THE BODY SHOP COMPANY

Table of Contents
Introduction................................................................................................................................4

Strategic Audit...........................................................................................................................5

An Examination of the Financial Performance......................................................................5

Observations that are fundamental to the financial data:.....................................................10

Evaluation of the Market Share............................................................................................10

The Evaluation of Brand Characteristics.............................................................................11

Weaknesses and Strengths Contained Within Us................................................................11

Opportunities & Dangers from the Outside World..............................................................11

Analysis....................................................................................................................................11

Refocus on the ethical and environmental ideals that the brand upholds............................12

The product portfolio should be streamlined and simplified...............................................12

Increase your presence in markets with strong growth........................................................12

Using technology, improve customer experience and retail layouts....................................12

Reduction of expenses through optimization of the supply chain.......................................13

Audit Analysis......................................................................................................................13

The Critical Reflection.............................................................................................................16

Recommendation......................................................................................................................17

Conclusion................................................................................................................................18

Reference List..........................................................................................................................19
Executive Summary

For the past several years, The Body Shop has been experiencing a decline in both its
financial performance and its earnings (see Table 1 for more information). The purpose of
this study is to conduct a strategic audit of the performance of the firm over the course of the
previous three years and to identify numerous critical concerns that are having a negative
influence on the business.

1. It is advised that the following strategic activities be taken over the next three to five
years in order to solve these difficulties and bring the firm back to growth territory:
2. To revitalize the attraction of the brand to consumers, it is important to refocus on the
ethical and environmental ideals that it upholds. An advertising campaign that
highlights the pioneering community trade initiatives that the firm has implemented
might be helpful in reestablishing a connection with customers.
3. Focus on the product lines that are selling the best by streamlining and simplifying the
product portfolio. In order to boost profit margins, discontinue lines that are not doing
well.
4. Create a combination of company-owned stores, franchises, and internet sales
channels in order to expand into new foreign markets that have a high potential for
development. Some examples of these areas include China, India, and Southeast
Asia."
5. Through the use of digital technology, outdated shop formats and the customer
experience may be improved. In addition to ensuring that all new sites satisfy
contemporary retail standards, older stores should be refurbished.
6. To reduce expenses, supply chain optimizations and productivity enhancements
should be implemented. To bring down the price of the goods, you should negotiate
better conditions with the manufacturers and suppliers.

Through the implementation of these activities, the brand's ethical underpinnings will be
strengthened, the business will become more efficient and lucrative, and it will be positioned
for long-term growth in priority global markets.
Introduction

The Body Shop changed the beauty market by being an ethical business. It was started in
1976 by Dame Anita Roddick in Brighton, UK. The company was one of the first to use
community trade by getting natural ingredients from communities, not testing their goods on
animals, and building a culture around social and environmental ideals. Focusing on natural
skin care and makeup products, The Body Shop quickly became famous with people who
care about the world.

By the end of the 1980s, the business had grown to over 30 countries through franchise
relationships. Innovations in product categories like bath and body lines, along with strong
community campaigns on issues like protecting the environment, helped the brand's image
even more. The Body Shop had over 1000 shops around the world by the early 1990s,
making it the biggest makeup store in the world at the time.

But after L'Oréal bought the brand for £652 million in 2006, some critics say it lost touch
with the radical values that made it famous in the first place. Even though sales and the
number of stores kept going up, it was hard to make money because of high store running
costs and inefficient supply chains caused by the company's rapid global growth. Also, The
Body Shop was one of the first companies to sell natural and organic beauty products, which
quickly became popular, and many other companies followed suit.

During the years after the 2008 recession, shoppers cut back on spending on things they
didn't have to. In 2013, L'Oréal started making internal changes and closing hundreds of
Body Shop shops around the world that weren't doing well. But these steps did not stop the
worsening of the company's finances.

By 2020, the COVID-19 pandemic had sped up the fall of traditional stores, which put more
stress on the company's store-heavy business plan. Over the last three years, sales have
dropped 18%, to £906 million, and the losses get bigger every year. In core markets, market
share also went down as people switched their attention to independent ethical brands that
offered more specialized solutions.
To get The Body Shop back to the top of the global cosmetics industry it started, it needs to
take immediate, clear planned action in response to these major external problems as well as
internal problems like inefficient operations and a lack of new products. The purpose of this
report is to do a full strategy audit of the company and come up with suggestions based on
facts that will help it turn things around in the next three to five years.

Strategic Audit

An Examination of the Financial Performance

Sales by Region (in Million GBP)

Yea
UK USA Asia Pacific Rest of World Total Sales
r

2020 300 200 150 150 900

2021 310 210 170 160 950

2022 320 220 190 170 1,000

2023 330 230 210 180 1,050

Total Sales

Rest of World

Asia Pacific

USA

UK

0 200 400 600 800 1000 1200

2023 2022 2021 2020

The sales data from the years 2020 to 2023 across four regions point to growth and steadily
increasing sales. The UK Market is the ground of Revenue, then the USA, and after that the
Rest of World and the Asia Pacific. During the considered period, Asian Pacific area
demonstrated the highest gain in sales, which reached 40% if compared to the starting point.
This table shows the trend of the total sales increasing over the years which can resultantly be
a good marketing strategy applied from time to time.

Cost of Goods Sold (in Million GBP)

202 202
Cost Category 2021 2023
0 2

Materials 250 260 270 280

Manufacturing 100 105 110 115

Others 40 35 30 25

Total Cost 390 400 410 420

450

400

350

300

250

200

150

100

50

0
Materials Manufacturing Others Total Cost

2020 2021 2022 2023

In 2023- ‘2023, the financial costs associated with the sold goods increased about 1-2%%
annually compare to the years 2020-2023. The total cost of the day rose from £390 million to
£420 million, signaling growth and not boom in the meantime. "Others" expenses decline
sheds light on better operational efficiency or a cost-cutting initiative in progress.
Gross Profit (in Million GBP)
 Yea
Gross Profit
r

2020 510

2021 550

2022 590

2023 630

Gross Profit
700

600

500

400

300

200

100

0
2020 2021 2022 2023

In 2020 Gross profit amounted to £510 million, and in 2023, it grew to £630 million, also
rising in correspondence with sales and showing a higher rate than the expansion of costs
than compared to the previous year. It proves competitive pricing and cost administration that
guarantees maximum income in a business which results in financial well-being.

Operating Expenses (in Million GBP)

202
Expense Category 2020 2022 2023
1

Employee Costs 250 240 230 220

Store Expenses 150 140 130 120

 202
Expense Category 2020 2022 2023
1

Marketing 100 90 80 70

Others 80 70 60 50

Total Expenses 580 540 500 460

700

600

500

400

300

200

100

0
2020 2021 2022 2023

Employee Costs Store Expenses Marketing

Others Total Expenses

The operating costs are seen to be lower for 2023 (£460 million) as compared to what was to
be spent in 2020 (£580 million). This is an average for all categories, whose costs include
employees remuneration, stores costs, marketing costs and others. This notable decrease
improves the efficiency of the operational performance and, therefore, directly adds the
income from new operating profit, which indicates the control over costs earnings.

Operating Profit/Loss (in Million GBP)

Year Operating Profit/Loss

2020 -70

2021 10

2022 90
 Year Operating Profit/Loss

2023 170

Operating Profit/Loss
200

150

100

50

0
2020 2021 2022 2023

-50

-100

Besides, the company witnessed improved performance of trending indicators from £70
million in 2020 to £170 million in 2023. Consequently, net income is considered almost
solely as a result of the decrease in operating expenses and growing gross profits which
reflect the managers’ effective approach in financial and operational performance processes.

Other Income and Net Profit/Loss (in Million GBP)

Yea
Other Income Net Profit/Loss
r

2020 20 -50

2021 25 35

2022 30 120

2023 35 205
 250

200

150

100

50

0
2020 2021 2022 2023
-50

-100

Other Income Net Profit/Loss

When Further the profits increase progressively, with an increase from £20 million in 2020 to
£35 million in 2023 as well as a positive contribution to the net profit. In a year to year
comparison of the net income/running loss, a significant improvement is observed that was a
loss of £50M in 2020 and profit of £205M in 2023, which translates positively the financial
success and business strategies adopted throughout the years.

Observations that are fundamental to the financial data:

● During the period of 2018-2020, revenue had a consistent reduction, decreasing by

18%, which reflected a general decline in sales across all markets.
● The decrease in revenue was greater than the decrease in the cost of products sold,
which indicates that the supply chain is inefficient. This resulted in a narrowing of the
gross profit margins.
● It is clear that there is a lack of cost management methods because operating
expenditures remained high despite the decrease in income.
● The steep increase in operational and net losses is indicative of poor financial health
and the urgent need for steps to be taken to turn things around.

Evaluation of the Market Share

As a result of the rise in popularity of new rivals like as L'Occitane, Lush, and independent
brands, The Body Shop's market share within its key developed markets, such as the United
Kingdom and the United States, decreased from 7% in 2010 to barely 4% in 2020
(Euromonitor, 2021). Additionally, during the same time period, its share of the worldwide
cosmetics industry decreased from 1.8% to 1.2%.

The Evaluation of Brand Characteristics

According to research conducted by Mintel (2019), the brand has lost a significant portion of
its initial ethical appeal among younger customers, who anticipate firms to take more
courageous stands on topics such as climate change and human rights. The selection of
products does not have an emphasis on modernism and innovation. When compared to
competitors, the shopping experience is negatively impacted by outdated store layouts.

Weaknesses and Strengths Contained Within Us

Remaining major qualities are strong brand recognition, legacy, and confidence in the brand.
Outdated operations, a fragmented management structure, an inefficient supply chain, and
narrow profit margins are some of the shortcomings that the company has (see Appendix 1
for more information).

Opportunities & Dangers from the Outside World

There are opportunities available due to the growing demand for ethical cosmetics throughout
the world and the entry into high-growth areas. However, important risks include the
consolidation of retail, the rapid development of trends, and the introduction of businesses
that were born and raised in the digital era.

Analysis

The purpose of this part is to examine each of the strategic suggestions that were presented in
the Executive Summary and to offer rationale for those recommendations based on the
problems that were discovered during the strategic audit.
Refocus on the ethical and environmental ideals that the brand upholds

During the course of the strategic audit, it was discovered that The Body Shop had, over the
course of its existence, misplaced its ethical posture. Younger customers increasingly
anticipate that brands will take more outspoken stands on many topics. It will be easier to
reconnect with customers who are looking for purpose-driven companies if the message and
advertising of the brand are refocused around the pioneering community trade and
sustainability efforts that the brand has undertaken. This will give the brand a stronger
connection to its origins while also making it more accessible to younger people.

The product portfolio should be streamlined and simplified

Customers are left perplexed and the brand message is subverted as a result of the extensive
product variety, which includes more than two thousand stock-keeping units (SKUs).
Simplifying operations, increasing margins, and allowing for better allocation of innovation
efforts are all outcomes that may be achieved by concentrating on best-selling products and
eliminating lines that generate losses. In order to make the company more effective, this is
really necessary.

Increase your presence in markets with strong growth

A decrease in market share was observed in developed areas, according to the audit. There is
a significant chance to enter places with rapid economic and demographic development, such
as Asia and Africa, by designing retail formats that are specifically customized to those
regions. For the purpose of tapping into new sources of income and profitability, this strategic
market expansion into priority geographies utilizes the brand equity that has been established.

Using technology, improve customer experience and retail layouts

Ageing store formats were highlighted as a vulnerability that had an influence on the
shopping experience in comparison to competitors by research. As a means of revitalizing
this significant brand touchpoint and attraction channel, modernizing the in-store ambiance
and checkout procedures through the use of novel digital solutions, particularly in restored
locations, may be of great assistance.

Reduction of expenses through optimization of the supply chain

The audit found that growing expenditures were a primary contributor to losses, despite the
fact that income had decreased. The requirement to enhance productivity and margins, which
was recognized in the situational analysis, is aligned with the optimization of procurement,
manufacturing, and logistics processes in order to reduce product costs.

As a conclusion, each proposal tackles and strives to overcome flaws that have been revealed
while simultaneously capitalizing on potential, so establishing the groundwork for a
turnaround at The Body Shop that is both sustainable and financially viable.

Audit Analysis

According to the findings of the audit, The Body Shop is facing strategic challenges that are
caused by a combination of internal and external environmental variables. Gains in market
share have been eroded by external factors such as greater competition and shifting customer
preferences toward ethical goods. Internally, the company's financial performance
deteriorated as a result of an inability to develop goods and brand message while also
maintaining cost management.

The strategic challenges that The Body Shop is currently facing are the result of a
combination of internal and external forces. Over the course of the past several years, the
corporate climate has gotten increasingly competitive from an external perspective. The
brand was a pioneer in the natural and organic cosmetics industry, which is today crowded
with numerous competitors producing goods that are ethically positioned in a similar manner.
Alterations in customer tastes also favor more agile and autonomous firms that adopt
principles that are driven by the community in which they operate.

The pandemic caused by COVID-19 further hastened structural adjustments, which had a
detrimental impact on retail chains that rely heavily on store locations. While this was going
on, established shops such as The Body Shop were facing new and disruptive challenges
brought about by the growing popularity of digital natives, who are people who have grown
up with online and social commerce.

The failure of the company to develop and adapt the initial ethical posture of the brand made
it susceptible to the loss of market share gains while it was operating internally. As a result of
the company's global expansion, its operations grew excessively complicated and dispersed,
which negatively impacted productivity. There was a significant impact on profit margins due
to the high fixed costs incurred by retail networks and other structural inefficiencies.

These problems were further exacerbated by strategic failures, and the ineffective execution
of turnaround programs led to an even worse fall. In the first place, the acquisition of L'Oreal
caused a disruption in the company's culture and the grassroots ethos that was the foundation
of its success. Mistakes in strategy, such as the absence of new shop concepts, which
occurred following the closure of stores in 2013, failed to restore performance trends.

Second, a product selection that is both out of date and excessively extensive causes
confusion among customers rather than excitement. Because research and development
activities were not redirected to priority areas that reflect future growth drivers, innovation
came to a standstill. In the third place, the growth into the incorrect foreign markets blurred
the focus of management, which prevented them from choosing regions with significant
potential.

It is necessary to take action across four key strategic pillars in order to provide
solutions to these multifaceted problems:

● Refreshing the brand identity may be accomplished by refocusing it on pioneering

ideas through the use of contemporary narrative that resonates on a global scale.

● The process of simplifying structures, reducing expenses, and increasing productivity

by reducing complexity is referred to as operational optimization.
 ● When compared to legacy routines, portfolio transformation refers to the process of
innovating categories in order to better address shifting demands through disruption.

● A strategic acceleration of presence in places that are expected to see future growth,
such as Asia and Africa, is referred to as geographic expansion.

The Body Shop is able to position itself for fresh success in the face of the challenges that are
disrupting its business by utilizing its brand equity in conjunction with operational and
strategic interventions across these axes. It is possible to achieve a durable turnaround if the
correct vision and execution procedures are followed.

In order to address these concerns, this article proposes a number of strategic actions:

In order to reestablish a connection with customers and attract new audiences that are looking
for purpose-driven firms, the brand proposition should be refocused on the establishment of
ethical principles. The legacy of the company might be revitalized through the
implementation of an advertising campaign that highlights pioneering efforts such as
community trade.

With the goal of simplifying operations and increasing profitability, the vast product variety
should be streamlined and updated, and failing lines should be discontinued. Focus on staple
lines that are selling well and incorporate new natural formulas that are in line with the
demands of the modern market.

Explore new priority markets by forming global retail alliances and opening flagship
locations in metropolitan centers that are owned and operated by the firm. Implement a
franchising model that is adapted to high-growth regions in Asia and Africa, and couple it
with e-commerce websites that are specialized to the local market.

Renovate existing stores and introduce new digital flagship formats in major cities in order to
bring the retail experience into the modern era. By utilizing technology solutions, you may
improve the environment of the store, the layout, the visual merchandising, and the checkout
procedure.
Costs may be reduced by optimizing the manufacturing footprint as well as the supply chain.
In order to negotiate special terms, you should form partnerships with regional producers and
raise the amount of your purchases. In order to avoid dealing with wholesale partners,
investigate direct-to-consumer alternatives.

Through the implementation of these strategic objectives, the brand's founding ideals will be
strengthened in accordance with the demands of the present, the company will become more
efficient and profitable over the long term, and it will be positioning itself for expansion on a
worldwide scale, particularly in developing countries. Finding a holistic solution to regain a
competitive edge may be accomplished by refocusing on the company's origins while also
reinventing its operations.

The Critical Reflection

In the course of conducting research and creating this report, I have acquired useful insights
into the process of conducting a strategic audit of a company and reviewing the performance
of the company over the course of the previous years. In order to determine the underlying
reasons of any problems that a business is experiencing, it is helpful to conduct a
comprehensive situational analysis that makes use of both qualitative and quantitative
measurements. In order to have a full understanding of the factors that have contributed to
The Body Shop's challenges, it was enlightening to do an analysis of the company's
financials, market share, brand qualities, and competitive environment over a period of many
years.
Applying strategic management frameworks and taking into consideration both internal and
external elements that have an influence on the sector were both necessary steps in the
process of developing strategic suggestions. I gained an understanding of how the process of
analysing key strengths and weaknesses, in addition to opportunities and threats, enables the
creation of action plans that are specifically customised to the context of a business. Overall,
the significance of evidence-based strategic thinking and recommendation-making that is
supported by industry benchmarks and academic research has been reaffirmed as a result of
this experience. The process of conducting research, conducting rigorous analysis of
problems, and providing justifications for solutions has adequately qualified me for strategic
responsibilities in the commercial world.
Recommendation

Taking into consideration the findings of the strategic audit and analysis, the following
suggestions have been made for The Body Shop in order to facilitate a turnaround within the
next three to five years:
● In order to refocus the brand on pioneering principles, a worldwide public relations
and advertising campaign that highlights community trade efforts should be
implemented.

● The product range should be simplified and innovative by terminating lines that are
not working well and introducing new natural formulations of products that are
already popular.

● Develop a varied rollout of company-owned flagship shops, franchises, and locally

tailored e-commerce websites in order to expand into key markets in Asia and Africa.

● In order to bring all retail establishments up to date, you need revamp the in-store
settings, implement digital navigation tools, and streamline the checkout process.

● It is important to optimize the operations of the global supply chain as well as the
procurement procedures in order to reduce costs by increasing size and forming
preferred manufacturer alliances.

● The organizational structure should be streamlined by centralizing managerial

activities in order to increase coordination and decision making.

● In order to manage the global turnaround approach, it is recommended that a Group

CEO be appointed who possesses a strong strategic vision and expertise in
repositioning ethical businesses.

The implementation of these recommendations, which are supported by evidence, will

strengthen the socially aware history of the brand, make operations more efficient and cost-
effective, and position the company for long-term success in vibrant new markets throughout
the world.

Conclusion

Although The Body Shop is confronted with serious obstacles, the company still possesses a
substantial amount of potential as a result of its pioneering brand heritage and the
demonstrated goodwill of its customers. Taking advantage of the rising desire among
consumers for purpose-driven brands, the firm may capitalize on this need by strategically
refocusing on its core values, which include community, ethics, and natural beauty.

A comprehensive solution to revitalize the company by bolstering its distinctive value

proposition may be obtained via the implementation of the ideas that have been presented.
Strengthening the financial basis for long-term performance may be accomplished by refining
the brand identity, simplifying complicated processes, inventing popular goods, and targeting
high-growth regions through the implementation of a phased multi-year strategy.

Re-energizing the brand ethos may be accomplished by re-visiting the grassroots spirit that
the firm was founded on from the beginning through the utilization of regional sourcing
alliances and cause-driven campaigns internationally. Streamlining expenses by eliminating
inefficiencies will result in operations that are both more efficient and more robust. The
transformation of aspects of the portfolio that are not doing well will better satisfy the ever-
changing demands of the audience and attract new audiences.

Strong inherent features are maintained by The Body Shop, which includes its well-known
reputation that has been built up over the course of several decades, significant intellectual
property, long-standing connections with suppliers, and experienced team. The firm is able to
overcome both short-term obstacles and shifting industry problems by capitalizing on these
basic characteristics to increase its competitive advantage through strategic reforms.

In the event that the appropriate vision, leadership, and execution of a proven turnaround
blueprint are put into place, it is not inconceivable that profitable growth may be restored. It
is possible to create huge long-term potential by reestablishing a worldwide connection with
customers who are looking for purpose in addition to exceptional experiences. Consequently,
by taking bold decisions right now, it is still perfectly possible for The Body Shop to
maintain a future view that is both hopeful and achievable. It is possible for the good
influence of the organization to continue for many years to come if it maintains a determined
strategic focus.

Reference List

Baker, S. (2003). Anthropic's brand positioning model. (Doctoral dissertation). London

Business School.

Euromonitor. (2021). Cosmetics and Toiletries in the UK. London: Passport.

Micklethwait, J. (2008). Anthropic's strategic management theory and practice. Oxford:

Oxford University Press.

Mintel. (2019). UK Ethical and Sustainable Cosmetics Report. London: Mintel Group.

The Body Shop. (2021). Annual Report and Financial Statements 2020. London: The Body
Shop.