Body Shop: Toning Up the Muscle

LITTLEHAMPTON, England -- The Body Shop International, which pioneered the retailing of environmentally conscious cosmetics in the Seventies, is undergoing a major reexamination to make sure its concept has staying power.<BR><BR>The 1,031-store chain...

LITTLEHAMPTON, England — The Body Shop International, which pioneered the retailing of environmentally conscious cosmetics in the Seventies, is undergoing a major reexamination to make sure its concept has staying power.

The 1,031-store chain continues to see profit and sales growth in newer markets like the U.S., Continental Europe and the Far East. But results in the U.K. sagged last year under the strain of burdensome overheads, the recession and increased competition.

Body Shop had a 16.4 percent rise in after-tax profits to $9.6 million (6.4 million pounds at current exchange rates) worldwide on a 23.2 percent increase in sales to $124.2 million (82.8 million pounds) in the first half ended Aug. 30.

Its growth was fueled by a 62.5 percent rise in U.S. operating profits, but U.K. profits also rebounded following a 32 percent fall for 1992. The warning light for Body Shop, though, is that its comparative-store sales in the U.K. fell 5 percent in the first half after a 6 percent drop in 1992.

The U.K. accounted for about 39 percent of operating profits and 52 percent of sales in the first half. Despite the slowdown here, Body Shop remains one of Britain’s most successful retailers, with sales per square foot of $1,102.50 (735 pounds), according to analysts.

Body Shop now sees itself as a “mature retailer” in the U.K. and has been taking steps to adapt to middle age. These include:

  • Recruiting Geoff Marshall from the London-based Conran Shop, where he was merchandising director, to become managing director of its U.K. division last fall.

  • Slashing overheads by consolidating sites in the U.S. and curtailing new store openings.

  • Trimming capital expenditures to $15 million to $18 million (10 million to 12 million pounds) from $75 million to $90 million (50 million to 60 million pounds) a year.

  • Improving its visual merchandising in stores.

  • Reviewing its products to determine where there are gaps and whether it might generate more retail sales with fewer product lines.

  • Freezing the opening of U.K. stores because the company believes it has enough British sites — 239 — in its current format. New approaches are being contemplated.

  • Experimenting with a door-to-door promotional campaign in the U.K. The company has never advertised in its 17-year history.
At Body Shop’s headquarters here on the south coast of England, chairman Gordon Roddick occupies a small corner office decorated with Body Shop posters and a framed cover of the company’s Big Issue, a monthly magazine sold to raise money for the homeless.

During a recent interview there, he described a transformation of the group that will position it for the next decade and beyond. The changes eventually may filter through to the group’s operations worldwide.

The major change was adapting Body Shop’s stores from being launch sites for an endless parade of new products to being driven by consumer demand.

“One of the hassles of great ideas pouring out of you is that you want to use them all,” said Roddick. “But it may not be what a retailer needs, and it may confuse the consumer. To be fair to Anita [his wife and the company’s chief executive], she is always yelling about that. It is retail, retail, retail. So we now have said to our research and development department that we will let them know what products we want and when we want them.”

Body Shop is considering even more radical steps, such as trimming more than 25 percent of the product lines it sells. Roddick said the company believes it can generate more sales by focusing on fewer product lines.

“There are weaknesses within what we do, and we currently are losing heaps and heaps of opportunity,” Roddick said. “For example, what we do for men. We have what I think is one of the best shaving creams in the world, but we haven’t told anyone it is. There are people who build an entire business on just one product, and we have more than 400 of them.”

This new attitude doesn’t rule out entering new product areas, such as the group’s recently launched toothpaste. Roddick believes there is plenty of room for new product categories, and he sees great potential in the accessories area.

“There is no reason why we can’t attach our name to a wide range of products as long as they are in the same context we already are in,” Roddick said. “We are rationalizing our lines but want to have a wider range on offer. The next year will see the introduction of more new ranges and some genuine innovation.”

The changes taking place at the group should turn around comparative-store sales in the U.K., enabling the company to end 1993 even with 1992, when sales totaled 83.52 million pounds, Roddick said. Body Shop may begin opening new stores in the U.K., even in towns with populations under 50,000 — markets the company has previously shunned (one exception is a store at its headquarters site in Littlehampton, which has a population of 18,000).

“There could come a time when we decide to open stores in smaller towns, which opens up a huge opportunity. But there is a lot of work we have to do in the existing business first,” added Roddick, who maintains a low profile running the business operations, while his wife, Anita, generates the publicity.

Meanwhile, Body Shop will continue its aggressive expansion overseas. It expects to open 140 to 150 stores worldwide this year, including its first in Mexico.

In the U.S., where there are 157 Body Shops, the group expects to open more than 20 in the second half of fiscal 1994 following the opening of 20 in the first half.

Of its U.S. stores, 119 are franchises and the remainder are company-owned. Roddick said he sees the potential for up to 900 stores in the U.S., but he expects to review that target once the group reaches the halfway mark. He set no timetable.

There also may be the need to open a few more company-owned stores, perhaps handing these over to franchisees once they become profitable.

“We may want to increase our rate of openings in the U.S. in the next few years,” Roddick said. “We could double it from the current 40-50 stores a year and still handle it.”

Body Shop also plans to expand its manufacturing in the U.S. It moved into a new U.S. headquarters in Wake Forest, N.C., in September 1992, and the company views this as a good base from which to increase production.

The company now makes all its lip balms in Vermont, but executives see the potential to make shampoos, lotions and hot and cold mix products in the U.S. as well.

Its expansion will come in the face of increased competition from the Origins division of Estee Lauder, H2O Plus and The Limited’s Bath & Body Works.

Roddick laughs when Origins is mentioned, adding that he doesn’t think Body Shop and Lauder are in the same league.

“I think it’s funny that Estee Lauder worries about us,” the affable Roddick remarked. “We are a flea to their elephant. Besides, I don’t see Origins as our competition. It’s a good product, but it’s about twice the price of ours. Estee Lauder doesn’t do what we do, nor does L’Oreal.

“They have a problem in image terms, and they aren’t suddenly going to attract our customers,” he continued. “It’s sheer nonsense to say we are competing against them.

“I think Bath & Body Works is much nearer to what we do,” Roddick added. “His [Limited chairman Leslie Wexner’s] track record is one of copying extremely profitable concepts, and he is having a go at us, Crabtree & Evelyn, H2O Plus and everyone else in that sector.”

The group isn’t banking only on the U.S. for growth, though. Roddick said there is plenty of room for expansion in Europe — where there are more than 300 stores — and in the Far East, where there are more than 100.

Roddick said there is the potential to open 250 to 260 stores just in the Far East. The one thing Body Shop won’t do, he says, is wholesale its products.

Roddick said wholesaling is too uncontrollable, and the company will stick to its own retail stores and to franchising. But otherwise it’s evaluating all its operating methods to maintain its competitive edge in the natural cosmetics market.