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ASSESSMENT 2: INDIVIDUAL WRITTEN REPORT [Weight 20%] OPERATIONS MANAGEMENT [BG011] MASTER OF COMMERCE [January - March 2013]

Business Case Analysis: The Body Shop International


By: Joyce Ann Cruz Mayo [001CM712] Supervised by: Randall J. Almquist

Presented to The Faculty of the Department of Business Submitted: February 14, 2013

EXECUTIVE SUMMARY

The Body Shop International is considered to be one of the pioneers in promoting ethically sourced products in the modern context, it has a built a strong corporate social responsibility program before it created a household name brand. More often than not, business ethics are often overlooked by entrepreneurs who tend to focus more on marketing, sales, innovating products and earning profits. Ethically running an organization is important but more crucial and sensitive as it can create positive image of the company and at the same time create a serious damage in operating a business. This paper presents how critical it is to operate a company which publicly promotes and presents itself as an ethical or green company; this paper also presents how changes in the environment impacts operations practices of an organization. A brief business review is conducted to identify the critical environmental changes which affected and will affect The Body Shop Internationals business practices. Selected secondary sources were used, presented and analysed to identify key issues to be able to provide possible steps in addressing the concerns to gain or sustain operational efficiency and maximize competitiveness of the organization.

TABLE OF CONTENTS

Page Executive Summary Table of Contents i ii

Introduction The Body Shop Brief History Rapid Growth The Decline: Critical Environmental Changes and Issues and its Implications Conclusion and Recommendations Reference List Appendices Overview of Environmental Changes SWOT Analysis Assessment Brief turnitin similarity Index Page Marking Scheme Sheet

1 1 2 2 3 6 8

Introduction

The Body Shop International PLC, is a UK-based company which manufactures and retails beauty and cosmetic products internationally and constitutes about 4 percent of LOreals net sheets (Trefis, 2011). The company has operations in the United States, Australia, Canada and franchise operations in South Africa and Asia. The Body Shop (TBS) was regarded as one of the innovators of modern corporate social responsibility (CSR); it was strongly linked to the social involvement of its founder and the strong ethical commitments and ethical practices of the brand (Carroll & Buchholtz, 2008). TBS addresses the main components of CSR, campaigns against animal testing, developing community fair trade, campaign for human rights, activating self-esteem and protecting the planet (Roddick A. , Body and Soul, 1991). It was performing as a very promising and strong player in the cosmetics and body care market until its decline in the 90s where the company was faced with a lot of issues which affected the growth and expansion plans of the company (Carroll & Buchholtz, 2008).

Brief History

The first The Body Shop branch was founded in 1976 at Brighton, England by Anita Roddick (Roddick A. , Business as Unusual, 2000). Based on her own experiences as a consumer, she noticed that she cannot get hold of smaller sizes for her body care products and also a lot of the money she is paying for is due to the fancy packaging, during her travels around the world, she found out that a lot of women globally cared for their bodies effortlessly using natural resources without having to purchase a single cosmetic (Roddick A. , Body and Soul, 1991). Anita opened a small shop to sell a range of cosmetics (facial cream and lotions) made from natural ingredients (vegetable, flower and fruit based products) in different plastic container sizes. Their nontraditional products were sold a little more costly compared to its counterparts, but positioned to be slightly affordable compared to other labels. As the business grew, they started sourcing raw materials all over the world focusing on small communities (Roddick A. , Body and Soul, 1991). Anita received numerous awards and was also well recognized for her involvement with Greenpeace, and environmental projects such as Save the Whale and Against Animal Testing campaigns and social awareness movements like Stop Sex Trafficking and Be an Activist, which is about fighting HIV/AIDS (The Body Shop International, 2013). In 1990, it established TBS Foundation and has made agreements with organizations globally to fund human rights and environmental protection movements (Roddick A. , Body and Soul, 1991). In 2006, The Body Shop was taken over by the largest and leading cosmetic player LOreal, which Anita made 130 million from the sale (Carroll & Buchholtz, 2008). Today, TBS supports more than 300,000 marginalised people as part of their community trade partners in 20 countries, operates in 66 nations, offering more

than 1,200 products across its 2,600 branches worldwide (Heinze, 2012; The Body Shop International, 2013, The Body Shop Values Report, 2011).

Rapid Growth

A year after the first store was established; it opened a franchising model (The Body Shop International, 2013). TBS saw considerable growth in the 80s that branches were opening globally at the rate of 2 stores per month; by 1985 the company went public on the UK unlisted securities market (Roddick A. , Body and Soul, 1991). TBS grew remarkably from 1985-1990 from $1.4 million to 14.7 million; Anita was commended since she was able built an empire through the unconventional method of marketing and promoting cosmetic products (Corporate Crime Reporter, 1994).

The Decline: Critical Environmental Changes and Issues and its Implications

Although considerable growth was demonstrated by TBS during its early years, environmental changes and issues in the industry slowly affected its operations and brand image. 1. Stolen Concept Anita claimed that TBS is her original concept, on February 1995 Jon Entine exposed that she stole the concept of TBS (Carroll & Buchholtz, 2008). It was found out to be true and it was made public that TBS was not Anitas original concept; however, she gained the legal rights of the original store in 1987 at $3.5 million from a California based company where the store bears the same name and concept as The Body Shop (Hardy, 1994). This made it hard and it is still a task for TBS to penetrate that US market as the reputation prior to opening branches was already tarnished; it is still a challenge on how it can turn itself around and improve its visibility in the United States (Carroll & Buchholtz, 2008). 2. Quality Control and Global Issues TBS stocks fell from 3.75 to 3.33 per share on March 2006 due to allegations that TBS does not use all natural ingredients due to reports that it is a common practice among cosmetic companies to increase the amount of preservatives on their products due to global issues on contamination (Crime Reporter, 1994 Carroll & Buchholtz, 2008). This questions the credibility of TBS in giving the consumers products made from the most natural and finest ingredients. 3. Increasing Competitor & limited Market Share in the US - New entrants and existing competitors challenged TBS in the US, among these firms were Revlon, Bath and Body Works and Crabtree & Evelyn all of which are patterned after TBS store concept, however no one firm has dominated the segment which TBS has created (Carroll & Buchholtz, 2008). Nevertheless, these brands posed a lot of threat to TBS since they were all big players and well financed with a broad range of experience in retail and marketing. TBS only had a total of 40 stores in the United States by

1991; this limited their visibility and increased the opportunity for its competitors (Carroll & Buchholtz, 2008).

4. Acquisition of LOreal - The acquisition of TBS by LOreal resulted to mixed reactions, it was seen as a very controversial move as LOreal has never been identified as a green company and it has faced several criticisms for continuing to test certain ingredients on animals which contradict the strong ethical stand of TBS (Pitman, 2006).Customer Satisfaction slumped by 11 points from 14 (Milmo, 2006). How TBS can continue to wave the ethical banner when it is owned by a company which opposes its values was a big and is still is a big question for TBS loyal consumers, industry experts and animal rights campaigners (Pitman, 2006). 5. Recent Banning of Animal Testing in EU After 20 years of TBS and Cruelty Free Internationals campaign in banning animal testing, on March 11, 2013 all cosmetic products and ingredients through import and sale will be banned in Europe (EU Set to Ban Animal Testing for Cosmetics Forever, 2013). While this may be good news for TBS as it may instantly slim down the list of its competitors, it may also possess as a threat as more cosmetic companies will gradually adhere to the standards which may result to more competitors in the near future and would make their products less different than the other products in the market. 6. Rumours on LOreal Selling TBS to Rival - According to LOreal, The Body Shops performance is a poor fit and does not fulfil LOreals profit profile and strategy, the parent company plans to sell TBS to its rival, Lush (Crave & Potter, 2012). The image and culture of the organization will negatively be affected if objectives of reselling the brand will not be cascaded properly to its loyal consumers and employees.

Conclusion and Recommendations

Operating a company with CSR as its core competency is really critical, the company does not only need to observe and adhere to its internal operations, regulations and policies, instead, it is also vital to observe international policies and standards, adapt to industry changes, strictly follow government regulations and wisely choose and monitor activities of organization partners. It is important that the whole system looped in the organization is guaranteed that it observes the ethical procedures that the company reinforces; the suppliers as an example should be also attuned to the ethical practices of the company. The issues and changes in the environment which confronted TBS are very critical as it directly affect the credibility of the brand. Intangible resources are the best asset of TBS, the brand and the organization culture, that if compliance issues are not properly addressed it may lead to the companys collapse as CSR is their best edge in the market. TBS works in a complex system, from sourcing its raw materials from small communities, to CSR organization partners to operating in a franchise system. This limits their control on how these extended partners operate and will react to the environmental changes.

TBS has struggled over the past few years with its health & beauty market share dropping from 1.2% to 0.9%, 2007 and 2012 respectively (Datamonitor, 2013). However, TBS should start looking into longterm strategic planning especially complete banning of animal testing is gradually being implemented across the globe, as companies follow these standards an increase in the number of competitors will emerge in the near future. According to Datamonitor (2013), the cosmetic market is set to increase by 2.6% this year; this is an opportunity for TBS to maximize its capabilities to create a healthy lead in the market while current competitors are still aligning their product line with the current regulations. Below are the recommended actions to address the environmental changes and issues faced by The Body Shop and improve its operational efficiency and competitiveness; To address consumer needs and competitors: 1. Exploit LOreals Resources through; Research and Development TBS should continuously be challenged in introducing new products that are different and would make a difference to its consumers to earn a leverage in the cruelty free cosmetic market. Marketing and Public Relations LOreal is one of the biggest cosmetic manufacturer and distributor in the world, TBS can improve its global presence through LOreals experience in advertisement, marketing and its market reach by opening new channels in promoting its products and values. With the use of direct selling and e-commerce TBS will be able to reach new customers and new market segments which will can help boost its sales and expand its global presence.

To Improve Total Operations: Process Management 1. Upper Management: The upper management should be clear with their goals to be able to perfectly align the corporate strategy with its operational strategies. The core values of TBS has been proven to be effective in its early years, however, with the changing environment the organization should be able to be more flexible and highly responsive to the needs of the environment. This can only be done by setting clear goal and mission and by cascading it across the support system of the company for optimum operational efficiency. In making decision, the management should consider how their decisions (e.g. re-selling The Body Shop to a rival), will affect its shareholders and stakeholders. While running an ethical company is challenging, its main responsibility is to build maintain a positive public image. This good positive relations will provide potential benefits such as public awareness that TBS is a good place to work at which would contribute to a much higher community acceptance, and this may result to a positive perception of the society and consumers for future expansion plans. Brand and Customer Relations Management Continuously support and practice transparency in funding charities and campaigns which would make a difference and an impact to the stakeholders and shareholders this will help people gain positive perception and loyalty towards the brand.

Product Line Extension To address ingredients issues (chemicals, preservatives), TBS should strengthen their eco-conscious product line and apply it across all of its product range. This is to ensure consumers that all of their products meet the environmental criteria to be claimed as natural, ethically sourced and eco-friendly products.

2. Operational Processes: The core processes that make up the value stream of the company should be controlled, audit and ensure that it is aligned with the strategic goals and values of the company to address controversies. JIT Manufacturing By implementing this method, ingredient/preservative issues may be addressed; having to effectively forecast and manufacture products that are needed will lessen the need to add chemicals to extend the shelf life of the products. This will cut down excessive use and cost of unnecessary ingredients, at the same time address global ingredient issues. Supply Chain System This account for majority of the environmental impact, efforts to release carbon footprint in the supply chain system should be minimised. TBS must look into their SCM system and align its practices into their values-based system from the suppliers supplier down to the franchisees and customers. Strictly implement social audit to all partners through site visits, assessments and ensure that everyone included in the value chain is aligned with the companys principles, from employees, work process, products, waste management, scheduling and transportation and storage. This will not only address international standard adherence, it will also improve the quality of work, quality of products and deal with sustainability concerns.

3. Supporting Processes: Information Sharing - With the increasing importance of technology and globalization, it is a challenge for TBS to implement information sharing (inventory levels, etc.) due to its wide scope of supply chain activities from outsourcing ingredients from marginalised communities down to its franchisees. While it may be a challenge, they should look into possible ways where they can efficiently share information to improve its operation processes, maximise utilisation of resources, and improve responsiveness of the organization to meet the competitive pressure.

Reference List

Corporate Crime Reporter. (1994, September 19). Interview with John Entine. (2011). The Body Shop Values Report. The Body Shop, About Us. (2012). Retrieved February 1, 2013, from The Body Shop International: http://www.thebodyshop.com/content/services/aboutus.aspx EU Set to Ban Animal Testing for Cosmetics Forever. (2013, January 30). Retrieved February 5, 2013, from BUAV: https://www.facebook.com/photo.php?fbid=10152336413345332&set=a.10152336410375332.94 5586.391784765331&type=1&ref=nf The Body Shop International. (2013). Retrieved February 1, 2013, from The Body Shop Foundation: http://thebodyshopfoundation.org/ Carroll, A., & Buchholtz, A. (2008). Business & Society: Ethics, Sustainability, and Stakeholder Management. South-Western Cengage Learning. Crave, N., & Potter, A. (2012, October 7). L'Oreal is Ready to Sell High Street Chain The Body Shop. Retrieved February 1, 2013, from This is Money.co.uk: http://www.thisismoney.co.uk/money/news/article-2214108/LOreal-ready-sell-High-Street-chainThe-Body-Shop.html Creevy, J. (2012, October 8). L'Oreal Denies Body Shop is for Sale. Retrieved February 11, 2013, from Retail Week: http://www.retail-week.com/sectors/health-and-beauty/loreal-denies-body-shop-isfor-sale/5041550.article Entine, J. (1999-2011). The Body Shop File: Beyond "Shattered Image". Retrieved February 3, 2013, from Jon Entine: http://www.jonentine.com/the-body-shop.html Hardy, R. (1994, August 28). London Daily Mail. American Women Recalls The Heady Days of Her Happy Perfume Store and a 2.3m Deal with the Roddicks. Heinze, K. (2012, August 29). Five Years After Acquisition of The Body Shop. Retrieved February 2, 2013, from Organic News Community: http://oneco.biofach.de/en/news/case-study-five-yearsafter-acquisition-of-the-body-shop--focus--4c08ed79-01ac-4802-ab1f-dafea5304643/ Milmo, C. (2006, April 10). Body Shop's Popularity Plunges after L'Oreal Sale. Retrieved February 3, 2013, from The Independent: http://www.independent.co.uk/news/uk/this-britain/body-shopspopularity-plunges-after-loreal-sale-473599.html Pitman, S. (2006, March 22). L'Oreal's Body Shop Acquistion. Retrieved February 1, 2013, from Cosmetics design-europe.com: http://www.cosmeticsdesign-europe.com/Business-Financial/LOreal-s-Body-Shop-acquisition-meets-with-mixed-reaction

Relaxnews, A. (2013, February 1). EU Bans Animal Testing for Cosmetics. Retrieved February 3, 2013, from Times Live: http://www.timeslive.co.za/lifestyle/2013/02/01/eu-bans-animal-testing-forcosmetics Roddick, A. (1991). Body and Soul. Anita Roddick Publications Ltd. Roddick, A. (2000). Business as Unusual. Anita Roddick Publications Ltd. Roddick, G. (n.d.). Why We Sold The Body Shop. Retrieved February 1, 2013, from Growing Business: http://www.growingbusiness.co.uk/why-we-sold-the-body-shop.html Trefis. (2011, February 5). The Body Shop's Expansion to Further Strain L'Oreal's Margin. Retrieved February 3, 2013, from NASDAQ: http://www.nasdaq.com/article/the-body-shops-expansion-tofurther-strain-loreals-margins-cm56417#.UQ4C8aWTx4w Young, K. (2013, January 30). Animal Testing To Be Banned in Europe. Retrieved February 3, 2013, from Telegraph.co.uk: http://fashion.telegraph.co.uk/beauty/newsfeatures/TMG9837467/Animal-testing-to-be-banned-in-Europe.html

THE BODY SHOPS SWOT ANALYSIS


STRENGHTS Strong Brand Global presence Connection to political issues Reference to strong environmental issues First mover advantage L'Oreal's support Strong Philosophy: Mission and Vision Targets a niche market OPPORTUNITIES Product Development - Innovation Male grooming products Metrosexual Increasing market in e-commerce Ban of sale of animal tested products in EU LOreals experience and resources Fragrance Collection Franchising Increasing cosmetic market WEAKNESSES Product development Unstable political factors in the countries that supply raw materials Loss of trust from different stakeholders Distribution channels Problems in franchise system Fragrance Category THREATS Acquisition of L'Oreal Emergence of SME's - "naturally sourced" products Wide range of competitors Brand and Image comparison Suppliers are not required to adhere to ecological standards New legislation banning animal tested products and the marketing of such policy may raise the competition

OVERVIEW OF THE CRITICAL ENVIRONMENTAL CHANGES THAT LED TO THE DECLINE OF THE BRAND

YEAR

ISSUES / CHANGES The Stolen Concept

IMPLICATIONS Tarnished reputation in the United States, thought it has been more than a decade, TBS still struggles to find a healthy position in the US market Continuing problem like contamination, moulds and e. coli reported around the world required the use of large amounts of preservatives to give product stability and longer shelf lives, hence TBS faces issues on its products being natural Criticism that products were full of petrochemicals, were artificially coloured and fragrant and only a small amount of naturally sourced ingredient is added New entrants and existing competitors challenged TBS in the US, among these firms were Revlon, Bath and Body Works and Crabtree & Evelyn all of which are patterned after TBS store concept Satisfaction and popularity rating plunged upon LOreals acquisition of TBS. LOreal was being criticized for testing its products on animals which strongly contradicts one of the core values of TBS, Against Animal Testing As the existing cosmetic companies adhere to the standards regulated by the government, more competitors will emerge, less distinction for TBS. The Brand losses its credibility and value due to selling and reselling, loss of loyal consumers is expected and will be faced with issues from its franchisees

REFERENCES Hardy, 1994; Corporate Time Reporter, 1994; Carroll & Buchholtz, 2008; Entine, 1999-2011

1995

1995 to present

Quality Control and Global Issues Preservatives unnatural

Carroll & Buchholtz, 2008; Entine, 19992011;Corporate Crime Reporter, 1994

1995 Limited Market Share in the US due to rapid increase of competitors Acquisition of LOreal Completely Banning Animal Testing on Cosmetics in EU Rumours of LOreal Selling TBS to a Rival

1995 to present

Hardy, 1994; Corporate Time Reporter, 1994; Carroll & Buchholtz, 2008; Entine, 1999-2011 Milmo, 2006; Pitman, 2006; Roddick G.; Trefis, 2011; Carroll & Buchholtz, 2008 Relaxnews, 2013; Young, 2013 Crave & Potter, 2012; Creevy, 2012; Heinze, 2012; Trefis, 2011

2006

2013

2012