year, from £25.2 million to £21.5 million. Roddick criticized dissatisfied investors in Working Woman as "speculators who make their money off buying and selling. That is where the greed factor comes in. They expected us to make £23 million. Tough--we made £21 million." However, the company seemed to recover some of its momentum the following year: pretax profits for the first half of fiscal 1994 were £10 million, a 20 percent increase over the same period in 1993.

Falling Victim to Bad Press: 1993-94

The Body Shop faced other problems in the first half of the 1990s, as its reputation as a socially responsible company was repeatedly challenged. The first attack came from a British television program entitled "Body Search," which accused The Body Shop of misleading customers with its "Against Animal Testing" product label. The Body Shop's policy, designed as an incentive for companies to eliminate their animal testing, rejected ingredients that had been tested on animals in the previous five years. The television program, however, charged the company with using ingredients that had been tested on animals. The Body Shop brought suit in the summer of 1993 and won £276,000 in damages.

Although the company won their suit, the battle had focused attention on The Body Shop's ethical record and inspired additional criticism. Cosmetics competitor Goodebodies tried to distinguish themselves by pointing out that, unlike The Body Shop, they did not use any animal by-products, such as tallow from pigs to make soap. The Body Shop responded, however, that it only used by-products from the meat industry and that it provided customers with information in the store if they wished to choose products with no animal ingredients.

Questions about the company's integrity continued in the summer of 1994, when it was reported that the U.S. Federal Trade Commission was investigating The Body Shop for exaggerated claims of helping developing nations and for alleged pollution from a New Jersey warehouse. The investigation, combined with the company's slowing growth, led Franklin Research & Development, an investment fund that dealt only with socially responsible companies, to sell 50,000 shares. That in turn led to a stock price drop of 11 percent in the next two weeks. Although the stock price stabilized soon thereafter, the company remained in a defensive position.

In the mid-1990s, the company showed signs of changing some of its long-standing policies, such as its refusal to advertise. From 1976 until 1994, The Body Shop used window displays, catalogs, and point of purchase product descriptions to attract and inform customers. In 1994, however, Anita Roddick appeared in an American Express commercial, talking about the company's Trade Not Aid program. Later that year, the company placed its first "advertorial" in the magazine Marie Claire. This eight-page spread offered a discussion of the Body Shop Book on personal care techniques and products. In addition, the company was considering further "advertorials" or television "documercials" for the Trade Not Aid products that would focus on the stories and people behind the products. Angela Bawtree, The Body Shop's head of investor relations, explained the company's apparent change of attitude toward advertising in an October 1994 article in Advertising Age: "It would be wrong for people to think we have some kind of moral problem with using advertising. But using glamorous images or miracle cure claims--those kinds of things you won't see us doing." As of late 1994, the company had no plans to hire an advertising agency.

In the mid-1990s, the company increased its focus on international expansion. Same-store sales in the United Kingdom, The Body Shop's most mature market, declined 6 percent in fiscal 1993 and were stagnant in fiscal 1994. New international stores seemed the key to continued growth, and Gordon Roddick specifically targeted Germany, France, and Japan for expansion. In early 1994, Germany had 39 stores and Japan had 17, and Roddick believed that each of these countries could support 200 stores. In addition, The Body Shop opened its first stores in Mexico in 1993.

"We think the limit for the number of stores we can have globally is more than 3,000," Gordon Roddick said to Working Woman in 1994. He also commented that "in three years we will see the company's worth hit $1 billion." This statement was supported by a 1994 report from NatWest Securities, which expressed "confidence that the international growth potential (over 2,000 stores in year 2000) cannot only be realized, but also translated into healthy profits."

The Body Shop Falters: Late 1990s and Beyond

Gordon Roddick's speculation, however, was not fulfilled. While The Body Shop had indeed experienced stellar growth throughout the 1980s and early 1990s, it appeared unable to concoct a strategy strong enough to overcome increased competition in the industry. As a result of weakening sales--especially in the United States--and faltering profits, The Body Shop spent much of the late 1990s and beyond restructuring and revamping business operations. In 1997, the firm announced that it would discontinue certain lower-priced merchandise in an attempt to attract a more upscale clientele. Then in 1998, Patrick Gournay was named CEO while Anita Roddick became co-chairman with her husband. The company commented on the management changes in a 1998 WWD magazine article, claiming that "the task of realizing our strategic plan and developing the brand without losing the nonnegotiables surrounding its philosophy and business ethics will be challenging. We have taken the view that this will not be achievable without substantially strengthening our top management team."

During that year the company also entered into a joint venture with the Bellamy Retail Group LLC to oversee its United States-based operations. At the time, The Body Shop had reported a loss of $2.8 million from its U.S. stores while sales fell by 2.1 percent over the previous year. Sales in the United Kingdom were also weak and its Asian operations were also suffering due to economic difficulties in the region.

The restructuring moved ahead in 1999 as the company continued to report losses. In an effort to win back profits, The Body Shop exited the manufacturing sector to focus on its retail operations. It also sought to improve its product time-to-market, slash operating costs, and decrease the number of franchise-owned stores. Management was also reorganized into four main geographical segments including the United Kingdom, Europe, the Americas, and Asia.

Despite the restructuring efforts, problems continued for The Body Shop as it entered the new millennium and the firm began feeling out possible sale and merger options. A May 2001 Marketing article suggested that during the 1990s the company had "rested on its laurels while top management allowed itself to be diverted by wider global issues. It is paying the price, both in the United States and the United Kingdom, where Boots, Superdrug, and new entrant Lush have made significant in-roads." As management worked to gain back this lost market share, the firm continued to report losses. In 2000, pre-tax profit fell by 21 percent over the previous year due in part to low profit margins on new products and mismanaged inventory levels that led to high warehouse costs.

Changes continued in 2002 when the Roddick's stepped down as co-chairs but remained non-executive directors. At the same time, Gournay resigned after his restructuring efforts failed to restore The Body Shop's financial record. In fact, according to a 2002 WWD article, Anita Roddick publicly claimed that under his leadership, The Body Shop had "lost its soul." Adrian Bellamy was named executive chairman and Peter Saunders took over as CEO--both men had led firm's North American operations. Under direction of this new management team, The Body Shop announced that it was no longer for sale. Whether or not Bellamy and Saunders would be able to boost the company's fortunes and restore it to its former glory of the 1980s and early 1990s, however, remained to be seen.

Principal Competitors: Bath & Body Works Inc.; The Boots Company plc; The Estee Lauder Companies Inc.

Chronology

• Key Dates:
• 1976: Anita Roddick opens a small shop that sells natural-ingredient cosmetics.
• 1977: Anita Roddick's husband Gordon Roddick joins the company, and the couple decide to franchise the operation.
• 1984: The Body Shop goes public with 138 stores in operation.
• 1987: The Trade Not Aid program begins.
• 1988: Body Shop stores are opened in the United States.
• 1993: The company files suit against a television program that claims it uses products that have been tested on animals.
• 1994: The Body Shop begins using traditional methods of advertising for the first time.
• 1998: Patrick Gournay is named CEO; the company forms a United States-based joint venture with the Bellamy Retail Group LLC.
• 1999: The company stops manufacturing as part of a restructuring program.
• 2002: Anita and Gordon Roddick step down as co-chairs of the company.