Case 1: The Body Shop

I. Analysis of the Facts

The Body Shop was founded in 1976 by Anita Roddick. With an initial capital of £4,000,
Roddick developed a line of skin and hair care products based on natural ingredients.

From a single storefront, The Body Shop had expanded to 576 shops by 1991, trading in
18 countries and 18 languages. Worldwide retail sales from company stores and
licenses were estimated at $391 million.

As of early 1990s, The Body Shop had been experiencing a lower growth margin in sales
in their UK market- which represented 67% of its total sales. Due to the low sales
growth, The Body Shop had thought of expanding its market by tapping into the US
market. At $12 billion, the US cosmetics market clearly represented the company’s
greatest growth opportunity, but at the same time, the management was wary in
entering the said market-which was described to be a graveyard for British retailers.

In 1988, The Body Shop finally started its expansion by committing a 50,000 square foot
production and warehouse facility in Morristown, New Jersey. Total investment
exceeded £10 million.

In mid-1990, The Body Shop began franchising, and by year’s end, 37 shops had been
opened.

By 1990, US sales were £5.8 million, or 7% of total revenues of The Body Shop. The US
operations were still running at a loss. These losses were advertently caused by the
following challenges that the company faced in the US market.

First, environmental concern (which is The Body Shop’s primary business platform) had
been less of a public issue in the United States. It was not certain how Americans would
react to Body Shop’s strong image and unfamiliar practices. The diversity of the US
market, in terms of consumer values and demand, and the vocal nature of dissident
groups may make it difficult for the company to find a solid platform on which to build
business.

Second, The Body Shop’s resistance to advertising would limit growth in the
communication- intensive US market. Analysts predicted that the targets set by The
Body Shop would be difficult to attain without advertising.

Finally, there are a number of US cosmetic companies (such as Revlon, Estee Lauder,
and Bath and Body Works) who adopted the same all-natural concept of The Body Shop,
thereby making the company’s all- natural concept customary.

Given the aforementioned challenges in the US market, the company was then unsure
whether or not the initial losses would continue or not. Whether or not the initial losses

1
Case 1: The Body Shop

were attributable to the challenges mentioned was a critical question that the company
should deal with.

II. Problem Statement

What can The Body Shop do to compensate for its inferior performance in the United
States market?

III. Objectives

- To identify a new market that The Body Shop can tap.

- To identify the opportunities that other international markets can offer.
- To identify the possible threats in the international cosmetic industry.
- To find ways on how to improve the US market sales.

IV. Theoretical Framework

SWOT Analysis

Strengths

- The Body Shop philosophy: ‘the business has existed for one reason only- to
allow us to use our success to act as a force of social change, to continue the
education of our staff, to assist development in the Third World, and above all,
to help protect the environment’.
- The company’s strong social message. The Body Shop practices what is called
the Robin Hood marketing- the company sells expensive products but part of the
profit goes to the poor.
- The company’s little concern for profit. The Body Shop’s founder and managing
director, Anita Roddick claims that the company has one goal only, and that is to
use its success to act as a force of social change- and definitely not for short-
term and quick profit.
- The company’s ways on becoming more active at the local level by setting up a
department that will commit every shop to a local need. The company believed
that it had to neutralize the corrupting effect of its wealth by taking positive
steps to ensure that it remained humane and caring.

2
Case 1: The Body Shop

Weaknesses

- The Body Shop’s unconventional views on advertising. The company’s resistance

to advertising would limit growth in any communication- intensive market.
- The company’s products are priced more expensively than mass merchandised
cosmetics.
- The company’s strict franchising process can potentially turn off capable and
competent individuals from applying for franchise licenses.
- The company’s unabashed bias towards women franchisees can hinder its
growth in male- dominated international markets.
- The Body Shop franchise typically takes two to three years to become profitable.
- The Body Shop’s social and environmental activities became increasingly political.
The company’s motivations can be questioned by cynical customers who may
feel overwhelmed by the excessive social campaigns.

Opportunities

- One of the biggest markets today for foreign brands is China, with its population
of nearly 1.3 billion.
- On the Chinese’ attitude towards advertising, Lowe Lintas study indicates that
about 70% state that ‘most ad breaks, I do something else’. This indicates that
the Chinese consumers are not compelled by advertising campaigns to purchase
a certain product.
- 85% of the Chinese consumers recognize that foreign brands have pushed
Chinese brands into improving.
- No strong evidence that Chinese consumers are strongly- patriotic as only 23%
views purchasing a foreign- made product as unpatriotic.
- The beauty and cosmetic industry, also known as the "beauty economy", has
become the fourth consumption zone hit after real estate, cars and tourism in
China.
- There are 3,700 cosmetics companies in China,most of which were small and
medium-sized ones, producing more than 20,000 kinds of cosmetic products.
- China has no major cosmetic company (like Shu Umera and Shiseido of Japan).
China's lack of its own big cosmetic companies with branded products is one of
the main factors behind the fact that more overseas investors are keen to enter
the Chinese cosmetic market through takeovers.
- It is expected that by 2010, the total revenue from the industry will exceed 300
billion yuan (about 36.15 billion US dollars).
- China's share of the global cosmetic and toiletries market may seem small
compared to huge markets like the US and Japan, but with a population of over
a billion people, its growth potential is staggering.

3
Case 1: The Body Shop

- Skin care and make-up products account for the largest share of the cosmetic
and toiletries market of China with 31% and 11% of the market, respectively.
- With potentially the largest customer base in the world and currently a low level
of per capita spending of only $4 on cosmetics, China provides tremendous
business opportunities for foreign cosmetic producers.
- Those products processed from natural and green ingredients containing no
preservatives, and no or least harmful chemicals are getting more popular in the
Chinese market.

Threats

- Huge growth in specialty beauty stores, such as Watson's, is starting to threaten

the larger retailers.
- Increasing competition from a number of International players. Players are
mostly from France, Germany, Switzerland, Japan, Korea, etc. Many of those
players have been operating successfully in the China market.
- As China's cosmetic market continues to expand, hundreds of domestic cosmetic
makers have sprung up. Examples of those companies include Beijing San Lu,
Shanghai Jiahwa, Arche Group, Raystar, Samrana, Guangdong Aikai, Youngrace,
Haodi, La Fong, etc. Presently, most of those companies are privately owned and
produce low-end products with only a few making high-end products that can
match their foreign counterparts.

V. Alternative Courses of Action

- To retain the US market but penetrate an untapped market that The Body Shop can
take advantage of.

- Advertise extensively in the US.

- Partnership with hotels, airlines, and other private establishments by supplying them
with toiletries. The Body Shop can offer these companies with their complimentary
refills.

- Change the socio economic business platform.

- Sponsor environment awareness and rehabilitation projects.

VI. Conclusion and Recommendation

The Group recommends that The Body Shop should consider expanding in China due to
the following reasons:

4
Case 1: The Body Shop

- There is a hugely feasible untapped market in China that The Body Shop can take
advantage of. According to the study conducted by Lowe Lintas Manila, China is
basically composed of nine consumer segments. When it comes to attitudes, values,
and consumption behavior, the China market it classified into nine segments. The nine
segments are the little bourgeoisie, quiet achievers, Fen Qing strugglers, missed outs,
young hopefuls, suburban spectators, self-made emperors and empresses, bright collar
traditionalists, and resigned urban poor. Of the said nine segments, The Body Shop can
target the little bourgeoisie (represents 8.3% of China’s market, they go for highly
exclusive, foreign brands), suburban spectators (15.8% of China’s population, they
appreciate foreign brands but cannot afford the high- exclusives, hence, they buy
aspirational brands without the high costs), and the self- made emperors and empresses
(China’s flashy nouveau rich. They only consume foreign and status brands).

- China cosmetic market has been expanding rapidly over the past 20 years. In 1982,
the total market was only about RMB200 million. By the year 2001, this figure will go up
to approximately 40 billion Yuan, a growth of 200 times from 1982. As per market
forecast, China's gross annual sales of cosmetics are projected to climb to 60 billion
Yuan by 2006 and 80 billion Yuan by 2010. Despite significant growth over the last two
decades, China cosmetic consumption is still far from saturation and the country is
expected to remain a dynamic market.

- China has no local cosmetic manufacturer- similar to Japan’s Shiseido and Shu Umera.
Foreign brands can easily dominate the market even with the existence of small Chinese
cosmetic manufacturers.

- Chinese women were previously refrained from wearing too much make up due to
Communist practices. This restriction does not apply anymore, thus Chinese women are
enthusiastic to try out these goods that they were previously prohibited to use
excessively.

- The Body Shop’s view on advertising- it resists advertising. If the company will
venture in the Chinese market, this practice will not hinder its growth. The study of
Lowe Lintas indicates that about 70% state that ‘most ad breaks, I do something else’.
This indicates that the Chinese consumers are not compelled by advertising campaigns
to purchase a certain product.

- During 1980s-1990s, most cosmetic consumers focused their attention on facial and
hair care due to spending constraints. As more and more Chinese have been getting
better off, they began to attach importance to overall health care, body care, and
appearance.

- There is a market for all natural products in China. Those products processed from
natural and green ingredients containing no preservatives, and no or least harmful
chemicals are getting more popular in the Chinese market.

5
Case 1: The Body Shop

SOURCES:

http://english.people.com.cn/200404/04/eng20040404_139385.shtml
http://www.cosmeticsdesign.com/news/news-ng.asp?id=62586
http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr109991e.html