Strategy Field Project The Body Shop EXECUTIVE SUMMARY Today "The Body Shop" is one of the best and well-known brands available in the Cosmetics industry especially especially in the natural product category. The company founded in 1976 by Anita Roddick, has presence in 51 countries with 2000 stores worldwide in the year 2004. The company operates in 4 markets; Americas, Europe, Middle East/Africa and Asia. The company is into the industry that is on the verge of maturing though it throws the opportunity to expand the horizon into fast growing markets like Eastern Europe, Brazil and Asia where the purchasing power is increasing rapidly. The company has deep pockets and has a visible brand image that can help it to establish strong presence in these markets. The company uses differentiation strategy with regional self-contained structure for its existing business units in the four markets. The company has come out of bad performance it had showed during late 1990's and has performed well in the year 2004. For consistent performance and growth, the company will have to fill up the gap wherever it exists internally or externally and will have to bring consistency in its operations and should look at integrating vertically. Some of the details are confidential and are not available as the company is publicly listed only in the UK and not in other regions such as USA. Thus, the best effort has been put forth to get the information from various sources. Wherever information was not available to fuller extents, some assumptions was formulated from the available material. Overall, this report is an endeavour to provide the outline of the company's internal and external activities, finding out the factors that can be instrumental in achieving long term and continuous growth, suggesting the strategy to be used to achieve this growth, and finally an action plan to be implemented and recommendations recommendations for success.
Table of Contents Executive Summaryii Backgrounds Information1 Industry and competitive analysis2 Overview of the Industry2 Competitors3 Dominant Economic Features3 Industry stage in the life cycle4 Porter's 5 Forces4 Rivalry Among Existing Incumbents5 Threat of New Entrants5 Substitute Products6 Bargaining Power of Suppliers6 Bargaining Power of Buyers6 Attractiveness of the industry7 Driving Forces and Success Factors7 The Internet7 Globalization7 Change in the Industry Growth Rate7 Regulatory pressures to protect the environment8 Product Innovation8 Public Judgment8 Competitive Positioning9 Industry Key Success Factors10 Value Chain Analysis11
Procurement11 Outbound Logistics11 Marketing12 Sales12 Human Resource Management13 Summary13 SWOT Analysis13 Strengths13 Strong Brand/ Global Name Reorganization13 Support from Head Office14 Leader of Animal Protecting14 Community Trade Program14 Weaknesses14 Deteriorating Image14 Low Wages and Human Rights Issues15 Packaging and Transportation Problems15 Supply chain Issues15 Transparency and Communication16 Pricing16 No Specific Product Lines in Asia16 Difficulties in Managing and Controlling the Regional Business and Suppliers16 Opportunities16 Increasing Global Presence17 Expanding Product Lines17 Expand The Body Shop at Home Program17 Expand E-Commerce Activities17 Searching for Alliance or Joint Venture Partner18 Threats18 Competition in Cosmetic Industry18 Risks in Material Supply18 Adverse Shift in Foreign Exchange R ates18 Trade Restrictions and Governmental Regulations18 The Body Shop's Financial Position18 Financial Analysis19 Solvency19 Liquidity20 Debt Management and Interest Coverage21 Organizational Design22 Structure22 Organizational Structure23 Style24 Staffing24 Systems25 Alternatives26 Vertical Integration26 Horizontal Integration27 Unrelated Diversification28 Diversification28 Decision Making Process29 Recommendations30 Structural30 Green Marketing31 Product and Packaging31 New Markets32 Action Plan32 References35 Appendix 1: The Body Shop Time Line37 Appendix 2: The Body Shop's Competitors41 Top Competitors41
All Competitors41 Exhibit 1: Backgrounds Information on Bath & Body Works41 Exhibit 2: Sales Growth of Estée Lauder Products42 Appendix 3: The Body Shop's Dominant Economic Features43 Figure 1: The Global C&T Market43 Figure 2: The C&T Market by Sector43 Figure 3: The C&T Market by Sector and by Country44 Figure 4: Category growth rate-historical and forecast44 Figure 5: Growth by sector in Country45 Appendix 4: Further Financial Analysis46 Appendix 5: The Body Shop's Organizational Structure49 Exhibit 1: Break down of Retail Locations by Region49 Exhibit 2: Organizational Chart50 Exhibit 3: Key People51 Exhibit 4: Key Accountabilities52 Appendix 6: Staff Demographics53 Appendix 7: Decision Matrix54
BACKGROUNDS INFORMATION According to the Body's Shop website, their "business is about engaging and inspiring customers around their individual needs for skin care and hair care... this relies on attracting and retaining the skills, knowledge and creative talent to deliver excellent products with exceptional service to [their] millions of customers worldwide". The company has a presence in over 51 countries, conducts business in 21 languages, operates nearly 2000 stores (about 70% are franchised), and employs over 6000 people in company stores, regional offices and UK-based Service Centre. Products are also sold via the Body Shop at Home, an in-home sales program that operates in 48 US states and Australia and via a company website in the US. The company's mission statement is as follows (www.thebodyshop.com, 2004): To dedicate our business to the pursuit of social and environmental change. To creatively balance the financial and human needs of our stakeholders: employees, customers, franchisees, 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, while making fun, passion and care part of our daily lives. The company promotes "beauty is in the customer's eye instead of the beholders" (Hoovers, 2004). Based on this philosophy they sell a wide range of natural skin and hair care products to their customers. Examples of their wide range of products include Peppermint Foot Lotion and Banana Shampoo. The Body Shop combines activism with marketing, encouraging women to focus on self-esteem and environmental issues; and is committed to a concept that they refer to as sustainable governance. Sustainable governance means that the "directors [of The Body Shop] are committed to integrity and accountability in the stewardship of the Company's affairs... this includes social and environmental performance, and animal protection" (www.thebodyshop.com). The Body Shop was founded in 1976 by Anita Roddick, hoping to earn enough money to support her and two children while her husband Gordon was on a two-year horseback trip through the Americas. Anita wanted to create cosmetics using natural ingredients that she learned about in her world travels. She approached several large cosmetic makers; however none would manufacture her strange concoctions; so she contacted an herbalist to make her products. To save money during the early years packaging consisted of urine sample bottles and refills were offered to customers who returned them. The first store was opened in Brighton, UK, and by 1978 the first franchises were awarded. In 1984 The Body Shop went public on the London exchange. In 1988 the first US store was opened and in 1998 the management of US operations was turned over to a new joint venture formed with Bellamy Retail Group. This signalled massive restructuring that occurred in 1999, when the company sold its two manufacturing plants (both located in the UK) to South Africa's Pac Creative to focus on its retail operations. At this time The Body Shop also began buying franchised locations in the UK to gain control. During 2000 the company formed a new company to develop its online activities, to be called The Body Shop Digital, with SOFTBANK Venture Capital. In
February of 2002, the Roddicks stepped down as co-chairmen of the company to become one of the non-executive directors. For a complete time line/ company history, refer to Appendix 1. Since losing market share to Body & Bath works, the Body Shop began paying more attention to their bottom line. A new management team has been put in place, goal of developing new products faster has been identified, and manufacturing has been farmed out to third parties. INDUSTRY AND COMPETITIVE ANALYSIS Overview of the Industry The Body Shop International Plc is listed under different related and synonymous industries. In the UK, the company is listed under the medicine industry. Globally, it is operating in the Cosmetics and Toiletries (C&T) industry. This industry is synonymous to Fragrances and Care Industry, Personal Care Industry, Chemical Industries Manufacturing Beauty Products, Beauty Industry, and Consumer Products-cosmetics Sector Industry. For the purpose of the project, we would like to focus on the Global/Regional C&T industry, which is the main industry where The Body Shop, is operating in (MSN money, Hoover's online, 2004). Structure of the Industry The Body Shop operates in the global cosmetic and toiletries (C&T) industry. From Euromonitior, the C&T industry includes the following broad group of products; baby care, bath and shower products, deodorants, hair care, color cosmetics, men's grooming products, oral hygiene, fragrance, skin care, sun care and depilatories. These products can further be segmented into two categories based on product ingredients - those made from natural materials and those made from synthetic chemicals. One point is noteworthy here, segment boundaries are getting blurred day by day as producers are trying to achieve market share in both the segments. According to Hoover's, The Body Shop's top competitors include, Bath & Body Works, Boots Group and Estee Lauder. A full list of their competitors can be seen in Appendix 2. Competitors For the Body Shop, there are mainly three players in the market niche of cosmetics that are based on natural ingredients, Boots Group, Bath & Body Works, and Estee Lauder. They are all competing head to head with the Body Shop and each other in the high-end natural personal care product market. Boots Group operates in several industries ranging from selling the OTC drugs to providing eye correction services. The beauty and toiletries are sold in about 1,400 drug shops in UK and Ireland and its 1,892 million GBP profit in 2004 accounts for more than 20 percent of its total turnover. (Boots Group annual report, 2003) Boot Group is the largest competitor for the Body Shop in the UK since it has no business in the US currently. Bath & Body Works is a US based firm with a history of about 13 years. As a division of Limited Brands, it operates more than 1,700 stores across the world, among which 1,200 stores are located in the US. (Bath & Body Works, 2004) Its total sales in 2003 reached US$1,934 million. (Hoovers, 2004) Its success in brand building through emphasizing on innovation from nature, colorful packaging and effective point-of-purchase added pressure on the Body Shop's operation, especially in the U.S. (Don Davis, 2002) However, the number of shops and selling square foot of the company has been shrinking in recent years, refer to Appendix 2, exhibit 1. Unlike the Bath & Body Works, the Estée Lauder Companies Inc. has been experiencing a high growth rate for over 20 years, refer to Appendix 2, and exhibit 2. Founded by Estée Lauder in 1946, the Estée Lauder Companies Inc. has the largest market share among the top four. Its total sales in 2003 were US$5,117.6 million. (Hoovers, 2004) People from more than one hundred countries use Estée Lauder's cosmetics, fragrances, and skin care products in their daily life. It is said to be the closest friend of the women world. (Estée Lauder Annual Report, 2003) Dominant Economic Features Market Size The global market size in terms of sales revenue in 2003 was US$134 Billion approximately. Figure 1, located in Appendix 3, provides a country specific breakdown of the C&T global market - complete with growth rates. Trends observed include, in terms of sales the western markets are larger than the markets in underdeveloped countries - however the growth of western markets is on the decline while growth of underdeveloped countries is on the rapid raise. For example the US market accounts for approximately one third of total C&T sales however in 2003 the market was growing at the mere rate of 0.7% down from 24.3% in 1997. In comparison, sales in Russia accounted for approximately 4% of the total 2003 C&T sales, however had the largest growth rate being 14.3%. Based on this information it is evident that despite the fact that the traditional markets for C&T are experiencing dismal growth, the industry can take advantage of many emerging markets (in Asia, Eastern Europe and Central/ South America) to experience growth. This information supports The Body Shop strategy for entering into these markets to achieve growth (Euromonitor, 2004). Industry stage in the life cycle
The C&T industry is viewed as a fairly stable market. Although, most industry experts believe the market is approaching maturity. Market share and growth Figure 2, located in Appendix 3, provides a breakdown of the global C&T market by sector during 2000. The top four of ten sectors - skin care, hair care, color cosmetics, and fragrances - account for approximately two thirds of the total C &T sales. A breakdown by sector of C&T sales for 7 countries (France, Germany, Italy, Japan, Spain, UK and USA) can be seen in Figure 3, located in Appendix 3. This figure shows the same trends as observed in figure 2 - the top four of ten sectors, account for approximately two thirds of C&T sales. Figure 4 and 5, located in Appendix 3; provide C&T product's observed and projected growth rate and growth rate by sector in country. From figure 4 and 5, it seems that overall in the year 2000; global C&T industry grew at a rate of 4.3% to US$ 100.7 billion. In terms of C&T products, men's grooming and skin care are the two largest growing sectors. In terms of country, Spain had the highest growth while Japan had the least. USA was the largest market ($42.6 billion in Sales and over 40% of global market share) and Japan is the second largest with $21.4 billion. It is expected that by the year 2005, UK and US will have 8.4% and 8.9% growth respectively (Euromonitor, 2004). Porter's 5 Forces (Thomson and Strickland, 2001) A summary of the Porter's 5 forces analysis can be seen on the next page.
Rivalry Among Existing Incumbents Rivalry among competing sellers in the industry is very high. In the US alone, there are 1000 cosmetics companies; together they sell more than 20,000 products. Many of these competitors are equal in size and capabilities. The industry becomes more competitive- as it is characterized by innovation, high quality of products and customer service and promotions. Globally, there is a stable growing demand for cosmetics products. This leads to more competition among the companies. The nature of the distribution channels in this industry makes it more rivalrous as well. Cosmetics products are available at the retail stores, boutique shops, and discount chains such Wal-Mart. Customers in the cosmetic industry experience relatively low costs when switching to brands of a competitor (Anonymous, 1995). Threat of New Entrants Potential entry of new competitors is low. The big players in the industry are carrying out differentiation-based strategies. Furthermore, they are implementing niche strategies to capture all the untapped customer segments. Big player's brand name and reputation, high advertisement and promotional activities are blocking new entrants' access in the industry. New entrants are heavily blocked by scale economies in terms of advertising, manufacturing, financing, customer service, raw material purchase and R&D. High capital requirements to enter in the industry and competitor's massive distribution channels are other reasons of new entrants' difficulty to access in the industry (Lewis, 2000). Substitute Products Competitive pressure from substitute products is very low. At this point in time, the industry is segmented on the basis of synthetic or natural products. Companies within the industry are competing among themselves. Apparently, there is no or minimum threat of substitute products. Bargaining Power of Suppliers Suppliers in the industry are of two types. The synthetic based producers get their supplies from specialty raw materials suppliers. Specialty raw materials are defined as differentiated products that confer a distinct performance benefit to a formulated product. Some of the raw materials are conditioning polymers, cosmetic actives, antimicrobials, specialty surfactants, and UV absorbers. A wide variety of products are offered, and the supplier base is fragmented with upward of 35 companies participating. This competitive market is currently being impacted by a variety of external and internal factors resulting in opportunities for current and new specialty raw material suppliers to this business. In addition, degree of vertical
integration is apparently low. Consequently, this segment of the supplier's market possesses high bargaining power, which is becoming weaker day by day with the increasing competition in suppliers' market. On the other hand, the natural based producers are in an oligopolistic situation with approximately 5 global companies in the niche segment of this industry. Suppliers' power in this segment has low bargaining power. Global companies like The Body Shop, Bath & Body Works get the raw materials from all over the world with strong partnership with the suppliers. For instance, Body Shop has community development program in many countries from which it gets its supplies. It can be viewed as a kind of vertical integration. The company sets up all the facilities, but they buy supplies to promote education and health. Companies in this segment get supplies very cheaply with their broad supplies channels (Johri and Sahasakmontri, 1998; Lewis, 2000). Bargaining Power of Buyers Competitive pressure stemming from buyers is moderate in this industry. In the overall industry, customer-switching cost can be low to high. Customers do not often switch to competitor products in the high-end C&T products. On the other hand, dissatisfied customer can switch to a competitor's product. Customers often willingly do this to try out other products regardless of brand recognition and loyalty. In this regard, switching cost is low. Some of the product segments are characterized by high switching costs such as skin care and hair care. Some products have low switching cost such as perfumes and colognes. The number of buyers in the industry is massive. This connotes low bargaining power for the customers. Their better knowledge about product features gives them high bargaining power. In the natural based product segment, customer's bargaining power is low as there are many customers and only a few producers to meet the demand. These niche marketers highly differentiated product features make switching cost very high. Attractiveness of the industry From the five forces analysis, it seems that collectively the competitive forces are not strong. The industry is still growing although it is in a matured stage. This leaves plenty of rooms for the players to still operate in the industry with sufficient profits. Supplier and customers are in a weak to moderate bargaining position, there are no good substitutes, entry barriers are relatively high and rivalry among the competitor is very high. We conclude that the industry is moderately attractive. Driving Forces and Success Factors In this section the driving forces that are changing the competitive position of the participants are discussed. These forces are reshaping the industry conditions and creating awareness for change. These forces are described below: The Internet To date, customers are more aware and knowledgeable. Before making a purchase decision, they can compare product features by visiting competitors' web sites. This gives them more bargaining power and increases the industry competition. In addition customers are feeling more at ease with e-commerce technology. Globalization This is a common phenomenon in the C&T industry. Competitors, in the attempt to grab a larger market share and improve profitability, are expanding their reach globally. Globalization is helping these companies to reduce their labor and supplies cost. They are also attempting to capitalize on the unexplored and high growth markets in the world such as Asia, Eastern Europe and South/ Latin America. Change in the Industry Growth Rate The industry has been experiencing a stable growth trend. This is one of the reasons of high competition in the industry. This is causing participants to craft defensive strategies to earn above average profits. Regulatory pressures to protect the environment The industry has been facing socio-political pressures to adopt environmentally friendly business strategies. This is causing them to invest in pollution-control equipment and environment-friendly technologies. These pressures are also causing firms to redefine their promotional campaigns so as to protect corporate images and launch less harmful products to the environment. The media is also playing a significant role in creating awareness and educating people about the benefits of environment conservation to the society. For example, Earth C are and Novarits in the UK built strong competitive advantage by adopting resource and environment conservation programs (Johri and Sahasakmontri, 1998). There is a going concern in many countries to stop testing cosmetic products on animals. This has lead many companies to opt for alternative testing methods. For instance, in 1980 Revlon had donated $750,000 on R&D to find an alternative to testing dreaded Draize eye test on rabbits. In 1981, the whole industry in the USA funded the Johns H opkins Center for Alternatives to Animal Testing and reduced animal testing by 96% (Entine, 1997). Product Innovation The industry has been driven by product innovation. All the companies are carrying out differentiation strategy. Product
innovation has enabled participants to rejuvenate industry growth and increase the customer base. Competitors are innovating products based on the product ingredients, packaging and promotions. For instance, in the natural product segment, products are based on natural extracts and ingredients and with minimal use of chemicals, which can be harmful to human lives where quality is of primary concern. Packaging is straightforward which gives customers the impression that they are not paying extra for fancy wrapper or big advertising campaign. All packaging is made of recycled materials, such as paper and plastic. Companies in both segments (natural and synthetic) of the industry are now trying to capture a market share in the other with product innovation (Johri and Sahasakmontri, 1998; Krug, 2003) Public Judgment Customers are becoming more aware of the ingredients used in the manufacturing of cosmetics and the effects that those ingredients have on their bodies and the environment. Natural based producers claim that their products are safer than the synthetic counterparts and charge a premium price, but in fact, there is no proof of this fact. One research shows that customers in the UK are well aware of the aforementioned fact. This is leading many customers reluctant to buy natural based products. There was one incident where the West German government sued The Body Shop in Germany in 1989 for misleading advertising. The court ruled that since all cosmetic companies use ingredients tested on animals by third parties, The Body Shop's claims (that its products were "not tested on animals" and that "we test neither our raw materials nor our end products on animals") were misleading. Body Shop ended up junking its deceptive label, replacing it with the equally disingenuous "against animal testing." Therefore, natural producer's future might be sensitive in future (Entine, 1997). In addition, companies are being required to become accountable for their actions with regards to ethics and corporate social responsibility. Competitive Positioning The following table shows top 10 C&T products manufacturers in the world. It is noteworthy that Estée Lauder is a natural based company holding 6th global rank in the industry. Global C&T ranking in 2003 1L'Oreal 2Procter & Gamble 3Unilever Group 4Colgate-Palmolive 5Gillette 6Estée Lauder 7Beiersdorf 8Avon 9Shiseido 10Private label 11Johnson & Johnson Source: Euromonitor It should be noted that the corporations ranked in the above chart are all conglomerates that have multiple business units that sell multiple product lines - i.e. the ranking is not based on the sale of natural C&T products only. This is why companies like The Body Shop do not appear in the ranking. No information could be found on the precise ranking of natural C&T companies, therefore we calculated an approximation. In terms of the overall industry, market share of The Body Shop can be calculated as: (Body Shop's Sales/Total industry Sales) *100. We approximated the total C&T global industry to be USD 134 billion in 2003, and from The Body Shop's annual report their annual sales during the period were USD 602 million. Therefore using our approximation formula US$ 602 million/US$ 134 billion * 100 = 0.45%; Sales from The Body Shop represent approximately 0.45% of total global C&T sales. This may appear to be an insignificant market share, however as outlined above in the US alone there are over 1000 cosmetic companies. To compare The Body Shop's position in the natural based segment, we used the top competitors' total sales as an approximation of the natural sub industry sales. In 2003, Body Shop's top competitor's sales are given below. 2003 sales US$ in millionMarket Share Estee Lauder5117.6056% Bath and Body Works1780.0019% Boot's Group1676.2618% Body Shop602.007% Total sales9175.86100% Source: Extrapolated from MSN money and Hoover's online. *Total sales of Boot's Group in 2003 were USD 8381.3 million, however only approximately one-fifth of these sales are in C&T products.
Based on this analysis, The Body Shop controls approximately 7% of the natural C&T industry. The ten leading companies account for roughly 63% of total industry sales. Estee Lauder, Limited Brands and Johnson & Johnson are the major marketers in skin care. L'Oreal, Estee Lauder, and Revlon are dominant in makeup, while Procter & Gamble, L'Oreal, and Unilever are the leaders in hair care. The top five companies represent 46% of total industry sales (Source: Euromonitor). Body Shop positions itself as a retail player and heavily focuses on the skin care segment of product categories. According to Datamonitor, the total market for skincare products is predicted to grow at a 0.9 percent compounded annual growth rate (CAGR) in the period 1997-2002. This equates to a market value increase from $5,743 Million in 1997 to $5,988 million in 2002. Although medicated skincare is one of the slowest growth categories forecasted; The Body Shop (as well as other manufacturers) is looking at new product development within this segment to encourage growth. In particular, The Body Shop developed the Tea Tree Line in facial and body care that offers benefits for skin problems traditionally treated with medicated products. Industry Key Success Factors The industry key success factors are listed below: 1.Product innovation. 2.R&D capabilities. 3.Reduction of costs. 4.Globalization. 5.Customer service 6.Store ambience 7.Packaging 8.Environmental-friendly products 9."No-Animal-Testing" products 10.Promotion and advertising 11.Brand recognition VALUE CHAIN ANALYSIS Value Chain divides activities within a firm into two broad categories: primary activities and support activities. It highlights the explorations of internal analysis of a chain of business activities and explores the role and contribution of organization's resources corresponding to primary and support activities in a cost-effective way to gain cost advantage. Procurement As for the Procurement in support activities, The Body Shop has developed long-term sustainable trading relationships with key suppliers and created a special purchasing programme-Community Trade. This programme trades with communities in needs around the world and receives ingredients and accessories directly from the developing countries. The Body Shop substantially benefits from the community trade since more raw materials can be found for inclusion in the best-selling products. Therefore the supply of raw materials would be cheaper and more stable. So the supply chain management in The Body Shop performs in a cost-effective manner and better than its competitors. In addition, the Body Shop sets up guidelines to ensure its supplier to be compliance with ethical policies in purchasing decisions. The unique ethical consideration builds a very good image to its publics. Comparing with other competitor, the sustainable trading relationships with suppliers are the crucially important competence of the Body Shop and become a source of competitive advantage. Outbound Logistics For the outbound logistics, the Body Shop distributed its products through both franchised and company-owned stores. So an important part of the Body Shop value chain is a large network of numerous franchises all over the world. Abroad franchises use the Body Shop's brand name and sell high quality body care products to the valued customer. Over threequarters of The Body Shop stores are franchised and it accounts for the majority of both sales and profits in business. This model allowed the company to quickly expand across North America and Europe. However the franchising model is the source of some problems that The Body Shop is experiencing. The franchising system has grown too fast and lacked of strategic communications with the company head. Recent result of Social Audit also reflects that a substantial number of franchisees do not strongly relate themselves to Body Shop's campaigns on human rights and environmental protection. Though the social and environment issues are conveyed effectively but the equally important sales volume and marketing tactics fail in reaching the expected objectives these years. The most challenging thing for The Body Shop is how to balance its ethical principles and reasonable revenues for its franchises. Marketing Another key component of the value chain of the Body Shop was sales promotion through selected media, which is not in the conventional way. Competition in cosmetics retailing is intense, heavy input in marketing and sales is crucial to
maintain the prominence of established brand names. The Body Shop has used the media masterfully as a major tool to promote sales. And strategic promoting its ethical and social stance also helps build brand image to great advantage. However, the Body Shop usually advertised indirectly and acted as an excellent communicator with customer, not through the company but through editorial coverage in magazine, newspapers and in-store presentations. Advertising in magazines is important to enhance sales volumes because any endorsement of a product by their editors is likely to stimulate sales significantly. It greatly saves the cost of advertising compared to other ways through media such as TV. Other promotion activities such as point-of-purchase and free gifts are also important, especially to the loyal heavy-users. So The Body Shop has unique channels to effectively communicate with customers rather than the traditional marketing techniques. Sales On the other hand, besides the effectiveness of sales advertising the Body Shop has actively extended alternate distribution channel through its at home party-plan scheme to face up to the stiff competition. It proves to be an effective distribution channel for the company and attracts a large number of customers. Moreover, in today's shrinking global community, it is essential to make innovation in sales to meet customer needs. The Body Shop has started direct selling in US by more importantly using Internet to conduct e-business. Selling via the Internet not only increase its reach to larger consumer base but also provides new opportunities to improve the company's financial underperformance it experienced in recent years; because on-line shop operates at low store overheads, particularly rental costs. On-line selling also sends mixed signals to current and potential franchisees. People have started realizing the power of direct selling through Internet in recent years and it may pose a threat to sales through franchise. Human Resource Management One of the uniqueness of the HR in the Body Shop is that it integrates social and environmental principles into HR management system. Such as the inclusion of environmental responsibilities in job descriptions, day cares with children and even paid hours of work for local charities and community projects etc (Values Reporting: Individual Stakeholder Accounts for Employees, 2003). The Body Shop considers employees as company's most critical asset an employee not only performs the daily retailing work, but also fulfils the social and environmental responsibilities. The shop also established the reward system through financial incentives to motivate the employees to improve the retailing performance as well as promoting social and environmental changes through campaigning and volunteering. Therefore, the general management views and culture are responsive to the needs of employees. Some management problems are also obvious such as high employee turnover. High employee turnover may result in the additional costs for recruiting and training staffs and inconsistency in managing people. In addition, although the business has expanded all over the world, strategies and policies embedded in strong personal values of founder Anita. The relationships with employees have been substantial barrier in being transferred internationally. How to effectively manage and control the regional business and quickly react to changing markets and competition became a great challenge for the Body Shop. Summary In summary, Value Chain Analysis implied that the internal core competencies of the Body Shop is the environmental green approach with regards to ethics and social responsibility, long-term sustainable relationship with suppliers, strong franchise network. Noticing weakness is difficult in managing and controlling the regional franchisees and high employee turnover. ( www.thebodyshop.com) SWOT ANALYSIS Strengths Strong Brand/ Global Name Reorganization As mentioned in the background section of this paper, The Body Shop has a strong global presence with stores in 51 countries. All of these locations adhere to common standards, to offer their customers a common product. The Body Shop brand, for many, is associated as being a high quality product - some might say that their products are of better quality than those of their competitors. Additionally, The Body Shop is also known for strong customer service. Support from Head Office Senior Management at The Body Shop displays a genuine interest in company's campaigns. Therefore, a large amount of money is spent on those PR activities that raise awareness against human rights abuse and environment & animal protection. In turn, employees at all levels of the company support these activities. Employees are encouraged to volunteer their campaigns in their local area. Therefore, the PR messages of the company can be spread throughout the world. Leader of Animal Protection The Body Shop is the first cosmetic company involved in the campaign for animal protection. People notice the company when they're thinking of animal protection. This allows goodwill to be developed around the brand name of the company. It also allows the company to charge a premium for their product. Community Trade Program
The company has created a special purchasing program, called Community Trade Program. It develops long-term sustainable trading relationships with communities in needs around the world by helping them to create livelihoods, and to explore a trade-based approach sustained by sourcing ingredients and accessories directly from the developing countries. The programme is beneficial to the company since more raw materials can be found for inclusion in the best-selling products. The supply of raw materials would be cheaper and more stable. Also, the community trade shares the sales of the company. They now account for almost 10% of the company's total sales. Finally, the programme gives a very good image to its publics. It helps the company PR very much. Weaknesses Deteriorating Image The company's products are misconstrued (by some) as being trendy, fashionable products rather than essentially green products. There is a feeling that the recent decline in the performance of The Body Shop in the UK is because the environmental campaigning may be out of tune with the mood of the consumers. There are doubts about the long-term sustainability of a firm's competitiveness built purely on the basis of a green marketing framework. UK consumers tended to doubt the marketer's green claims and based their purchase decisions on their environmental consciousness as well as other product and company attributes The Body Shop's carefully worded promotions create the impression that none of its products or ingredients has been tested on animals. Cosmetic authorities call Body Shop a "bathtub" company. Literally founded in a backroom, it never tested its cosmetics or ingredients because it couldn't afford to. It uses mostly off-the shelf formulas made with petrochemical-based colors, fragrances, preservatives and key base ingredients that have all been tested on animals. By promoting its opposition to animal testing, it turns its weakness -- relying on responsible companies that do invest in product safety - into a-brand marketing point-of-difference. Low Wages and Human Rights Issues The Body Shop pays their workers low wages and are opposed to trade unions, ensuring that they keep labour costs down and that employees are not able to organize to improve their working conditions and control over their working lives. Human Rights - The Body Shop have stated that responsible companies should not deal with governments with poor human rights records [e.g. speech by Anita Roddick to International Chamber of Commerce in Oct 93.] Yet for more than 10 years, the company has been purchasing baskets from China in huge quantities produced by cheap labour, including during the Tiananmen Square protests and massacre. The starting rate of pay for shop assistants at the Body Shop in the UK is between £4.37 and £5.18 per hour (depending on the location of the store) In 1997 the Council of Europe set a 'decency threshold' to pay minimum of £6.60 per hour. Packaging and Transportation Problems The Body Shop uses plastic containers made from petrochemicals, which are not recyclable in the vast majority of markets in which the company operates. The recycling capability of the packaging materials is limited and the cost of recycled paper is higher than prime paper. Transportation - The mass production of Body Shop products and their transportation over large distances not only results in environmental damage but also necessitates the products containing many preservatives and other synthetic ingredients. Supply chain Issues The Body Shop does not have consistency with suppliers, which can be identified from the example given below: The Body Shop had over many years sourced a substantial amount of babassu oil for its 'Rainforest Bath Beads' from Croda Chemical Company (which processed the oil from nuts not growing in the rainforest) and from Cultural Survival Enterprises that stated it sourced most of its supply from the mainstream commercial markets. Testimony at the trial by a Body Shop representative confirmed that the Body Shop experienced delays in getting babassu oil from South America, so it bought in babassu oil from Croda "rather than have to stop the product and thereby not being able to launch the Trade Not Aid material" The Body Shop state in their literature that if a supplier does not comply with their policy, they will find an acceptable alternative supplier or, failing that, will scrap the ingredient] In 1989-90, the company did not cut off the supplier of bath salts Heinrich Hagler after it learned that its ingredients were being tested on animals [documents disclosed during the Body Shop law suit against Channel Four in 1993.] Transparency and Communication The company has not demonstrated adequate openness and transparency, accuracy in its general communications and willingness to entertain constructive criticism. It notes that it has reacted poorly to criticism even from 'friends', franchisees and employees.
Pricing Customers feel that the prices are higher as compared to traditional chemical-based cosmetics and toiletries. They also feel that enough discounts are not given that makes the product costlier than others. No Specific Product Lines in Asia As the company focused its market in Europe in the past years, most of its products were designed for western countries. Almost all of its product designers were foreigners who might have difficulties when they're designing products for Asians. This prohibits the development of the company in Asia. Difficulties in Managing and Controlling the Regional Business and Suppliers To solve this problem, the company has tried to restructure its businesses in 1999. It involved developing new regional business units in UK, Europe, the Americas and Asia, setting up guidelines for Community Trade and reorganizing the supply chain on regional basis Opportunities Increasing Global Presence As seen in the industry analysis section of this paper, demand for C&T products is beginning to level out in The Body Shop's traditional markets - Western Europe and North America. However, demand for these products is increasing in Eastern Europe, Asia, and Central/South America. The economies in these regions are beginning to strengthen and these consumers now have more deposable income to spend on products that were previously classified as luxury goods. The Body Shop could take a lead and enter into these markets ahead of the competition and receive first mover advantages. Therefore it is a definite opportunity for The Body Shop to enter these markets. Expanding Product Lines Recently, The Body Shop launched a line of at Home Spa products to capitalize on the growing popularity of individuals relaxing and 'pampering' themselves. The company could choose to expand their product lines to meet a broader range of customer demands. Expand The Body Shop at Home Program A potential opportunity for The Body Shop is for them to expand upon their current Body Shop at Home program that is currently only offered in Australia and US. This program capitalizes on the re-vitalization and growing popularity of 'girls' nights' and parties where merchandise is sold. It is modeled on the traditional 'Tupperware Parties'. The benefits of these parties are that customers (women) get the opportunity to socialize and try products before they purchase them. This model allows the company to reach customers who they may not have been able to reach previously at a cost that is less than opening a new franchise. A benefit to it is that positive results are currently being observed where it is in place. Expand E-Commerce Activities The Body Shop could expand their E-Commerce program that is currently available only in the US. This would allow the company to reach individuals that they previously could not reach because their retail stores are only available in large urban centers. This would increase the level of brand awareness while dramatically cutting business costs - because the ecommerce technologies cost less to set-up and maintain than a traditional bricks and motor retail environment. The company could consider the possibility of partnering or outsourcing their e-commerce aspect of business to a company that specializes in e-commerce technology. Searching for Alliance or Joint Venture Partner Finally, in an attempt to increase their market share, The Body Shop could look for a company to strategically align themselves with. The ultimate purpose of this would be to expand the firm's market coverage and boost its competitive capability. Threats Competition in Cosmetic Industry As competition within the C&T industry increases profit margins are being squeezed. This affects the company's bottom line. Additionally, increase in competition means that consumers have more choice in the products that they are purchasing which can potentially have a derogatory affect the market share that the company controls. Finally, the markets that The Body Shop currently operates are experiencing growth that is plateauing and in some instances actually declining. Risks in Material Supply Most of the ingredients in its products are plant based. The growth of plants is highly dependent on factors that cannot be readily controlled - weather, fires, and insect infestations. Also as the climate changes and rain forests are being destroyed plant species are being lost.
Adverse Shift in Foreign Exchange R ates As The Body Shop operates in an international arena, fluctuations in exchange can have a serious effect on their bottom line. Trade Restrictions and Governmental Regulations Finally, because many ingredients that The Body Shop uses to make the products are imported, any restrictions in trade could potentially affect their business. If materials cannot be sourced than products cannot be manufactured. Additionally, changes in governmental regulations - such as testing for human safety and environmental protection, e.g. recycling or pollution - could affect their bottom line if they have to adapt to an external environment. THE BODY SHOP'S FINANCIAL POSITION The Body Shop's year versus year sales is only growing at 0.8% against industry growth rate of 23.1%. Its current P/E ratio (14.3) is greater than the industry P/E (9.7). It seems to have performed really well in terms of profitability. Its current net profit margin is 5.7% against the industry profit margin of -1,014.6%. It seems to have depended more on debts (lower leverage) against the industry. It's D/E multiple is 0.66 against the industry average of -11.18. Body shop (current ratio 1.5%) has lower short-term solvency than the industry (current ratio 3.8%). It has a higher interest paying capability than the industry (interest coverage). For the last five years, Body shop (9.9%) on average outperformed the industry (-27.9%) on its return on invested capital. Its management performed really well against the industry average. Body shop employees have successfully generated higher income (3699) than the industry (-85,445), although revenue per employee is lower (Body shop 64,473, industry 93,790). It has a higher asset turn (1.8) but lower inventory turnover (2.5) than the industry (0.7 and 11.3 respectively). Please refer to the appendix 4 for details of these figures (Source: MSN money and Hoover's online). Financial Analysis Note: Any discrepancies between the financial ratios reported above and those reported below is the result of different definitions of the ratios. It is important to analyze the financial viability of The Body Shop through short-term liquidity and long-term solvency to determine its sustainable growth. Based on annual financial statements for the years ending 1999-2003, we believe an analysis of the company's liquidity, profitability, solvency and financial flexibility will help determine the company's resource and financial capabilities. The analysis is comprised of 4 business aspects. 1.Solvency 2.Liquidity 3.Debt Management and Interest Coverage 4.Profitability Solvency An analysis of the current ratio, quick ratio, net working capital, and net liquid balance aids in determining the solvency of the company. Current Ratio: 19992000200120022003 1.371.201.141.101.23 The current ratio has been around 1.20 since 1999, which indicates that the Body Shop's ability to cover short-term liabilities with current assets in the event of liquidation is good. The Body Shop's current liabilities cover a substantial portion of the company's total liabilities and equity. The current ratio can cover the liability. Net Working Capital (000's GBP): 19992000200120022003 30,30019,40014,70010,30022,000 Net working capital is the amount of long-term funds that are used to finance current assets. The Body Shop had a diminishing positive working capital balance from 1999 to 2002. The Body S hop's NWC balance from 2002 to 2003 indicates its current assets increase much more than its current liabilities, which leads to better solvency. Based on the growing current ratio and net working capital, the financial data indicates that the company is solvent with growing capabilities to cover short-term liabilities.
Liquidity Cash Flow from Operations (000 000's GBP): 19992000200120022003 5031.421.444.751.5 Positive cash flows from operations are vital for the survival of any business. Cash is the most important asset for the Body Shop. A positive cash flow from operations enables the company to serve creditors, cover interest and bank charges and membership fees. The decrease in sales in 2000-2001 affected the company's ability to generate cash from its operations, thus reducing the amount by nearly half. It is important for the Body Shop to increase its sales in order to increase cash, which is an important asset used for debt, salary and rent payments. The positive amount, however, indicates that the company is liquid, whereas the continuous decline may cause a liquidity threat to the business. Defensive Interval/Time to ruin 19992000200120022003 43.823.614.15.526.5 The defensive interval indicates how long a company will be able pay its bills in the event that revenues are disrupted. The Body Shop fluctuated widely from 43.8 days to 5.5 days. The data indicates that The Body Shop has a stable liquidity position since 1999. Overall, the company is liquid and has cash to cover unforeseen needs and opportunities. However, its' liquidity is subject to the direction of sales revenues and expenses.
Debt Management and Interest Coverage Long-term Debt to Capital: 19992000200120022003 3.22%2.18%2.95%2.44%2.48% The stable long-term debt to capital ratio indicates that the company has no change in its long-term debt position. The company depends on short-term liabilities and retained earnings to finance operations, providing much more financial flexibility due to the low rate. Total Liabilities to Total Assets: 19992000200120022003 43.05%44.94%47.15%45.61%44.27% This ratio has stayed the same point around 45%, indicating its capital structure did not change so much since 1999. The company should continue to decrease short-term borrowing and increase usage of retained earnings and put borrowing as the last resort. Performance Return on Equity (ROE) - before taxes: 19992000200120022003 (4.02)15.167.814.3510.79 The poor performance in 1999 resulted in a negative return on equity, so was in 2001 and 2002. During that period, the equity holders received only 10 percent of their investment. Return on Assets (ROA) - before taxes: 19992000200120022003 (2.29)8.344.132.376.02 The Return on The Body Shop's assets was increased from 1999 to 2000. The declination in 2001 and 2002 is mainly due to reduced sales. The positive return in 2003 indicates that each dollar of The Body Shop's assets provide a 6.02% return as profits. The assets are used favorably in generating sales.
Gross Profit Margin: 19992000200120022003 5.80%6.03%6.02%6.08%6.22% Net Profit Margin - after taxes: 19992000200120022003 -1.52%5.57%2.54%1.42%3.57% Positive margins indicate a profitable business. However, the vast differences in gross and net profit margins indicate that expenses reduced profit margins substantially. The Body Shop is relatively profitable since 1999. Its favourite liquid, solvent profitable is well managed. Adjustments of its expenses emphasis on increasing sales, which help The Body Shop grow and compete with its competitors. ORGANIZATIONAL DESIGN Structure The Body Shop International is a public Company listed on the London Stock Exchange. It has over 2000 stores in 51 markets around the world. Refer to appendix 5; exhibit 1, to view the breakdown of retail stores per region. The Company operates as head franchisee in the UK, USA, Mexico, Austria, France, Germany, Denmark and Singapore with the remaining 42 markets owned and operated by independent head franchisees. The Company currently has over 6,000 employees worldwide in Company stores, regional offices, and the UK-based Service Centre. Indirectly there are tens of thousands employed thorough the global franchisee network and supply chain. In 1999, The Body Shop created four new business units for the UK/ROI; the Americas; Europe, Middle East and Africa; and Asia-Pacific. Company has reorganized itself into a regional structure, outsourced main manufacturing operations, and made changes to the leadership team. The aim has been to achieve more retail focus and operational efficiency, while respecting values. The regional centres carry self-contained units that have full profit responsibility managing all retail and franchise activities, whilst also interacting with the Service Centre in the UK to adapt the consumer offer to local needs. This structure significantly enhances company's ability to effectively deliver a tailored offer to customers. In addition to the four regional units, the Service Centre provides a core group of professionals responsible for delivering product, store and communications strategies to the regions. The Company retains ownership of Soapworks Limited, a soap making and product packing facility based in the Easter house district of Glasgow, Scotland. Organizational Structure Exhibit 2 located in appendix 5, contains an organizational chart for The Body Shop. The chart has been formed by the group after going through various sources and as the exact structure is confidential and not available. The Main Board comprises eight members, two of whom are women. The Executive Committee comprises eleven people, four of whom are women. Over 80% of all employees are female.70% of employees work in retail outlets. Approximately two-thirds of retail employees work part-time. Approximately 30% of worldwide stores are Company-owned. The majority of Company stores have women managers. The CEO has ultimate accountability for the safety, health and well being of employees. S/he also has a moral obligation to ensure that fair and decent labour practices are upheld in franchisee and supply chain networks. He is kept informed about performance in these areas via monthly HR KPI reports, minutes of the Corporate Health and Safety Group and periodic updates on supply chain issues. There are two Board committees that operate within defined terms of reference: the Audit Committee and the Remuneration Committee. Management of the Group's operations is delegated to the Executive Committee, which includes the Chief Executive Officer (CEO), Finance Director, HR Director, Head of Values and other senior managers. Sub-Committees of the Executives exist to help direct the social and environmental performance of the business. These include a Corporate Health and Safety Strategy Group, an Environmental Steering Group and an Animal Protection Steering Group. Minutes are shared with the Audit Committee, Chairman, CEO and Executive Committee. The average age of board members is 53 years and many of the company' executive directors have experience in retail industries including Gucci Group, Danone, The Gap Inc, Kraft International, and the General Foods Group. Exhibit 3 located in appendix 5, containing information on the executives of The Body Shop; and exhibit 4 located in appendix 5 outlines the functions of each executive. Style The management style of the Body Shop is employee involvement style, or so called "participative style". Actually before starting Body Shop, Anita and Gordon Roddick blew their first retail venture, a restaurant. The disaster held important lessons: "We had done everything wrong. ... What saved us . .. was our willingness to recognize that we were wrong and our ability to move swiftly to the next idea." That determination to "try anything" reflects a management style Roddick describes as "loosely structured, collaborative, imaginative and improvisatory." She says that she and Gordon have "fostered a kind of benevolent anarchy by encouraging everyone to question what they (do) and how they (do) it." The peripatetic
Roddick herself desperately pursues new ideas: "We have learned to love change. ... I will go anywhere to talk to people who say they are doing things in a better way." (Tom Peters, 2001). In the Body Shop, top management has only a limited affect on the individual sales of each separate store. Management has faith that franchise owners will maintain the integrity of the name and conduct business according to the philosophy determined at the beginning of development and traditions of the original store. (Debra Thompson, 2000) Staffing According to the company website, over 80% of their employees are female, 70% of their employees work in retail outlets, approximately two thirds of those employees work part-time, 30% of their retail stores are company owned and the majority of these are run by female managers. To effectively manage these individuals the company has implemented a 'think global, act local' strategy for their human resource functions; this strategy recognizes employees as the company's most valuable assets. The strategy focuses on 'providing a unique employment proposition that supports the Company's retail vision, respects [their] social and environmental mission, and enables employees to use and develop global skills" (http://www.thebodyshop.com/, 2004). Their strategic approach focuses on four distinctive factors: 1.Engaging employees behind the vision of the business 2.Creating a high performance culture that delivers the best service to customers and rewards success 3.Investing primarily in leadership development and training and development of store managers, especially around product knowledge and brand differentiation 4.Ensuring that the Company's values remain strong in the perception of employees To accompany their formal global HR strategy the company outlined HR objectives for the 2003/04 on their website, these included; To establish a global 'Centre of Excellence' for learning and development of retail employees that identifies and delivers best in class customer service. To implement a Leadership Development program and develop succession planning for senior managers across the global business which optimizes performance and encourages internal promotion at senior levels. To develop appropriate HR processes and products to help improve individual and organizational performance. To enhance reporting of key HR key performance indicators and other information to the Executive Committee and other senior managers, as well as employees. To maintain and develop alignment and consistency in HR processes, organizational structures and standards of service across the Regions and the Service Centre. To develop technology to support and improve HR service delivery, with a particular emphasis on paperless management. Although, specific information on The Body S hop's recruitment, selection and development policies could not be found, it is assumed that more managers would place more emphasis on qualities of individuals rather than the qualifications of employees. This assumption is based on the fact that personality, energy and attitude are things that a person is born with and are extremely difficult to teach. These are required for an individual to be a successful in a retail/ sales environment. In addition, it is assumed that the company is an equal opportunities employer. With regards to franchising, The Body Shop has a very rigid approach to find the right person to be its franchisee. A successful franchisee among 5000 candidates has to experience a three-year process involving a personality test, a home visit, and an assessment of the candidate's business acumen and attitude towards people and the environment. By doing so, only those who fit the corporate strategy and culture may make it through. More than 90% of its franchisees are female, since the company believes that the cosmetic industry is women's. However, the Body Shop utilizes a loose control over those who successfully become one of them. As a franchisee, she could do what she can to promote and increase sales. Staffs in the Body Shop are encouraged to get involved in decisionmaking. They can have their voice heard by managers. "How can we ennoble your life?" and "How can we make your spirit sing?" are most commonly asked questions within the group by managers. Systems Control systems are used to ensure that good achievement will occur. Due to aspects confidentiality, direct information regarding controls systems could not be found. At the retail level it is assumed that The Body Shop is using behavioural output control systems and at the corporate level behaviour control systems. Information on reward and motivation systems could not be found. However, information on management systems was found. The Body Shop has developed a number of management systems and processes used to support their social and environmental policies. These include a supply chain integrity programme, a monitoring system for their Against Animal Testing policy, and an environmental management system. According to their website "Integrating social and environmental principles - such as the inclusion of environmental responsibilities in job descriptions - remain an important part of [their] HR management system". To support these policies and practices a number of HR processes were developed including the Consultation and Representation Committees (CRCs), European Works Council, and Advocacy in Action. ALTERNATIVES
Given the growth of The Body Shop and its recent restructuring, we believe it is critical for The Body Shop to focus on improving their operational efficiency. In our opinion, the best way to achieve this is through reducing their inventory holdings and improving efficiencies within the supply chain. This can be achieved through implementing one of two broad strategies - vertical and horizontal integration (related and unrelated diversification). The advantages and disadvantages of the three alternatives will now be discussed. Vertical Integration Vertical integration extends a firm's competitive scope within the industry that it competes in. It involves expanding the firm's range of activities backward into sources of supply and or forward end users of the final product. In the case of The Body Shop we would be recommending that they secure agreements with their suppliers. Advantages 'Strong Selling Point': A strong selling point would result because the company would know actually where all the materials used for the production process originated. This would also allow the company to form strong relationships with their suppliers; so in the event that a short of raw materials was to result the supplier would likely fill the originating from The Body Shop before an order originating from another company. Finally, this would allow the company to better ensure the quality of the materials that they received. Signals to Stakeholders a 'World Community': This is important because it allows stakeholders to see that as a company they are practicing what they preach, i.e. they are being a socially responsible company and following through with their business principles. Disadvantages Open up for Criticism: These criticisms would result from damage occurring to the environment or if human or animal rights violations occurred. The company would be required to be more transparent in their reporting and could no longer stand behind the blemish that they were not aware of what was going on - in the event that a discrepancy occurred. If business discrepancies occur and are probably dealt with, than there is the risk that the good image of the company could become tarnished. Increased Overhead Costs: These would result because it would become more difficult to mange the day-day operations of the company. Horizontal Integration (Related) Advantages Economies of scope: Body shop can concentrate on high growth sectors and markets of C&T industry, which are not of prime focus as such. It also can attempt to grab a share in the synthetic segment of the industry. This would enable it to share technology, R&D ventures, distribution and marketing and furthermore, its strong brand name in the new product category. These economies of scope will allow it to reduce costs (cross-business opportunities) and enhance competitive advantage. Strong Brand Loyalty: The Body Shop name already has strong loyalty from its customers and worldwide recognition for its commitment to the environment and its superior products that can help them to horizontally increase its product portfolio and services. Strategic fit: Diversifying into related businesses will be a strategic fit that would enable Body Shop to transfer its skills and knowledge, combine its value chain activities to lower costs and collaborate to create new resource strengths and capabilities. Disadvantages Weakened Branding: Any failure into the extended range will weaken the existing brand image. Besides the existing concentrated efforts on the current product range will take a hit also and may result into overall downturn due to reduced sales. Staffing: Company will need new staff members to develop the extended product range that may fit with existing culture or the current staff members and control systems and, if not, it can create the problem in existing structure and may lead to demotivated employees and low employee morale. Increased Costs: Increased costs result because the company would be required to manage more business lines and promote more business lines. Spacing problems in stores: The current vast product range requires enough space and one of profitability criteria for shops is the self -space so company operated stores or franchisees may find it difficult to accommodate the extended range and may oppose it. Horizontal Integration (Unrelated) Advantages: Reduce business risk: Related companies' financial risks are highly related and unrelated companies are not. As unrelated diversification operates in totally different technologies, competitive forces, market features and customer bases, it reduces business risk. Therefore, Body shop can acquire an unrelated company and reduce its business risks especially in the UK (listed in the LSE). Potential acquisition company's resources can be very advantageous. A company's cash flow with low
growth and high profitability can be diverted to acquirer's high growth and profit potentials. Unrelated diversification implies that the cyclisity of two different businesses is different. Hence, bad time in one business can be offset by good time in another. Unrelated diversification can enhance shareholder value by acquiring a company, with high profitability, for less than its market value. Brand recognition and loyalty: Body shop might be very successful to capitalize on its brand loyalty and recognition in new markets and realize more profit potentials. Disadvantages: Knowledge and skill required: Unrelated diversification will make decision-making processes very difficult, as Body Shop will lack expertise and knowledge in another company operating in a solely different environment. If the new companies underlying industry is very competitive, then Body shop will face difficulty to penetrate in the market. Loss of Differentiation: One of the KSFs in the industry is ability to differentiate products in C&T industry. Investing in a different line of business may jeopardize Body Shop's financial and human capabilities and dilute its focus on its basic business. Increased cost: Unrelated diversification may lead to higher costs stemming from the lack of knowledge and expertise to manage a different business line (Thomson and S trickland, 2001). DECISION MAKING PROCESS To arrive at a decision regarding which of the three alternatives would provide the most desirable outcome for The Body Shop, each alternative was evaluated using a series of five criteria. This analysis was performed using a matrix, to view refer to appendix #7. The criteria used included: (1) cash requirements, (2) customer satisfaction, (3) employee morale/ motivation, (4) ease of implementation, and (5) corporate image. Each criterion was assigned a weight based on the perceived impact and importance that the criteria has on the day-to-day operations of the firm. Each alternative received a red, yellow, or green dot- for each criterion. The color of the dot corresponds to a score; red dots receive a score of 1, yellow a score of 2, and green a score of 3. Higher scores represent expected outcomes that are more desirable. Using this system, a weighted average was calculated for each alternative and the alternative with the highest weighted average is the most feasible and therefore should be implemented. It was determined that corporate image/ ease of attracting future employees was the most important criteria and therefore received the highest weighting. In the case of The Body Shop it is their image that allows them to justify their premium pricing. Therefore, the image of the brand must be protected at all costs. It was determined that the employee morale and motivation criterion was the most important, and hence was assigned the highest weight. This is because at the time of the case, the internal conflicts within the organization appeared to be affecting the work environment. Customer satisfaction was determined to be the second most important criteria, and was assigned the second highest weight, because without customers there would be no business or reason of existence for the firm. Therefore, any decision that is made must be in the best interest of the customers and the client files must not be interpreted during any internal restructuring process. Employee morale and motivation was ranked third, because employees are partly responsible for sales as they have the primary contact with the client in the retail environment. The goal for The Body Shop should be creating repeat customers. Customers are more likely to be repeat shoppers if they enjoyed their shopping experience. At the corporate levels employees are responsible for new product development. Without the continuous introduction of new products customers would likely switch brands to that of a competitor- if the competitor offered products that better suited their needs. Cash requirements were ranked fourth, because even though The Body Shop is an international company with access to more than sufficient cash for operating purposes, cash is still very important. For example, if an employee were to sue the firm for wrongful termination, this cost would likely be passed on to clients through increases in fees. Finally, ease of implementation was ranked fifth, because no matter how good a decision looks on paper it still has to be successfully implemented for the desired outcome to be observed. The time it takes to implement a decision is included within this criterion. As previously stressed, it is essential that any implementation be as quick as possible. RECOMMENDATIONS Based on the results from the decision matrix (appendix 7) and decision analysis (advantages vs. disadvantages) the best alternative is for The Body Shop to use a vertical integration strategy to further expand upon their growth. This strategy does not dilute their brand name with other products, whether related or unrelated to their core product line. The Body Shop already prides itself based on the fact that they purchase their supplies from Global S uppliers; therefore partnering with or owning some of these suppliers would be strengthen their position. Also sense they have a major focus of reducing their operational expenses, having some control over their suppliers would mitigate the 'middle man' expense. This strategy could be achieved through two different means; the first is forming strategic partnerships/ alliances with suppliers who are globally conscious, and the second through outright purchasing suppliers. Based on The Body Shop's past experience with 'owning their suppliers', we recommend that the management should consider creating partnerships. This would enable the company to conserve their financial resources, while 'testing out the water' and gaining experience. After sufficient
experience is gained, then we advise management to consider the possibility of purchasing suppliers. Before making any decision regarding the purchase of suppliers, management must answer one question 'are we increasing stakeholder value, both financially and in a socially-conscious fashion'? If the answer to the question is no, than the purchase should not be made and alternative should be identified. Structural There are several changes that should be made to the structure of The Body Shop. The first is that more interaction between departments and offices is required. This interaction would allow the company to adopt the experiences and best practices to meet particular market requirements. To achieve this some information system of interaction frequently can be developed. Another structural change is to put the decision-making authority in the hands of the people closest to and most familiar with the situation and train them to exercise good judgement. After the implementation of the above changes, the organization structure will be much flatter and more decentralized. This will create an environment that promotes employee empowerment; which will lead to shortening of organizational response time, and spur new ideas and creative thinking. With employee empowerment, jobs can be defined broadly and several tasks can be integrated into a single job. This reduces the number of managers that would be required while leading to improvements in employee morale and productivity. Green Marketing It is suggested that The Body Shop should continue building formal and informal alliances with environmental groups to improve their credibility. This also gives the company a sense of direction for their green marketing programs. Green marketing initiatives are very important for The Body Shop, as market expansion is taking place in the green product category. Products made of natural raw materials and packed in simple recycled plastics have significant perceived and real benefits for the customers and this is leading to the creation of a new product category. Based on this it is recommended that The Body Shop evaluate the feasibility of re-introducing a bottle-recycling program. Product and Packaging The Body Shop offers high quality products based on natural extracts and ingredients and with minimal use of chemicals, which can be harmful to human lives. Quality is a primary concern. Once a product reaches the shop shelf the company underlines its value with simple, straightforward packaging and a hype-free presentation. The company uses minimal amounts of packaging. Thus, customers know they are not paying extra for a fancy wrapper or a big advertising campaign. All packaging is made of recycled materials, such as paper and plastic. The packaging is limited only to its usefulness and the company ensures that packaging material is durable, easy to clean and suitable for recycling several times. However the products of the company have not been adapted to suit the preferences of Thai customers. Some Thai customers feel that the fragrance is too strong and packaging looks "unfashionable". Additionally, some customers have complained about allergic reactions from the company's products. Therefore, we recommend that the company should perform a higher degree of market research before entering into new markets. To prevent further customer dissatisfaction, The Body Shop's suppliers should have strong ecological credentials. In addition suppliers should provide safe working conditions for their employees, not damage the environment, and not use child or 'sweat shop' labour. These factors are very important because the company must remain transparent and adhere to the high standards that they have set for themselves and that their customers demand. Association with suppliers who do meet these high standards would affect the image of The Body Shop brand. We do not want The Body Shop to become the next Nike, with regards to public image. Finally, with regards to suppliers it is recommended that the Body Shop work with a limited number of suppliers who are located closer to the manufacturing base. It is important to have pre-set contracts with these suppliers. This recommendation will save The Body Shop money because transportation expenses will decline and economies of scale can be observed because they would be purchasing supplies in higher volumes. New Markets Based on the industry growth statistics introduced in the industry analysis section of this paper, we recommend that The Body Shop investigate the potential of entering markets in Eastern Europe, Asia, and Latin/ South America - as these are markets that are emerging and therefore are showing rapid growth; whereas the traditional market growth is experience relatively no growth. It is recommended that the company use their franchise model discreetly in these new markets. In place of the franchise model it is recommended that they open company owned stores - this would allow management to more effectively monitor operations and ensure that the highest standards are being observed. We also recommend that The Body Shop expand the use of e-commerce and The Body Shop at Home program (direct home selling program) beyond the US. Based on our primarily investigation it is unlikely that these programs would show success in most of the Asia, Eastern Europe, and Latin/ South America - due to poor electronic infrastructure and personnel beliefs of individuals surrounding the security issue. However, in North America, Western Europe and Australia it is believed that the success currently observed in the US trial would be universally observed. These programs would provide customers with convenient alternatives to the traditional retail-shopping environment. At the same time these alternatives are cheaper to implement than opening a new store. With regards to the e-commerce aspect, strategic alliances could be formed with companies that have an established e-commerce framework or distribution channel. The Body Shop also has
the opportunity to outsource all and parts of the e-commerce framework. To deal with the issue of payment security via the web, the company could subscribe to services such as verified by visa. ACTION PLAN Immediate: Improve brand image Use in-store 'memos' to educate customers about products - in particular the ingredients and testing of the products. The purpose of these would be to provide consumers with additional information, so that they can make informed decisions. These memos could be stored in a binder to make referencing them easier. Educate employees through informal training sessions designed to allow employees to assist consumers in making educated decisions. The most practical and feasible way to achieve this is allowing employees to watch video segments/ live web broadcasts or read information packages. The focus of the sessions should be on promoting the natural aspects of The Body Shop products. Finally, The Body Shop should use their current web site, as a means of educating their consumers. Content could be placed on the site regarding the ingredients of products. The ultimate purpose of these three points is to improve the brand image through educating the consumer. At all times when these communications are occurring, the company must remain transparent. Evaluate supplier relationships The goal of this portion of the action plan is to find a way to reduce the number of suppliers and establish long-term relationships with remaining suppliers. To achieve this goal, The Body Shop should: Hire an outside consultant to perform of supplier feasibility study. It is important that the consultant be from outside of the organization because this allows the person who is performing the evaluation to remain objective. This feasibility study should contain analysis on costs and benefits as well as risks associated with maintaning the status quo and making adjustments to supplier relationships. The Community Development Plan should continue while a feasibility study is being performed on it. The purpose of the study would be to determine if the plan should be expanded to service more suppliers and more countries. Again, an outsider should perform the analysis as they objective and not attached to the project. Finally, a search should be initiated to find suppliers who are located closer to the factories where the final products are produced. The purpose of this is to reduce transportation costs. It is assumed that all of the above changes will enable The Body Shop to purchase their products at a lower price. In return, a portion of the cost savings will be passed on to the end consumer. Promote Interaction between the departments (structure) Research must be undertaken to determine what the best practices are within The Body Shop. This information then would be entered into an IT system where employees could easily access it. It is suggested that an out-of-the-box solution be used for this because it is assumed that the company does not have employees who pose this knowledge. Use best practices and experience, implement on global scale and make modification to tailor to local tastes. Evaluate a bottle recycling program Conduct a feasibility study regarding the possibility of re-introducing the bottle-recycling program. Internal employees could perform this study because no program is currently being used - therefore no conflict of interest would result. It is likely that a separate study may be required for each country that The Body Shop operates in. This is because countries have specific environmental and health/ safety regulations. Conduct research The initial feasibility study could be performed in house, through the marketing department. The purpose of the research is to determine how the company can increase its market share. The first area to study is emerging markets (Eastern Europe, Asia, Central/ South America). This initial research should direct The Body Shop what areas of the world to focus on. After first level of research is conducted, outside consultant should be brought in who specializes in conducting business in that particular country. This person/ agency will be responsible for giving country specific recommendations and latter facilitating the entrance into the new market - assist with getting proper business permits. High growth products within the C&T industry. This point is relatively self-explanatory; therefore no further explanation is given. Further research will be conducted on the e-commerce aspect of conducting business because the framework is proving to be very successful in the US. Finally, further research will be conducted to examine the feasibility of extending the Home selling program, outside of the US.
Continuing Retail Open stores in markets, as determined feasible through market research Corporate owned stores Develop home selling programs in the western countries Develop e-commerce platforms Develop home selling programs in other western markets E-commerce Find partner to outsource technological - Ex EDS Find supply chain partners - Ex FedEx Product Based on research, develop new product mix - Ex At Home Spa products Suppliers Continue working on developing supplier relationships Invest in facilities of efficient suppliers by devoting resources in efficient suppliers Brand Image Work on enhancing worldwide image Ensure that they are conducting business in a manner that promotes corporate social responsibility/ ethics REFERENCES (Body Shop v Channel 4) ["Social Evaluation: The Body Shop International 1995"; New Consumer (Feb 94).] ['Business Ethics' magazine (1994).] [Figures provided by Body Shop UK headquarters (27/2/98)]] [Govt. New Earnings Survey 1997]. [Internal Body Shop document and transcribed testimony from a court case (libel action against Channel 4 in 1993)] [Jon Entine, 'Green Washing' (Nov 95).] [Letter from the editor of 'Business Ethics' magazine (13/9/94) 123students: Management and The body shop: http://www.123student.com/enivornment/1584.shtml Anonymous, 1995. The prestige market. Retrieved: June 10, 2004. < http://gateway.proquest.com/ openurl?url_ver=Z39.882004&res_dat=xri:pqd&rft_val_fmt=info:ofi/ fmt:kev:mtx:journal&genre = article&rft> Bath & Body Works, (2004) Bath & Body Works, retrieved from http://www.bathandbodyworks.com/index.jsp Boot Group, (2004) Boot Group 2003 annual report, retrieved from http://www.boots-ir.com/boots/companyinfo/reports/ Page 10 Carol Warner Wilke, Olivia Tong, Christopher Ferrara. 26 November 2001. Global cosmetics & Toiletries Market Analysis. Credit Suisse First Boston Equity research. Charles Wallace. 1996. Can the Body Shop shape up? Retrieved: May 25, 2004. < http://gateway.proquest.com/openurl? url_ver=Z39.88-2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft>
Company Structure,:www.thebodyshop.com : Corporate Profile, The Body Shop: http://www.tradenex.com/sites/Tbodyshop/f_main.htm Don Davis, (September 1, 2002), Unforgettable: Anita Roddick went against the grain in making a rousing success of Body Shop International against the opposition of the cosmetic establishment, retrieved from http://www.jonentine.com/reviews/GCI_Roddick_against_grain.htm Estee Lauder annual report, 2003. http://media.corporate-ir.net/media_files/NYS/EL/reports/ Interactive03/ EL_AR03.pdf Estée Lauder Company (2004), Estée Lauder 2003 Annual Report, http://ccbn28.mobular.net/ccbn/7/282/293/ Eurominitor, 2004. Cosmetics & Toiletries: Some key global trends. Retrieved: June 5, 2004. < http://www.incosmetics.com/files/Euromonitor_In_Cosmetics_presentation.pdf> Green Companies, The Body Shop International: http://docs.wri.org/2003_bell_21_gray_bodyshop.doc Hoover (2004), Hoover Online 1, retrieved from http://www.hoovers.com/bath-&-body-works,-inc./--ID__104462--/freeco-factsheet.xhtml Hoover (2004), Hoover Online 2, retrieved from http://www.hoovers.com/est%C3%A9e-lauder/--ID__40148--/free-co-finfactsheet.xhtml Hoovers Online: The body shop International http://www.econ.iastate.edu/classes/econ535/hayenga/protected/2003papers/BodyShopKrug.pdf> Jamee Krug, 2003. The Body Shop-Acting Local. Retrieved: May 28, 2004. < Jon Entine, 1997. Vivisecting the anti-vivisectionist movement. Retrieved: June 5, 2004. < http://gateway.proquest.com/openurl?url_ver=Z39.882004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft> Lalit M. Johri, Kanokthip Sahasakmontri. 1998. Green marketing of cosmetics and toiletries in Thailand. Retrieved: May 27, 2004. < http://gateway.proquest.com/openurl?url_ver=Z39.882004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft> Morgan Stanley Equity Research North America- Household and Personal Care Products Industry Overview. MSN money, http://uk.moneycentral.msn.com/investor/research/profile.asp?Symbol=GB%3ABOS Patrick Reilly. 1994. Retailing: Shoppers buy up a bounty of natural beauty products. Retrieved: May 30, 2004. http://gateway.proquest.com/openurl?url_ver=Z39.882004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft_dat=xri:pqd:did=000000004368947& svc_dat=xri:pqil:fmt=text&req_dat=xri:pqil:pq_clntid=15814 Social Audit report: The Body shop:http://www.thebodyshop.com.au/upload/socialaudit_1998.pdf Tara Rummell. 1999. Global Cosmetic Industry. R etrieved: May 30, 2004. http://gateway.proquest.com/openurl? url_ver=Z39.88-2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft The Body shop employees: http://www.thebodyshop.com/web/tbsgl/employees.jsp The Body Shop: Employees: How we operate http://www.thebodyshop.com/web/tbsgl / emp_how_we_operate .jsp#ms Thompson, A. and Strickland, A. 2001. C rafting and Executing Strategy: Text and Readings. 12th ed. NY: McGraw-Hill Irwin. Values Reporting Individual Stakeholder Accounts for Employees
2003http://www.thebodyshop.com/web/tbsgl/images/tbs_employee_stakeholder_account.pdf William Pecoriello, Javier Escalante, Michael Steib, Phebe Apgar. May 19, 2004 APPENDIX 1: THE BODY SHOP TIME LINE Note: This information came from the www.thebodyshop.com Company landmarks The seventies 1976 26th March 1976 - The Body Shop opens for business. The Body Shop brings the benefits of previously unheard of natural ingredients to the high street - aloe vera, jojoba oil, rhassoul mud, cocoa butter - and many more. 1978 A kiosk in Brussels becomes the first overseas franchise in 1978. By 1982 new shops were opening at a rate of two per month. The eighties 1982 New shops opening at a rate of 2 per month. 1985 In 1985, in its first year as a public company, The Body Shop sponsored posters for Greenpeace. A year later, it created an Environmental Projects Department of its own. Save the Whales, with Greenpeace, in 1986 was the first major campaign for The Body Shop. In 1985, in its first year as a public company, The Body Shop sponsored posters for Greenpeace. 1986 The first Community Trade product for The Body Shop was a footsie roller, produced in 1986 by a supplier in southern India. This trade in footsie rollers has evolved into the current trade with Teddy Exports in India. The Body Shop sets up its own in-house Environmental department. The Body Shop ran its first major campaign in alliance with Greenpeace; Save the Whale. 1989 Our 'Stop The Burning' campaign, called for the Brazilian Government to bring a halt to the mass burning of the tropical rainforests. One million customers signed the petition that Anita presented to the Brazilian embassy. The nineties 1990 In 1990, just one year after launching in the USA, there were 2,500 applications for a franchise. Demand for The Body Shop product is vast, driving a geographical expansion that saw the company trading in 39 countries only fourteen years after the first shop opened. The establishment of The Body Shop Foundation in 1990, a charity which funds human rights and environmental protection groups. 1991 The Big Issue homeless paper which started as a project of The Body Shop Foundation was launched in 1991. 1992 The introduction of The Body Shop Tour at the UK Head Office for the general public in 1992. 1993 In 1993 the Company launched an international campaign to raise awareness of the plight of the Ogoni people and their leader Ken Saro-Wiwa, persecuted for protesting against Shell and the Nigerian dictatorship over exploitation in their homeland. 1994 The Body Shop At Home, the direct-selling arm, was launched in the UK in 1994, Canada in 1995 and Australia in 1997. Today in the UK alone, there are over 3000 consultants who introduced 940,484 customers to The Body Shop and its product at 103,762 parties in 2000/2001. Spring 2001 sees the launch of The Body Shop At Home in Ireland and the USA later in the year. The Body Shop continues to increase its environmental practices. The Body Shop invested a 15% stake in a wind farm in
Wales in 1994 to help offset electricity used in its UK operations. In 2001, The Body Shop UK region and service centre head offices switched to Ecotricity providing them with energy from renewable sources. In addition, 127 of The Body Shop UK stores have now converted to green electricity with the rest of the stores due to follow suit. 1995 The New Academy of Business, an initiative of Anita Roddick, was established in 1995. The innovative management degree, addressing social, environmental and ethical issues, is run at The University of Bath. 1996 Campaign successes including the Against Animal Testing campaign, which led to the largest ever petition (with four million signatures) being delivered to the European Commission in 1996. The campaign led to a UK-wide ban on animal testing on cosmetic products and ingredients in November 1998. 1997 In 1997, The Body Shop was the first international cosmetics company to sign up to the Humane Cosmetics Standard supported by leading animal protection groups. The Body Shop Values Reports in 1995 and 1997 were recognized by United Nations Environmental Programme and Sustainability, as trailblazing, and ranked highest in their review of International Corporate Environmental Reports. In 1997, The Body Shop celebrated its 21st birthday with the launch of a new flagship store design which won the prestigious Retail Week Store Design of the Year Award. 1998 To celebrate the 50th Anniversary of the Universal Declaration of Human Rights in 1998, The Body Shop launched a joint worldwide campaign with Amnesty International to highlight the plight of human rights defenders around the world, encouraging customers to 'Make their Mark' for human rights. Three million people signed up to the campaign. The Body Shop Foundation part-funded the launch of The Big Issue in Los Angeles in early 1998. 1999 A loyalty scheme for customers was introduced to the UK in the autumn of 1999. It provides incentives to customers, including the option to donate reward money to selected campaign organizations, including World Society for the Protection of Animals and the Missing Persons Helpline. In 1999, The Body Shop created four new business units in the UK, Europe, the Americas and Asia, shifting its operational and management structure out to the regions. The change was implemented to focus more of our resources closer to the markets and to create a more flexible and efficient operating structure across the Group. It is believed that this decentralized structure will significantly enhance The Company's ability to deliver a tailored offer to our customers faster and more efficiently. The nineties 2000 In February 2000, the Company completed the sale of its Little Hampton manufacturing business to Creative Outsourcing Solutions International Ltd (COSi). The Body Shop Human Rights Award was launched to media, non-governmental organizations and the public in June 2000. The Award has been set up to seek out and recognize individuals and grassroots organizations focusing on social, economic and cultural rights. Every two years, The Body Shop Human Rights Award will acknowledge community based projects around the globe, giving them not only recognition, but also practical and financial help. The theme for the 2000 Award was child labor and its role in denying children, particularly girls, a basic education. In 2000/2001, The Body Shop purchased over £5 million worth of natural ingredients and accessory items through the Community Trade Programme including nearly 400 tones of natural ingredients. 2001 The Body Shop branches into South Africa. In June 2001, The Body Shop agreed to appoint a major South African retailer, New Clicks Holdings, as The Body Shop direct franchisee in South Africa. New Clicks has a strong commitment to corporate social responsibility through its New Clicks Foundation. The first The Body Shop stores will open in C ape Town and Johannesburg in October 2001. March 26th 2001 Happy Birthday! The Body Shop celebrates 25 years of 'business as unusual.' Celebrating 25 years of a great experiment - an experiment which proved it is possible to build a huge global enterprise and still challenge, campaign, trade honorably, give back to the community and have a good time while doing it. September 2001: Choose Positive Energy was a joint campaign run in partnership with Greenpeace International, which helped highlight the importance of renewable energy in the fight against global warming. 1.6 million customers and cyber activists signed the global petition urging politicians at the United Nations (UN) Earth Summit in August 2002, to make renewable energy more accessible to 2 billion people without access to energy. 2002 October 2002 marked the second The Body Shop Human Rights Award. The Right to Housing was the theme of this year's
Award, and four winners, chosen by our independent, international jury shared the $300,000 prize. 2003 March 8th 2003. Women all over the world joined with The Body Shop to celebrate our first ever International Women's Day on March 8th 2003. Stores across the world held parties to celebrate women have fun and share inspirational stories. The Body Shop highlighted the stories of two women-only organizations, which supply us with ingredients for some of our best-selling products. These groups have worked to bring about change in their lives and communities. The journey continues Activism has been part of the DNA of The Body Shop. The past has been a testament to an extraordinary partnership with millions of men, women and children all over the globe. And what about the future? The unique blend of product, passion and partnership that characterizes the story of The Body Shop will continue to evolve. It is a shared vision. So the great experiment goes on. APPENDIX 2: THE BODY SHOP'S COMPETITORS Note: This information is from Hoover's Top Competitors Bath & Body Works Boots Group Estée Lauder All Competitors Alberto-Culver Aloette Avon Bath & Body Works BeautiControl Cosmetics Boots Group Coles Myer Colgate-Palmolive Coty Inc. Dial Dillard's Dr. Bronner's E Com Ventures Eckerd Estée Lauder Federated Forever Living Gap Gillette Henkel Johnson & Johnson Kiehl's Kingfisher Longs Drug L'Oréal Mary Kay May Nordstrom Procter & Gamble Revlon Rite Aid Saks Inc. Shiseido Target Unilever Walgreen
Exhibit 1: Backgrounds Information on Bath & Body Works Bath & Body Works 200220032004 planed Stors1,6391,6041,570 Selling Square Foot3,568,0003,542,0003,572,000 http://www.limited.com/includes/ltd_2003ar_financials.pdf
Exhibit 2: Sales Growth of Estée Lauder Products
http://ccbn28.mobular.net/ccbn/7/282/293/
APPENDIX 3: THE BODY SHOP'S DOMINANT ECONOMIC FEATURES Figure 1: The Global C&T Market The World's Largest C&T market in 2003 US$ Billion% Vs 03% Vs 97 USA45.40.724.3 Japan21.93.28.1 France12.1533.6 Germany11.61.422.8 UK10.14.721.6 Italy8.52.527.4 Brazil7.312.2113.7 China67.863.2 Spain5.75.656.7 Russia5.314.331.3 Source: Euromonitor Figure 2: The C&T Market by Sector
Source: Jamee Krug, 2003, Euromonitor.
Figure 3: The C&T Market by Sector and by Country Share of sales of cosmetics and toiletries for each sector by country, 2000 Data in % CategoryFranceGermanyItalyJapanSpainUKUSA Baby care21.21.31.321.21.7 Bath and Shower7.18.410.78.46.510.410 Deodorants5.355.51.458.64.6 Hair care18.321.415.418.516.820.619.5 Color cosmetics1312.212.6181212.616.6 Men's Grooming56.26.99.76.56.45.6
Oral hygiene6.910.310.39.18.611.69.9 Fragrances19.11312.12.422.312.114.2 Skin care20.61921.630.315.313.315.4 Sun care213.514.93.12.5 Source: Euromonitor Figure 4: Category growth rate-historical and forecast Category growth rate-historical and forecast 1997-2002 (%) 2002-2007 (%) Professional Colorants65.8 Styling3.53.3 Shampoo & Haircare3.23.2 4.44.3 Consumer Haircare3.33.3 Make-up5.95.8 Skincare4.44.4 Fragrances2.93.2 Other2.72.7 4.14.1 Luxury Skincare4.84 Fragrances42.7 Make up5.95 4.83.7 Other2.72.7 Total Cosmetics4.34 Source: Euromonitor (historical) Morgan Stanley Research (projection)Projections Figure 5: Growth by sector in Country Growth by sector in Country, 1999-2000 Data in % CategoryFranceGermanyItalyJapanSpainUKUSA Baby care33.73.31.764.610.5 Bath and Shower5.50.31.51.87.42.82.5 Deodorants4.242.915.39.83.84.5 Hair care5.49.22.20.811.81.92.5 Color cosmetics418.210.3-0.89.83.95.8 Men's Grooming6.35.46.84.412.26.45.7 Oral hygiene7.15.33.8-0.38.6-0.83.8 Fragrances2.823.73.911.61.62.5 Skin care4.36.911.71.985.87.8 Sun care2-57.94.423.42.47.1 Total 4.56.76.091.510.72.94.5 Source: Euromonitor APPENDIX 4: FURTHER FINANCIAL ANALYSIS
Note this information is from MSN Money. All information in columns entitled 'company' refers to the Body Shop and all information in columns entitled 'industry' refers to the global C&T industry - including the synthetic and natural segments.
2003 figures in British pounds and percentages. Growth Rates %CompanyIndustry Sales (Year vs. Year)0.8023.10 Income (Year vs. Year)59.6098.50 EPS (Year vs. Year)57.40144.60 Sales (5-Year Avg)4.6539.06 EPS (5-Year Avg)-9.829.07 Dividends (5-Year Avg)NA-1.12 Industry: Medicines Computed ratios are based on latest 12 months' results. Prices in British pence Other financial data in British pounds Price RatiosCompanyIndustry Current P/E Ratio14.39.7 P/E Ratio 5-Year High19.536.7 P/E Ratio 5-Year Low10.410.0 Price/Sales Ratio0.8161.37 Price/Book Value2.391.65 Price/Cash Flow Ratio7.50-42.40 Industry: Medicines Computed ratios are based on latest 12 months' results. Prices in British pence Other financial data in British pounds Profit Margins %CompanyIndustry Gross Margin63.1-62.0 Pre-Tax Margin7.5-1,049.0 Net Profit Margin5.7-1,014.6 5-Yr Gross Margin (5-Year Avg)61.3-19.9 5-Yr Pre-Tax Margin (5-Year Avg)5.6-653.2 5-Yr Net Profit Margin (5-Year Avg)3.8-634.4 Industry: Medicines Computed ratios are based on latest 12 months' results. Prices in British pence Other financial data in British pounds Financial ConditionCompanyIndustry Debt/Equity Ratio0.66-11.18 Current Ratio1.53.8 Quick Ratio0.63.1 Interest Coverage16.8-1,393.6 Book Value/Share0.640.75 Industry: Medicines Computed ratios are based on latest 12 months' results. Prices in British pence Other financial data in British pounds
Investment Returns %CompanyIndustry Return On Equity17.9-31.9 Return On Assets10.4-22.1 Return On Capital13.5-35.2 Return On Equity (5-Year Avg)11.6-42.7 Return On Assets (5-Year Avg)7.4-20.6 Return On Capital (5-Year Avg)9.9-27.9 Industry: Medicines Computed ratios are based on latest 12 months' results. Prices in British pence Other financial data in British pounds
Management EfficiencyCompanyIndustry Income/Employee3,699-85,445 Revenue/Employee64,47393,790 Inventory Turnover2.511.3 Asset Turnover1.80.7
APPENDIX 5: THE BODY SHOP'S ORGANIZATIONAL STRUCTURE Exhibit 1: Break down of Retail Locations by Region Regions% of total2003 Stores UK/Ireland63742 Americas26488 Europe, Middle East & Africa8426 Asia Pacific3312 Total1001968 StoresNo. Franchised1,397 Company owned571 Total1,968
Exhibit 2: Organizational Chart
Exhibit 3: Key People TitleName Chairman Adrian D. P. Bellamy CEO and Director Peter Saunders Financial Controller, Group Finance Director Peter Youngs Managing Director, Asia-Pacific Colin Buchanan Managing Director, Europe and Middle East Roger Baxter Managing Director, UK Bernie Foster President, Body Shop North America Joanne D. Calabrese Secretary Jeremy A. Kett Director, Logistics and Technical Services Paul Alvey Director, Supply Chain and Information Technology Andrea Alvey Executive Director and General Manager, The Body Shop Hong Kong Karen Ong
UK Marketing Director Joe Irons Head of Global Corporate Public Relations Bill Eyres Head of Investor Relations Rita El-Ali Head of Values Steve McIvor VP, e-Commerce, Body Shop North America Mariam Naficy Director, Marketing Communications, Body Shop USA Kim Burrs
Exhibit 4: Key Accountabilities
APPENDIX 6: STAFF DEMOGRAPHICS
APPENDIX 7: DECISION MATRIX Vertical IntegrationHorizontal IntegrationUnrelated Diversification Corporate Image 40%* Customer Satisfaction 30%* Employee Morale/ Motivation 15%* Cash Requirements 10%* Ease of Implementation 5%* *=3 *=2 *=1 Weighted Average2.952.001.55
