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Although Peter Saunders, chief executive officer of The Body Shop, is quick to proclaim with self-deprecating irony that he is a “nontechnologist,” he has led a turnaround at the company in which IT has played a starring role.
The U.K.-based beauty retailer and its prolific range of nature-inspired skin care products and cosmetics has gone from acute underperformance to being the 27th best-known brand in the world with sales of more than $1 billion, thanks to a new business strategy and systems to support it, Saunders said during a presentation at the Global Retail Technology Forum held in Barcelona last month. The yearly event brings together senior IT and business executives from retailers around the globe.
The Body Shop operates more than 2,000 stores — averaging 700 to 1,000 square feet in size — in more than 50 countries. Some are company-owned and others are franchises. The company also has home-based sales and a Web site. All three channels “speak to the consumer with one voice,” he said.
The 29-year-old company went through a difficult period starting in the late Nineties when profits were lower than they should have been. “We had no strategy,” explained Saunders. “We were like 50 different companies. We had little or no rigorous planning of financials, no focus or priorities, and poor performance awareness so that when you asked how were yesterday’s sales, people said, ‘We don’t know.’”
Saunders, who is Canadian-born, transferred to the U.K. headquarters in February 2002 after three years in the U.S. as chief operating officer and president of the American business. He and his executive team quickly developed a three-year cross-functional strategic plan, which is currently reviewed on a yearly basis. The team began by identifying the company’s core competencies and what it needed to do well to succeed. These included product control, inventory and distribution.
Unfortunately, Saunders said, “We had a structure that did not reflect what we were now saying we had to be good at.”
Another problem was that the company couldn’t measure the benefits of accurate planning and forecasting because the systems and business processes weren’t in place. The company also needed to more rigorously manage product development and promotions, he said.
In Saunders’ view, The Body Shop was thinking and acting like a wholesaler instead of the branded retailer it is. He credited founder Anita Roddick with creating “a niche through product innovation and a retail branded company, but we were not a branded retailer. We had an amazing brand, with its own stores, but we were a wholesaler, not a retailer.”
The company decided to use integrated retail enterprise software from German-based supplier SAP to unify its operations worldwide. The company had been using the software to run its U.S. business since 1999, and was pleased with the results, said Andrea Alvey, The Body Shop’s IT director and director of finance, who also attended the forum. The Body Shop is now about halfway through a global implementation, which it expects to complete in April next year.
In 2004, the company implemented a feature called POS Data Mart (part of SAP’s Business Information Warehouse software), which allows the retailer to audit sales for the first time, mostly for the purpose of loss prevention. Previously, it was difficult for The Body Shop to get data feeds from its stores and franchisees because they use more than 30 different POS systems. Body Shop has settled on a standard POS for future purchases, but needs to connect to older, disparate systems still in use.
With POS Data Mart, Body Shop can take feeds from any POS and store the data in one place, where it’s quickly and easily accessible. That information also feeds the company’s main business data warehouse, a central tool that will go live next month. That main data warehouse will enable The Body Shop to analyze its sales and margins, which it couldn’t do previously.
Last week, The Body Shop started buying wholesale merchandise through the SAP system. The company will go live with financial and warehouse systems in June.
In February 2006 the company will put in place SAP’s product life cycle management software, which will help Body Shop manage products through the development cycle and track critical milestones. In September 2006 the company will implement retail purchasing for its stores in SAP.
Last year, the company spent approximately $187 million on capital expenses. One-third of the money went to existing stores, another third on new stores and another third on IT. Most of the technology budget went to SAP and new POS systems. “For a company of our size,” said Saunders, $57 million “is reasonably large, but given the guaranteed business return, money wasn’t an issue.”
New technology has afforded a tangible investment return and a “dramatically improved” cash flow in the last three years, said Saunders. Operating profit has increased “and it will continue to do so for the current financial year. We’ve done what we said we would — and more.” He did not reveal specific figures.
Although The Body Shop’s revenues stayed constant from 2003 to 2004, the company’s net profits more than quadrupled, according to its most recent financial statement. Specifically, retail sales totaled 700.3 million pounds, or $1.3 billion (at current exchange rates) for the year ended Feb. 28, 2003, and 699.5 million pounds, or $1.3 billion, for the year ended Feb. 28, 2004, as well. Profits increased from 2.1 million pounds, or $3.9 million, in 2003 to 10.1 million pounds, or $18.9 million, in 2004. (The company will report preliminary results for the year ended Feb. 28, 2005 later this month.)
Additional benefits include improved communication with the company’s suppliers and its sales force. The sales audit system monitors shrinkage and the number of units sold per transaction for better inventory control. The new systems will also help the company plan better and speed new product development, which has long been a goal.
Saunders spoke at length about the role of technology in retail.
“We decided the role IT is to play is as a business partner to help us drive changes in processes, including merchandise systems. IT can enable the delivery of the corporate strategy that forms the basis of our goals and our communication with an improved ROI [return on investment] and it can create operational efficiencies. IT can also be a crutch and a capital expenditure nightmare if you don’t understand the problems.”
Above all, he said, “Let’s not invest in systems we don’t need. And we believe IT should be seamless and invisible. People should be visible and involved,” he added.
The Body Shop’s current IT strategy was led by the business side, not technologists, he said.
“You can say it’s an IT plan, but I say it’s a plan put forward by our IT team to deliver what the business says it can support,” he said. “Technology without business support will be misunderstood and IT will be blamed for the problem.”
The company is pleased with its new systems. “We understand what technology can do for us and we are set for the future,” Saunders said.
Commenting on future goals, Alvey said, “The more we can integrate [new and legacy systems] and make IT seamless to the organization, the better.”
Times have changed, and technology can no longer be ignored, she said. “Retailers grew up in a very siloed fashion, but what once provided competitive advantage is currently available to everyone. Looking at the next three years, we can’t do without technology and the processes behind it.”
She predicted “huge developments” in the retail environment within the next five years, including expanded global and multichannel operations. She also predicted a broader role for the chief information officer, “a more personal relationship that helps the organization understand innovation.”
“Whether employee or consumer, you as an individual have to understand what we’re doing. Otherwise technology doesn’t work. Our IT staff is very involved in the business.”
Both executives said The Body Shop would not adopt RFID-driven systems or self-checkout. “I want hands-on in our stores,” said Alvey. And Saunders added, “I don’t want to lose touch with you [the customer]. I want you to stay around [the store] for a while.”