The Body Shop files intention to appoint administrators

When Anita Roddick sold The Body Shop in 2006, she left behind not just a thriving cosmetics and skincare empire but living proof that a business could follow strict ethical guidelines and still make healthy profits.

But on Monday, the private equity-owned company filed the intention to appoint administrators.

The process is likely to trigger dozens of shop closures, putting jobs at risk and threatening a crucial source of sales for a global network of small farmers and producers.

Such a fate seemed impossible when L’Oréal agreed to pay £652m for the business, a deal in which Roddick – along with husband and business partner, Gordon – relinquished control only 18 months before her death.

The decision to sell to a global corporation left many loyal customers stunned.

Roddick had opened her first shop in Brighton in 1976, expanding rapidly through a franchise model and adhering to strict moral principles.

In an industry dominated by lab-tested, synthetic products, ethically minded shoppers flocked to a brand that did not just eschew corporate rapaciousness but actively campaigned against animal testing and for ethical relationships with suppliers.

The defiant challenge to corporate and social norms made Roddick one of the most recognisable figures of the 1980s.

Mark Constantine, a one-time supplier to The Body Shop who went on to found rival Lush, told the Guardian he had been “inspired and terrified” by Roddick’s combination of iron principles with whip-smart business acumen.

“She did things that nobody else had the nerve and the balls to do.

“I don’t think B Corps [the ethical business standard] would exist without The Body Shop.”

To Constantine, not to mention customers and suppliers, the ethos of The Body Shop’s new owner, the French global corporation0 L’Oréal, was a world away from its roots.

The Body Shop was one of the pioneers of cruelty-free cosmetics but L’Oréal had taken until 1989 to cease testing its products on animals.

The new owners also changed the business model, moving production to the Philippines and focusing on discounts to drive up sales.

Nick Hoskyns has supplied The Body Shop with sesame oil from the Juan Francisco Paz Silva farmers’ collective in Nicaragua for more than 25 years. He said L’Oréal did at least try to maintain the brand’s principles, having paid top dollar for them.

“But you can’t say that it was ever the same,” he said.

“There was that radical activism that Anita and Gordon brought. Once it becomes more commercial, that changes.”

For some years after the L’Oréal takeover, though, the brand and the business operation held firm.

The scent and feel of famed products such as white musk and body butter – continued to prove irresistible to ordinary customers and those in the beauty industry, such as the model Lily Cole.

When the business was sold again, in 2017, it remained solidly profitable, with sales growing worldwide via a network of more than 3,000 stores.

L’Oréal made a notional return on its investment, even factoring in inflation, extracting a fee of £880m from the Brazilian buyer Natura.

The São Paulo-based firm specialised in “direct sales”, relying on distribution of its makeup and skincare products via independent sales representatives. It would go on to buy perhaps the best known exponent of this model, Avon, in 2020.

The Body Shop was a very different beast, with its costly high street stores and its high-quality ingredients sourced from a network of small producers. It began to buckle under the weight of changing economic conditions affecting the high street.

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Sales declined in the important US market, while inflation drove up costs and constrained customers’ spending power. Natura’s efforts to pull the business out of its slump failed to bear fruit.

Turnover in 2022 dropped from £487m to £408m, flipping a £10m profit into a £71m loss.

By autumn last year, Natura was casting around for a buyer.

The German private equity firm Aurelius stepped in, appearing to capitalise on Natura’s desperation by snapping up the business for £207m, less than a quarter of what Natura paid six years earlier.

If the deal looked too good to be true, one source familiar with the takeover said, that’s because it was.

Natura’s eagerness for a quick sale might have meant a lower headline price tag but it also made for a much shorter than usual process of due diligence, the painstaking process that companies considering a takeover use to kick the tyres before buying the car.

Aurelius, which specialises in turning around failing businesses, ran the rule over The Body Shop for only five weeks. In that time, it failed to identify that it was dangerously low on working capital, the cash a business needs to fund day-to-day operations.

Christmas and January sales failed to come to the rescue, proving lower than hoped.

Whatever future The Body Shop has will be thrashed out under the oversight of an administrator, with the accounting firm FRP Advisory set to be appointed within days.

The Body Shop employs more than 2,000 people in the UK, has more than 200 UK and Ireland shops, compared with about 100 at Lush and even fewer at L’Occitane.

Asked if Lush would want to take on any of those sites, Constantine said that was unlikely. He expects The Body Shop’s store network to shrink by about half.

“It’s horrific from the point of view of jobs,” he said.

Hoskyns was en route from Nicaragua to Germany to a conference of other small Fairtrade suppliers, many of whom now face significant uncertainty as a major customer teeters on the brink. He thinks the company’s decline is a cautionary tale.

“Activist Fairtrade companies aren’t safe in the hands of commercial people,” he said.

“I hope a solution can be found. Capitalism has to show it can come up with the goods.”

The Guardian

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