Shana Bush Kristin Salerno Rachel Cherne Rich Zeck

Company: The Body Shop Founder: Anita Roddick Headquarters: Littlehampton Main Industry: Toiletries and Cosmetics Want to find out more about The Body Shops Background?

Check it out!

The Body Shop:Company Profile

If you have a company with itsy-bitsy vision, you have an itsy-bitsy company. - Anita Roddick

Humble Beginnings...
Founded by Anita Roddick in Brighton, West Sussex in 1976. Why?
Desire to sell cosmetics in cheap bottles in a variety of sizes Humble Beginnings... (continued) Desire to sell products from natural ingredients

Products:

Started with 25 products composed of natural ingredients Used plain, simple, and handwritten labels

Marketing:
Developed a policy of no money spent on advertising
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and still going strong!

Publicly listed on the London Stock Exchange 1,900 stores with over 300 in the U.S. Stores in 47 countries with 40 distribution centers 6,000 employees worldwide, with over 2,800 at Littlehampton headquarters

and still going strong! (continued)

Facilities:
Soapworks facility in Glasgow Company-owned shops in the UK

Ownership:
The Body Shop International: owns UK, US, France, and Singapore operations Remaining 43: Independently owned and operated franchises. Itas is head estimated that The Body

Shop sells a product every 0.4 seconds with over 77 million customers transactions through stores worldwide, with customers sampling the current range of over 600 products and more than 400 accessories.
(www.bodyshop.com) 3

The Body Shop Kudos

1987: Company of the Year (The Confederation of British Industry) 1989: Retailer of the Year & United Nations Global 500 Award 1997: 28th top brand in the world, 2nd in the retail sector (Interbrand) 1998: 27th most respected company in the world (The Financial Times) 1999: 2nd most trusted brand (UK Consumers Association)

The Body Shop Kudos

1985: Anita Roddick voted British Woman of the Year
I think all business practices would improve immeasurably if they were guided by feminine principles qualities like love and care and intuition. Anita Roddick

Click here for more Body Shop Background: http://www.bodyshop.com/global/index.asp The Body Shop Mission Statement:

To dedicate our business to the pursuit of social and environmental change

To creatively balance the financial and human needs of our stakeholders: employees, franchisees, customers, suppliers, and shareholders To courageously ensure that our business is ecologically sustainable: meeting the needs of the present without compromising the future 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 To tirelessly work to narrow the gap between principle and practice, whilst making fun, passion and care part of our daily lives. (www.bodyshop.com)

Company Values:
The Body Shops Values include:

http://www.bodyshop.com/global/values/index.asp

Internal Environment:
The management team includes: Anita L. Roddick T. Gordon Roddick Non-Executive Director, OBE Non-Executive Director

Peter Saunders Adrian D.P. Bellamy Alastair S.N. Murray Jack Keenan Irene Miller Ronald De Waal

CEO, The Body Shop International Executive Director Group Finance Director Non-Executive Director Non-Executive Director Non-Executive Director

The average age of the board is 53 years old. Many of the Executive Directors have experience in retail industries including Gucci Group, Danone, The Gap Inc, Williams & Sonoma, Kraft International, and the General Foods Group. In the last quarter of 2001, there were several unsolicited offers to purchase the Company. February of 2002 brought the decision to remain an independent company and make some significant changes in the Board. Click on the hyperlink for the full Press Release.

http://www.bodyshop.com/global/investor/pdfs/business_anouncement_feb.pdf

No Marketing?
The Body Shop has no marketing department and no advertising department. They operate according to criteria, which places more emphasis on human values than on strictly commercial considerations. Anita Roddick spends most of her time doing the marketing activities such as campaigns and conferences. The Body Shop never advertised in newspapers or magazines because this type of promotion would increase the cost of the product. For The Body Shop, the most effective and useful way of advertising is to use its shops and its staff, as well as using issues awareness, such as Activate Self-Esteem. The Body Shop launched a campaign using the Ruby Doll a realistic looking doll to promote real women. They used it in their stores, hosted debates, funded research, and held conferences all related to self-esteem, all activities that point back to The Body Shop.

The newest venture for The Body Shop is the "at home business", where trained consultants come to your home and demonstrate the products. This is available in four US states so far and is working on further expansions.

External Environment:
The worldwide cosmetics and toiletries market has a turnover in excess of $80 billion dominated by major companies like Proctor and Gamble, Unilever, Shiseido, LOreal, Avon and Revlon. www.geocities.com/Athens/6667/body.html.

Other competitors include:

Britain: Boots and Lush Ireland: Nectar U.S.: Bath & Body Works, Origins, and Aveda

The Body Shop was the leader in the natural products area, but now most of their competitors have followed suit. There is good news for The Body Shop because there is high growth potential in their market. The global toiletries and cosmetics market is estimated to be growing at an annual rate of approximately 3%. This underlying growth in the market, together with the opportunity to grow market share in markets around the world, provides a solid foundation for the future growth of The Body Shop. (www.bodyshop.com)

Consumers:
According to Verdict Research, shoppers are going to supermarkets rather than retail cosmetics stores for beauty aids. They also found that supermarket chains will double their share of the health and beauty market to 60% in the next five years. This means that The Body Shop is going to change its strategies if it wants to compete.

Click on the hyperlink for the 2001 Annual Report

http://www.bodyshop.com/global/investor/pdfs/ra2001.pdf

Financial Recap
FY 01:
13% sales increase Did not meet expectations Loss of operating profit 50% less than previous year - due to unplanned high exceptional costs

Financial Recap
Why were expectations not met?
Lower margins on new products not achieved Inventory levels had a negative impact on warehouse and interest costs Overall lack of focus on product heritage

Keys to Success...
Controlling operating expenses
Body Shop Direct & mail order business

New European currencies stabilization

Reduce interest rate risk and lower liability inequities

Home Selling Focus

17% increase in sales last year

The positive note has been the quick response to each area that hindered the companys objectives. Product margins have been restored to last years new product releases by reducing product costs and ensuring the same margins on future releases. Inventory reductions have been made by decentralizing management responsibilities to the regional level, which allows them greater control over levels for their respective area. Lastly there will be a slow down in introducing new products and a greater emphasis on core products. Worldwide sales increased by 7% to nearly $500 million in every region. The sales growth can be derived from the opening of 111 new store which, bring s the total number of stores worldwide to 1,841. All regions reported positive growth except the UK. Again although there was increase in sales pre-tax profit was down from previous years. Worldwide profits however reflected an improve performance in the Americas offset by lower outcomes in the UK and particularly in Europe and the Middle East. There are four major regions of investment of outlets of which there are 488 company-owned stores. The regions are UK & Republic of Ireland, Americas, Europe & Middle East and Asia Pacific.

In the UK & Republic of Ireland region there are 315 shops of which the company owns 159. This region accounted for a 7% loss in overall operating profit. The loss can be attributed to several factors like increase in store overhead costs and markdown costs. Home selling through The Body Shop Direct might be the diamond in the rough as it showed a 17% increase in sales. There are over 2,250 registered consultants that held over 104,000 home parties. This is an area to watch as it grows.

The Americas region comprises the United States, Canada and the rest of the Americas. There are 413 stores of which 254 are company owned stores. There were only 3 new store openings, which is not very active in a profitable marketplace. Overall operating profit increased by 17%. There are a planned 15 new openings and 30 store refurbishments for the coming year. Home sales will be experimented here in the states off the successful establishment in the UK.

The Europe & Middle East region which, is the largest operates 684 stores with only 55 being company owned. The region comprises of 27 countries, with Germany, France and Austria having company-owned stores. There has been strong growth with 48 new stores opening across the region. Operating profit plummeted by 40% due in part to the weak Euro exchange rate. There is strong growth in France, Saudi Arabia and Spain, which offset the poor performances in some Middle Eastern and Scandinavian countries.

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The Asia Pacific region comprises of 13 countries across North Asia, South East Asia and Australasia. There are 429 stores with only 20 company-owned. Retail sales were strong yet operating profit was even. Japan and Taiwan showed significant losses while Korea and Hong Kong showed strong growth.

The Body Shop can be found in 49 countries with the 281 stores in the US and 294 in the UK leading the way. Of the USs 281 stores, 250 are company owned and of the UKs 294 stores, 150 are company owned. The impact and influence is very strong as to the direction the stores takes from the home office.

Some financial problem areas that need to be taken into account from past performances looking ahead to the future. Operating expenses relating to company owned stores have taken a significant jump over the last period. Overall expenses increased over 24% for reasons previously noted in the opening comments. The single largest increase was with operating costs involving the mail order business and Body Shop Direct. Due to the increase in company owned stores the associated administrative costs also increased further adding to the exceptional costs. The stabilizing of the new European currencies will greatly enhanced the financial outlook as it will reduce the interest rate risk and lower liability inequities that are currently being experienced. Most of the current debts held are due within one year, which will free cash for further reinvestment. The recent acquisitions have dampened the short-term outlook but because of the short term restructuring of the debt the financial outlook should return to increasing returns quickly. The overall past five year financial outlook performance has been average but has shown rebounding capabilities over the last year. The coming year will be a slower paced growth year that refocuses

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the time and energies to what the company was built upon to return it to the path forward.

The Body Shop operates on the belief that the key to improving performance and raising standards is found through the measurement of the broad impact of business activities. In order to drive long-term success and maintain the stakeholder relationship, The Body Shop has developed a combined approach to performance measurement and public reporting. Though The Body Shop was unsuccessful in the implementation of last years strategy, they have taken action to address each of the issues that prohibited this success. Their current strategy is a coherent plan thats based on the feedback from their stakeholders. It focuses on medium and long-term results. The overall strategy is to increase value for all stakeholders. There are three principle objectives that play a role in the successful implementation of this strategy.

Enhance The Body Shop brand value

Strengthen unique product heritage

Improve Operational Efficiency

Expand customer Reduce product cost by working with reach and experience suppliers to improve efficiencies within of the brand the supply chain Achieve reduction in overhead costs
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Reinforce stakeholder culture

Increase purchases from Community Trade suppliers Reduce energy consumption and commit to use renewable energy Increase awareness of climate changes Ongoing programs of stakeholder consultation & public reporting

In addition to these objectives, The Body Shops new product plan focuses on a small number of initiatives that are driven by market needs. They will also be reintroducing some discontinued products due to customer feedback.

The current investment strategy for The Body Shop focuses on new stores and store refurbishments, whilecontinuing to invest in point of sale systems to improve operational efficiencies. (Annual Report, pg. 14) Another channel that will be further developed is home selling. Home selling has proven to offer great
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synergy with the store-based business and to be highly successful in the UK and will be on trial in the US and in Mexico during the current year. A core competency of The Body Shop is its stakeholder culture. I would even argue that this is a distinctive competency for The Body Shop. This culture includes everything from commitment to the community, to the environment and to the protection of animals. It is vital that they are successful in reinforcing this culture. The use of stakeholder consultation in combination with public reporting is a great way to assure that that organization is maintaining their commitment of delivering value to the stakeholders. A second major strength of the organization is its strong brand name. While the name of The Body Shop already has strong loyalty from its customers and worldwide recognition for its commitment to the environment and its superior products, opening new channels to reach even more customers cant go wrong. The home selling that is being initiated at The Body Shop is a great example of one of these new channels. There are so many people looking to work from home and, at the same time, there are many people that want to shop from home and skip the hassle of the mall. The opportunity has presented itself and The Body Shop is taking advantage of it. Given the growth of the organization and its recent restructuring, it is critical for The Body Shop to focus on improving operational efficiency. Reducing inventory holdings and improving efficiencies within the supply chain are a great place to start. A potential weakness and threat for The Body Shop exists in the price of their products. Often, a consumer can find similar products at a fraction of the cost. However, individuals that buy The Body Shop products are usually there based on the concept and The Body Shops commitment to the environment, animals and the community. Focusing on this niche market eliminates a lot of the threat and the weakness of their pricing.

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The Body Shop, thanks to the guidance and vision of Anita and Gordon Roddick, created and sustained a new market, one that appeals not to commercialism, but to activism. It has been imitated by numerous companies, touting use of natural products, but The Body Shop has been able to differentiate themselves enough to remain unique. However, remaining where they are could mean that they are caught by the closest competitors. There are several key points to be considered when contemplating new strategies for The Body Shop. They include: Importance of the stakeholder culture Necessity to improve operational efficiencies Current Strategies, such as Home Selling and Niche Marketing

We also know that the industry is expanding rather than contracting, The Body Shop, as of February, is going to remain independent, and they are making positive strides towards becoming more financially stable within the next year. So what does that mean? What is the best strategic decision for The Body Shop? The Body Shop has a consistent track record with a Differentiation Business Strategy, inherent in their business, so the focus will remain on Corporate Strategies. Three possible alternatives include:

Vertical Integration
Not just using earth-friendly suppliers, but owning them!

Advantages:
Strong selling point knowing where the materials originate World Community involvement - strike a chord with key stakeholders

Disadvantages:
Open up for criticism if environmental problems Increased overhead costs High initial expense

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Horizontal Integration
Shouldnt all your beauty products be earth-friendly?

Advantages:
Strong Brand loyalty Choose products based on issues
Self-Esteem enhancing clothes, vitamins, etc. Ikea-style bathroom furniture - safe for environment

Disadvantages:
Weakened Branding Increased Costs New staff to develop products Stores are already full!

Easy to expand Home Sale products

Unrelated Diversification
Shouldnt all your purchases be earth-friendly?

Advantages:
Strong Brand loyalty Issues Based
Self-Esteem enhancing dolls/toys, childrens products Travel: Trips that make a difference

Disadvantages:
Loss of Differentiation Increased Costs 9/11: Travel difficult to sell Established markets difficult to penetrate

Roddicks Reputation

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After considering the advantages and disadvantages of the three strategies, Vertical Integration makes the most sense for where The Body Shop is at right now. Instead of watering down their strong branding with other products, whether industry related or not, they can look towards vertically integrating their operations. The company already touts the fact that they purchase their supplies from Global Community suppliers, and partnering or owning some of the operations would only strengthen their position. Also, since they have a major focus of reducing their operational expenses, having some control over their suppliers would reduce middleman expenses. This strategy could look two different ways. The first way is through partnerships with globally conscious suppliers. The second is through outright purchase of supplier operations. The best tactic for The Body Shop would be create some key partnerships in the upcoming year to test out the waters, especially since the next fiscal year is going to be a recovery year financially. Then the foundation would be there to move into ownership positions with the suppliers. The controls for the strategy would take place through evaluating the operating efficiencies, ROI, and the impact on the company as a whole. The Body Shop would need to ask the question:

Both parts will need to be visible to be a good strategy for The Body Shop. The company has come a long way since 1976. The unique mix of cheap products and socially conscious behavior has made an impact on the industry and the

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world we live in. As The Body Shop moves forward, it must keep their values in mind and an eye on the numbers to continue to make an impact in todays world.

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