Operational Issues, Politics Spill Body Shop Profits

May 02, 2002

The Body Shop reports a drop in full year pretax profit and trouble implementing new strategies, leading some analysts to downgrade forecasts, according to a report by The Wall Street Journal. Pretax profit was 23.1 million GBP, down 7.6 percent from last year, although that year contained an extra week. Worldwide sales rose two percent, but same-store sales for those that have been open a year or more, slipped two percent, with those in the U.K. down by three percent and U.S. sales four percent lower. Same-store sales for the first seven weeks of the current year are also down by two percent.

The environmentally-friendly cosmetics retailer has struggled to implement a strategy to decentralize the business into a more regionally-managed structure in its four global trading areas, according to Chief Executive Peter Saunders. It has also moved out of manufacturing, which resulted in the need to realign its supply chain. Operational issues have been compounded by company politics.

Saunders says a major focus will be on new product development. Body Butter, its array of food-flavored moisturizing products, has been selling particularly well, along with The Body Shop’s Hemp line of products.

Moderator Comment: What lessons can drug, grocery
and mass retailers learn from specialty and department stores selling personal
care products? How can they use this information to compete more effectively?

When you are looking for personal care product innovation
at retail you generally have to see what the specialty and department stores
are up to. Look around today and you will see that the Origins of the world
are taking business away from competitors in most every venue including department,
drug, grocery and mass merchandiser stores.

Ten years ago, the long struggling Body Shop chain was
in largely the same position. We don’t mention this for the purpose of predicting
bad times ahead for Origins, though. Rather, we’d like to discuss the “that’s
not our consumer” viewpoint that we often come across with mainstream retailers.

Today, consumers are multitasking in multi-channels.
Drug stores, grocers and mass merchandisers don’t feel as though they can sell
a bottle of designer brand green tea skin rejuvenating lotion for $60. They’re
right, they can’t.

They can sell a specialty store equivalent produced by
a contract/private label manufacturer for about 20% of the price, however. This
can be accomplished with a packaging design that creates a presence on the shelf
and, more importantly, does so with ingredients that are efficacious. Firms
such as FoodLogic and Stanford Personal Care here in the states and Personal
Portfolio in Canada are producing quality items that drug, grocery and mass
stores can sell to just about any consumer of personal care products. [George
Anderson – Moderator

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