CAN THE BODY SHOP SHAPE UP? IN THE WAKE OF LOSSES IN THE U.S., A FAILED ATTEMPT TO GO PRIVATE, AND PRESS ATTACKS ON ITS DO-GOOD IMAGE, BODY SHOP FOUNDER ANITA RODDICK IS STRUGGLING TO GET THE SOAP AND LOTIONPEDDLER BACK ON TRACK. ONE BIG HOPE: ASIA.
(FORTUNE Magazine) – ANITA RODDICK is instantly recognizable behind the wheel of a diesel-powered Volkswagen Golf as she roars up to her Littlehampton headquarters, a building resembling a vast Chinese pagoda amid the rolling pastures of Sussex, England. The car is all green, naturally. With her hair flying and the sleeves of her work shirt rolled crisply like an army sergeant major's, the founder of the Body Shop International, Britain's most successful global retailer, pauses just long enough to admire her latest pet project: an enormous electronic sign that blares STEER CLEAR OF SHELL--BOYCOTT NOW at a Shell service station sitting forlornly across the road.
The question of the oil giant's responsibility for human-rights abuse in Nigeria is a current preoccupation of the perpetually crusading Roddick, but on a damp winter morning she is scowling at some equally disquieting news from her board of directors. Pre-Christmas sales figures from the U.S. were dismal, as they were for many retailers, and the mood at the home office is solemn. "It doesn't take a rocket scientist to see it hasn't been an easy ride for us over there," Roddick says glumly.
Weak U.S. sales are just one of the problems that have thrown the cosmetics concern into what its yuppie clientele would instantly recognize as a midlife crisis. Competition is increasing from a host of imitators such as Bath & Body Works, which has the marketing muscle of the Limited behind it. For the fiscal year ended in February 1995, the Body Shop's profits rose 13%, to $53 million, on sales of $349 million. But that's a lackluster growth rate compared with what the company has averaged in the past. And despite booming sales in Asia, in the critical U.S. market it actually lost money. Beyond balance-sheet woes, the company that likes to insist it puts principles before profits has been buffeted for two years by allegations, which Roddick angrily denies, that it has misled the public about everything from its stand against animal testing to the ingredients of elderflower eye gel.
All the bad news has tarnished the Body Shop's image as one of Britain's most glamorous growth stocks. Its share price has dropped 65%, from a high of $6.55 in 1992 to around $2.29 today.
No one disputes that enviro-activism was a brilliant way to launch a business. Roddick's soaps and lotions, made primarily of wholesome, natural ingredients attracted hordes of customers, New Age or otherwise. "You pay so much for a face cream, but you get a feel-good factor as well," says Andrew Campbell, director of Ashridge Strategic Management Centre in London.
But now that the 53-year-old Roddick has become a major player--since 1976 the Body Shop has risen from a single store in Brighton, England, to a multinational with 1,366 stores in 46 countries--the question becomes: Does she have what it takes to play hardball against giant retailers like the Limited?
Skeptics note that, until recently, Roddick and her husband, Gordon, the co-founder and chairman, were actively exploring ways to take the company private and turn it over to a nonprofit foundation that could use profits to finance good works rather than to pay dividends. The company says it shelved this idea when it became clear that the cost of financing the share buyback would sap Body Shop's aggressive global expansion plans.
Still, investors remain wary--and given the Body Shop's history, that's understandable. While competitors like the Limited moved into selling soap in a big way in the 1990s, Roddick continued to devote more and more time to getting up on a soapbox. She had started by helping the environmental group Greenpeace launch a save-the-whales campaign in 1985, but quickly widened her horizons to include Amnesty International, the rain-forest activists Survival International, and the Friends of the Earth. "How can you ennoble the spirit," Roddick once remarked self-deprecatingly, "when you are selling something as inconsequential as a face cream?"
In the early 1990s, Gordon and other company executives also began spending an increasing amount of time launching environmental projects rather than revamping the company's aging product line. The head of finance was detailed to help set up a windmill farm in Wales, designed to ecologically replace the electricity used by the home office.
In the midst of this swirl of good works, critics on the left suddenly started attacking their erstwhile corporate ally--setting off the kind of media frenzy usually reserved for royals caught with their knickers down. A 1992 television documentary charged that the Body Shop made false claims about its stand against animal testing. (The Roddicks sued for libel and won more than $400,000 in damages.) In 1994 an American journalist, Jon Entine, writing in one of Roddick's favorite magazines, Business Ethics, broadened the charge of hypocrisy to include Body Shop's environmental standards, charitable contributions, and efforts to buy materials from the Third World. Though Roddick dismissed the allegations as "recycled rubbish" --and an independent research group later concluded that Entine's charges were "broadly unfair"--she and Gordon were devastated by the negative press.
AMID ALL THE UPROAR, the real news was that the Body Shop's business was losing its momentum. Robert Gluckman, a retailing expert who had been recruited as the company's international general manager, left in a nasty public dispute in 1992 complaining about the Body Shop's unstructured environment and lack of a strategic plan. In the U.S., meanwhile, the company was hiring and shedding managers with such velocity that it appeared to many like the quintessential British amateur. "They were clueless about what they wanted," says Janet Swaysland, who lasted less than a year as Body Shop's vice president for communications.
About two years ago the Roddicks quietly concluded they had no choice but to launch a major makeover. The biggest change was their decision to step back from running day-to-day operations. Instead, they installed board member Stuart Rose as managing director. Rose promptly began restructuring the company, changing the top management team by bringing in other professional managers, installing tighter inventory and control systems, and streamlining processes.
Roddick herself seems more ambivalent about the new course, railing at the administrative bureaucracy she has been forced to adopt. "We've gone through a period of squashing one hell of a lot of the entrepreneurial spirit," she told FORTUNE. "We're having to grow up, we have to get methods and processes in, and the result of that is a hierarchy that comes in, and I think it's antiproductive." Roddick complains that it now can take a year or more to get a new product onto store shelves, vs. the four or five months previously.
What Roddick does seem to have going for her is a willingness to learn from her mistakes. For years what made the Body Shop successful was that it didn't charge franchise fees or royalties, preferring to let the franchisers pocket them. Most of the company's earnings came from wholesaling the merchandise it makes, much like Italy's Benetton, which wholesales clothes to its stores.
That Roddick neglected to follow her own system for success in the U.S., where the Body Shop owns 113 of 272 stores, is one of the key reasons for the company's stumble there, analysts say. Rather than perfecting sales in its existing shops, the company charged into the top malls in the U.S. over the past two years, in hopes of gaining a foothold against the fast-expanding Bath & Body Works. It's not working. The U.S. operation lost $3.7 million in the first six months of fiscal 1996 on sales of $46 million. Same-store sales fell by 8%.
Bath & Body Works, by contrast, which has opened 412 stores in the past five years, is making a profit. Leslie H. Wexner, the Limited's chairman, says his rival's background as a manufacturer (and foreigner) worked against her in the U.S. "They're not retailers," he says. "We have an advantage--we know the territory." "It was just awesome to watch how fast they got into the market," Roddick admits.
Having been burned in retailing, Roddick now seems to have learned her lesson. As Body Shop expands, it is sticking to its more profitable franchising strategy, the approach that made it successful in the first place. Today all but 12 of its 841 shops outside the U.S. and Britain are franchises.
So far, the Asian market has produced particularly explosive growth, with sales advancing by 39% in the first half of the 1996 fiscal year, to $18.2 million, and untapped areas like South Korea and the Philippines are just now coming onstream. In mature markets like Britain, the Body Shop's biggest, with 44% of its revenues, the company has launched new marketing strategies to revitalize sales. Since the country is nearly saturated with stores, the company has begun a program of direct-mail and in-home sales. In the U.S., for the first time it's taking out ads in print and on radio, and is fighting against the Limited with gift-with-purchase promotions and 2-for-1 offers.
Body Shop is also revamping its product line while trying to maintain its green ideals. The results have been mixed: A nonaerosol hair mousse flopped, but a new line of cosmetics called Colourings is doing well.
It's going to take years to tell whether the new marketing and sales strategies can turn around the company's fortunes and to know to what extent Roddick will let her professional managers run the business at the expense of her beloved environmentalism. In the meantime, the fact that there's hardly a financial analyst who has much positive to say about the company's prospects suggests that, for now, investors should probably stick to buying the Body Shop's soap--but not its shares.