February 22, 2024

The Body Shop submits intention to appoint administrators | Retail

When Anita Roddick sold The Body Shop in 2006, she not only left behind a thriving cosmetics and skincare empire, but she also left behind living proof that a company could follow strict ethical guidelines and still make healthy profits.

But on Monday the private equity firm submitted its intention to appoint administrators.

The process is likely to lead to dozens of store closures, putting jobs at risk and a crucial source of sales for a global network of small farmers and producers.

Such a fate seemed impossible when L’Oréal agreed to pay £652 million for the company, a deal that saw Roddick – along with husband and business partner Gordon – relinquish control just 18 months before her death.

The decision to sell to a global company left many loyal customers baffled.

Roddick had opened her first store in Brighton in 1976 and quickly expanded through a franchise model and adhered to strict moral principles.

In an industry dominated by lab-tested, synthetic products, shoppers flocked to a brand that not only eschewed corporate rapacity but also actively campaigned against animal testing and for ethical supplier relationships.

The challenging challenge to corporate and social norms made Roddick one of the most recognizable figures of the 1980s.

Mark Constantine, a former supplier to The Body Shop who went on to found rival Lush, told the Guardian he was left “inspired and terrified” by Roddick’s combination of iron principles with whip-smart business acumen.

“She did things that no one else had the guts or balls to do. I don’t think it’s a B corps [the ethical business standard] would exist without The Body Shop,” he said.

For Constantine, not to mention customers and suppliers, the ethos of The Body Shop’s new owner, French global company L’Oréal, was a world away from its roots.

The Body Shop was one of the pioneers of cruelty-free cosmetics, but it took L’Oréal until 1989 to stop testing its products on animals. The then new owners also changed the business model, moving production to the Philippines and focusing on discounts to boost sales.

Nick Hoskyns has been supplying The Body Shop with sesame oil from the Juan Francisco Paz Silva cooperative in Nicaragua for over 25 years. He said L’Oreal has at least tried to uphold the brand’s principles after paying top dollar for it.

“But you can’t say it was ever the same,” he said. “There was that radical activism that Anita and Gordon brought with them. As soon as it becomes more commercial, that will change.”

However, after the takeover of L’Oréal, the brand and business operations survived for several years.

The smell and feel of famous products such as white musk and body butter remained irresistible to regular customers and people in the beauty industry, such as model Lily Cole.

When the company was sold again in 2017, it remained solidly profitable, growing sales worldwide through a network of more than 3,000 stores.

L’Oréal achieved a notional return on its investment, even taking inflation into account, and received an £880 million fee from Brazilian buyer Natura.

The São Paulo-based company specialized in “direct sales” and relied on distributing its makeup and skin care products through independent sales representatives. It would buy perhaps the best-known exponent of this model, Avon, in 2020.

The Body Shop was a very different beast, with its expensive high street stores and its high-quality ingredients sourced from a network of small producers. It began to buckle under the weight of the changing economic conditions affecting the high street.

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Sales fell in the key US market, while inflation pushed up costs and limited customer purchasing power. Natura’s efforts to pull the company out of the crisis did not bear fruit.

Sales in 2022 fell from £487 million to £408 million, turning a profit of £10 million into a loss of £71 million. Last fall, Natura was looking for a buyer.

German private equity firm Aurelius stepped in and appeared to take advantage of Natura’s desperation by acquiring the company for £207 million, less than a quarter of what Natura paid six years earlier.

If the deal seemed too good to be true, a source familiar with the acquisition said, that’s because it was.

Natura’s eagerness for a quick sale may have meant a lower price tag, but it also made for a much shorter-than-normal due diligence process, the comprehensive process that companies considering an acquisition use to kick the tires before buying the car.

Aurelius, who specializes in the recovery of failing businesses, was in charge of The Body Shop for just five weeks. At the time, the company failed to identify that it was dangerously low on working capital, the money a business needs to finance its day-to-day operations.

The Christmas and January turnover did not bring any relief and turned out to be lower than hoped.

Whatever future The Body Shop has will be swept away under the supervision of an administrator, with accountancy firm FRP Advisory appointed within days.

The Body Shop employs more than 2,000 people in Britain and has more than 200 stores in Britain and Ireland, compared to around 100 at Lush and even fewer at L’Occitane.

When asked if Lush would look to acquire any of these sites, Constantine said this was unlikely. He expects The Body Shop’s store network to shrink by around half. “It’s terrible from an employment perspective,” he said.

Hoskyns was en route from Nicaragua to Germany to a conference of other small Fairtrade suppliers, many of whom now face great uncertainty as a major customer teeters on the brink. He thinks the company’s decline is a cautionary tale.

“Activist Fairtrade companies are not safe in the hands of commercial people,” he said. “I hope there will be a solution. Capitalism must show that it can come up with the goods.”

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