L’Oréal, owner of The Body Shop is considering selling their ethical store after ten years’ ownership for $852 million, but what will this mean for the chain’s future?
The beauty retailer has revealed a slip in both sales and profit. Reports earlier this week stated that L’Oréal had appointed bankers to examine a sale of The Body Shop with some private equity suitors already interested.
L’Oréal, which owns a plethora of international brands including Garnier and Maybelline, reported on Thursday that The Body Shop’s operating profit had dived 38% to $588.1 million NZ dollars in the year to 31 December 2016.
Sales sank nearly 5% to 920.8 million pounds (1.6 billion NZ Dollar). The pace of decline stepped up in the final and most important quarter of the year – sliding by 6.3% in total.
Ben Goodale’s, managing director of JustONE – an award-winning data-driven, marketing, CRM, and loyalty agency, says selling is all about the corporate strategy.
“L’Oréal are not really a retail brand, they are a manufacturer and marketer. So this was always a bit divergent as the stores were as much a part of the brand as the product. Maybe they’ve decided it just isn’t core. But for someone else, it could be.” Goodale explains that the chain’s future depends largely on a new owner’s strategic plan for the business.
“When you’ve got 3000 stores in 66 countries, there must be some massively diverse levels of retail performance. Logically, any new owner is going to review the performance, the actual retail strategy, and look at whether they have the right format of stores in each market, with the right product mix.”
The Body Shop donates to over 2,400 charity groups annually. Goodale expects the chain to continue its annual donations of over one million, despite its struggle.
“Charity funding and ethical standards are at the root of what The Body Shop is all about. As a brand pillar, it’s worth preserving.”
Chris Wilkinson, managing director of First Retail Group Ltd, says that the brand is struggling now thanks to other ethical cosmetic beauty stores operating in the same sector.
“The brand has lost its way somewhat and no longer gets to leverage its ‘back-story’ of social champions and change agents. It’s also faced massive pressure in the UK, Australasia and Asian markets from Lush and in the US and Canada from Lush and Bath & Body Works.”
Wilkinson says that the possible selling of the business leaves uncertainty for the chain’s future.
“The chain worked well as a vertical business model when the company that made the product, sold the product. Without the cost efficiencies, ‘vertical’ margins and other benefits from an integrated business model, the chain’s success would be compromised.” Says Wilkinson
The announcement confirms reports earlier this week that L’Oréal had appointed bankers to examine a sale of The Body Shop with some private equity suitors already interested. But what does this mean for retailers in the New Zealand sector? According to Wilkinson the brand is expected to remain, even if sold.
“They are passionate and skilled retailers, so as long as supply chains remain and product evolution continues, the brand should stay strong here under their guardianship.”
Ben Goodale expressed that the only thing certain for New Zealand retailers is, “uncertainty, inevitably.”
The Body Shop New Zealand has been reached for comment but has not yet chosen to do so.