Brazilian beauty giant Natura has disclosed in a company document that its board recently authorized management to explore strategic alternatives for The Body Shop, which may include selling the business. This comes just a year after Natura sold Aesop to L’Oréal in April. As the pioneer of single brand beauty stores, The Body Shop’s recent performance has been underwhelming, reflecting the gradual decline of such stores in the beauty industry.
The Body Shop may change ownership again within six years
The Body Shop was founded by Anita Roddick in the UK in 1976 and became the world’s first international brand to adopt the single cosmetics specialty store model. The Body Shop offers a range of products including skincare, bath and body care, hair care, makeup, and fragrances. They are known for using natural and ethically sourced ingredients such as tea tree oil, shea butter, and hemp. The brand also opposes animal testing and has been a pioneer in advocating for cruelty-free beauty products.
In 2006, The Body Shop was acquired by L’Oréal for £652 million. However, following the acquisition, the brand’s profitability declined year after year. As a result, L’Oréal decided to sell the brand in February 2017 to cut its losses promptly. Financial reports showed that in the year ending December 31, 2016, The Body Shop’s operating profit decreased by 38% to €34 million, while sales declined by nearly 5% to €921 million.
Regarding the decision to sell The Body Shop, the then Chairman and CEO of L’Oréal, Jean-Paul Agon, stated that despite the group’s hopes of successfully integrating the two entities after the acquisition, the expected synergies were not realized. To avoid conflicting with The Body Shop’s brand values, the group decided to grant The Body Shop the autonomy to operate independently and assign it to the group’s selective divisions. However, despite these measures, The Body Shop’s performance continued to be lackluster.
Ultimately, Brazilian beauty giant Natura took over The Body Shop from L’Oréal for €1 billion. Natura stated that this acquisition would help them take a decisive step towards internationalization.
In Q2-23, the net revenue amounted to BRL 800 million, experiencing a decline of 12.5% in constant currency (CC) and down 12.0% in Brazilian Real (BRL). The combined sales of the core business distribution channels, including stores, e-commerce, and franchises, exhibited a mid-single-digit decline in CC during Q2-23, slightly worse than in Q1-23. Additionally, The Body Shop at Home witnessed a significant ongoing decline. Retail sales through the core business distribution channels indicated a sell-out Store Sales decline of 3.5%.
As of now, The Body Shop’s retail business has expanded to over 60 countries globally, with nearly 2,368 counters and other retail points, including 937 owned stores and 1,431 franchised stores. This number represents a decrease of over 600 stores from its peak period of nearly 3,000 locations.
For Natura, the sale of the Aesop brand is expected to have a positive impact on the company. This move helps Natura, after a period of significant acquisitions, to reduce its leverage on the balance sheet to some extent and serves as part of its profit recovery plan. Additionally, the sale of assets such as The Body Shop further accelerates this trend.
The fact that The Body Shop has changed ownership twice within six years also indicates the significant operational challenges it faces. Its underperformance has become a target that Natura is eager to divest from.
It was once one of the most renowned brands in the UK
When it comes to The Body Shop, its iconic marketing concept of cruelty-free and vegan products cannot be overlooked. This concept propelled the brand to pioneer the production of beauty products using natural ingredients. As a result, The Body Shop went from strength to strength and quickly expanded, becoming one of the most renowned brands in the United Kingdom in the 1980s.
However, by the early 2000s, competitors in the UK market had caught up. Companies like Boots developed similar ranges of natural beauty products, and new challengers like Lush emerged, eroding The Body Shop’s market share.
By 2016, The Body Shop’s annual performance showed a total sales of €920.8 million (£783.8 million), lower than the €967.2 million in 2015. L’Oréal attributed this decline to market slowdown in Hong Kong and Saudi Arabia.
This sales figure accounted for only a small portion of L’Oréal’s total sales of €25.8 billion during the same period. It can be said that The Body Shop, which L’Oréal acquired for £652 million ($1.14 billion) in 2006, remained a lesser and less significant part of its vast brand portfolio.
Richard Hyman, a senior retail analyst, believes that L’Oréal paid an excessively high price for the chain and failed to add any value to it. “Frankly it’s a bit of mystery them buying it in the first place. What they bought is a retailer and what they’re good at is brands,” Richard Hyman said.
In other words, L’Oréal’s acquisition of The Body Shop for £652 million was aimed at expanding its sales network through the brand’s stores, and L’Oréal did not anticipate The Body Shop’s struggle against competitors like Lush.
Charlotte Pearce, an analyst at GlobalData Retail consultancy, suggests that The Body Shop has experienced a slight deviation from its original path under L’Oréal’s ownership.
“While The Body Shop’s heritage is strong, it needs to work on its brand perception. It’s not known as a brand which is innovative and new, and it’s failed to keep up with market trends – contour sticks, kits and palettes were a strong trend in 2016, and these are nowhere to be seen in The Body Shop’s range,” Charlotte Pearce added.
Apart from failing to keep up with product innovation, The Body Shop is no longer able to attract consumers with its core marketing concept of cruelty-free products.
In today’s increasingly eco-conscious world, many mainstream brands have followed Roddick’s approach by using more natural ingredients and abstaining from animal testing. This has rendered The Body Shop’s central marketing concept ineffective, and the brand has not brought about any new changes through product innovation or digital transformation. By solely focusing on promoting cruelty-free and banning animal testing, The Body Shop has also missed out on crucial emerging markets, such as China.
Due to regulatory policies in China that require cosmetic brands to conduct animal testing, The Body Shop has been unable to enter the world’s second-largest cosmetics market. Furthermore, The Body Shop has not sought any changes or adaptations, consequently missing out on the golden opportunity of the Chinese cosmetics industry’s development.
Increasingly, people are realizing that the concept of purity and cruelty-free marketing is often seen as a gimmick. The terms “clean” and “cruelty-free” lack clear definitions, and there is no consensus on the specific substances and chemicals that should be avoided or accepted. In recent years, as awareness of the lack of regulation in the beauty industry has grown, skepticism has also increased towards the “clean” movement. The Body Shop’s radical approach is no longer effective.
The Body Shop’s continuous decline in performance can be attributed not only to consumers no longer resonating with its radical marketing approach but also to its lack of active digital transformation. According to Natura’s half-year report for 2023, direct sales accounted for a staggering 81% of The Body Shop’s revenue, with online sales comprising only 6%. Compared to the second quarter of 2022, offline sales even decreased by 5%.
As consumers transition into the era of digital shopping, the rise of new retail has had a significant impact on traditional retail. Additionally, the substantial increase in rental and labor costs for physical stores has exacerbated their challenges. These factors have made it increasingly difficult for The Body Shop and Natura to adapt to the current market environment. This is especially evident when facing global crises such as the COVID-19 pandemic, which has severely impacted traditional direct sales.
The struggles faced by The Body Shop also reflect the challenges of the current sing brand beauty retail model.
Single brand beauty store models declined
In the 1970s and 1980s, the European beauty market experienced a period of prosperity. Through powerful advertising campaigns, many super brands began to emerge. However, this era also witnessed the rise of niche brands that successfully attracted consumers’ attention by emphasizing unique brand values and authentic stories. At the same time, the strategy of adopting a single brand beauty store model, reducing intermediaries, and fully showcasing the brand image became a common recipe for success among these brands.
On March 26, 1976, Anita Roddick opened the first-ever The Body Shop store in Brighton, UK, which became the pioneer of single brand beauty stores. Mark Constantine, the main supplier of raw materials to The Body Shop, also established his single brand beauty, LUSH, in 1994.
The origin of single brand beauty stores can be traced back to Europe, but their rise in Asia primarily took place in South Korea. LG Corporation was one of the early adopters of the single-brand beauty store model, redefining the shopping experience and pricing structure by directly selling products to consumers. By 2003, single brand beauty stores had gradually gained traction in South Korea, with brands like The Face Shop and Missha joining the development of single brand beauty stores.
In China, around 2008, cosmetic specialty stores and local brands experienced rapid growth. During this period, traditional retailers began to transform, and niche brands started to emerge. Representative single brand beauty stores such as Dr. Plant, LAOZHONGYI, FANWENHUA,” and TIMIER HOUSE quickly gained popularity. Meanwhile, South Korean brands also entered the Chinese market with single brand beauty stores, injecting more learning and development vitality into the local single brand beauty store market.
However, the once-popular single brand beauty stores in Asia are now gradually facing a decline.
According to reports from various Korean media outlets, LG Household & Health Care, the parent company of beauty brands The Face Shop and Whoo, is considering adjustments to its single brand beauty store business model. In response to this consideration, LG Household & Health Care stated, “With more consumers shifting towards online shopping and beauty multi-brand stores, our strategy of single brand beauty stores faces challenges.”
Initially, single brand beauty stores had significant advantages in product selection, inventory management, and brand experience.
In terms of product selection, although single brand beauty stores offer a relatively limited range of products, they often provide the full line of a brand. This means that customers can find all the products of a specific brand or product line they like in one place without having to search elsewhere.
Regarding inventory management, due to their focus on specific brands or types of products, single brand beauty stores can typically manage their inventory more effectively. They can track sales trends, understand product popularity, and replenish stock promptly, ensuring that customers can purchase the products they desire.
In terms of brand experience, single brand beauty stores often offer a better brand experience. Their store layout, displays, and interior decorations are usually consistent with the brand image of the products they sell, creating a shopping environment that reflects the brand’s distinct characteristics.
However, as the beauty industry has become increasingly mature, the advantages of single brand beauty stores, like The Body Shop, have diminished.
With the growing prevalence of digital media, beauty consumers have a wider range of choices when it comes to products and brands. Single-brand stores can no longer meet the demands of consumers. Compared to large cosmetics chains or department stores, single brand beauty stores typically offer a narrower range of products. Due to their focus on specific brands or types of products, single brand beauty stores may lack diversity. If customers are interested in multiple brands or various types of cosmetics, they may need to visit different stores to make their purchases.
Regarding inventory management, the advantages of single brand beauty stores have dwindled as supply chains and digital logistics have become more advanced. With the current mature digital transformation of the beauty industry, there have been significant changes in sales models, and consumer habits have shifted towards online shopping, especially in recent years due to the pandemic. A well-established online shopping system can provide consumers with a better brand experience and product selection.
In summary, as consumers gradually enter the era of digital shopping, the rise of new retail has had a significant impact on traditional retail. Additionally, skyrocketing rents and labor costs for physical stores have greatly increased expenses, exacerbating their challenges. The decline of single brand beauty stores is an inevitable result of the overall development of the beauty industry and changing consumer habits.
