The Body Shop’s parent company Natura &Co has been through a tumultuous few years since it acquired Avon in 2020
A Brazilian retail group founded in 1969, today Natura &Co is a key player in the beauty market and one of the world’s largest B Corporations (a third-party standard requiring companies to meet sustainability standards). It houses four brands brought together by the commonality of “socially conscious beauty” and describes itself as fostering “real positive economic, social and environmental impact”.
Its Natura brand represents more than 56% of group sales, taking R$22.4bn (£3bn) in its most recent financial year ending December 31, 2021.
In its second-quarter results for the three months ending June 30, 2022, released last week, group revenues rose 0.4% in constant currency to R$8.7bn (£1.3bn), but EBITDA margin fell 50 bps to 8% due to inflationary and foreign currency pressure.
After a group reorganisation earlier this year saw former chief executive Roberto Marques step down from his role, can his successor turn the tide?
Our Retail Week Prospect analysts examine five things you should know about this socially conscious beauty B Corp.
1. An acquisition strategy with mixed results
Natura &Co has four brands under its banner including the eponymous label Natura, founded in 1969. Within the past 10 years, the business has acquired three very different additional brands: luxury Australian apothecary brand Aesop in 2012, British-born The Body Shop in 2017 and social-selling cosmetic business Avon in 2020.
In the financial year 2019/20, Natura &Co’s total group sales rocketed with its acquisition of Avon. Revenues rose to R$32.9bn (£6.6bn) from R$13.4bn (£2.8bn) the previous year.
In its most recent financial year, 2021/22, the group reported its highest sales yet at R$40.2bn (£5.4bn), up 8.8% in local currencies.
While all three acquisitions have helped it grow its global footprint – Natura &Co now operates in more than 100 countries – as well as make substantial revenue gains, the acquisition of Avon has not been without its challenges.
In 2020, it experienced two cybersecurity incidents, which affected its operations and caused group share prices to fall by nearly 2%.
Costs associated with the takeover also impacted profitability, with the group falling into the red in 2020/21 with a pre-tax loss of R$245m (£37.5m).
While in 2021/22 group profits were back in the black, with pre-tax profits reaching R$91.5m (£12.3m), its latest results for Q2 2022/23 suggest Avon is still problematic.
Revenue at Avon International decreased 11.4% in constant currency in Q2 2022/23, with the war in Ukraine and low consumer confidence cited as the main challenges.
By contrast, Aesop has grown its revenue every year since its acquisition, recording record results for 2021/22, up 25% in constant currency to R$2.6bn (£0.35bn).
2. Brands leading on purpose
In 2020, Natura &Co launched its Commitment to Life strategy, a set of 31 targets for the following decade that aim to tackle some of the world’s most pressing issues including the climate crisis and protecting the Amazon, the defence of human rights to ensure equality and inclusion throughout its network, and embracing circularity and regeneration.
“We now need to move faster, we need to act and be held accountable”
Roberto Marques, Natura &Co
Marques said of the plan: “We’re the generation that has the knowledge and the technology to stem the rise in global temperatures, put an end to the global waste issue and create equality for those who need it most. But we now need to move faster, we need to act and be held accountable.”
And move faster it has. Having set a goal to reach 50% of women in leadership positions by 2023 (going beyond the United Nations (UN) Sustainable Development Goal of 30%), in 2021 it surpassed this goal with 50.4% of these positions held by women.
Natura &Co has been carbon-neutral since 2007, but is aiming to reach net-zero by 2030 – 20 years ahead of the UN commitment.
In 2021, Natura &Co raised a $1bn bond issue linked to its sustainability goals.
Consumers are demanding more from brands with regards to their ESG credentials. A recent Deloitte study showed that nearly one in two consumers either do not know which business commitments they can trust or simply do not trust businesses on climate change and sustainability issues at all.
With Gen Z set to occupy more of the workforce in the next five years, in May 2022 The Body Shop announced the launch of a Youth Collective, which aims to back the views of the younger generation.
Made up of a group of under-30s within the Body Shop and other B Corp organisations, the Youth Collective will be consulted by senior leadership on business decisions.
The Body Shop stated that it “will make sure that we are amplifying young people’s voices within our business, while also pushing us to look at the way we do things in a new way”.
Aesop has also been using its stores to champion marginalised voices in recent years. In 2021, its free Queer Library initiative saw it clear products out of nine of its stores across five countries, including two in London, and replace them with books by LGBTQIA+ authors and allies from around the world.
In 2022, Aesop celebrated 50 years of Pride in London, replacing its Lexington Street store’s products with 50 book titles provided by London’s Gay’s The Word bookstore and a selection donated by Penguin Random House.
3. Tapping into on-demand beauty
In its most recent financial year, the group focused on the “digitalisation” of the business, with digitally enabled sales reaching more than 50% of Natura &Co’s total revenues.
Tapping into a shift in online shopping, The Body Shop launched its own subscription service earlier this year. Customers can select from more than 100 products to have delivered to their homes, with a choice of delivery frequency between every one to three months, saving up to 15% on future orders.
This savvy move is likely to lock in customer loyalty and retain lifetime value for the retailer. Should it prove lucrative, Natura &Co will undoubtedly expand this service to brand mate Aesop.
Stateside, The Body Shop has recently expanded its Uber Eats partnership, with nearly all the retailer’s locations within the US now available. While on-demand beauty is yet to take off in the UK, this is one area to watch.
Meanwhile, Aesop has just opened its largest format store in the UK so far. The new Regent Street store, originally designed by architect John Nash in 1819, occupies more than 400 sq m across two floors.
The store houses a ‘Sensorium’, a fragrance consultation room and a number of treatment rooms downstairs, with further expansion of its facial services in the UK likely.
4. Exploring new markets and formats
Natura &Co is targeting the Asian market for growth. For the six months ending 30 June, 2022, competitor L’Oréal saw its North Asia market grow 10.5% in like-for-like sales, with its market share growing in the region.
In 2021, Avon opened its first mainland Chinese flagship store in Shanghai. Through the store opening, the brand targeted Gen Z, offering a livestreaming studio to create a digital shopping experience.
Aesop, having obtained the Good Manufacturing Practice certificate required by Chinese authorities, plans to launch its first store in China later this year.
By contrast, The Body Shop does not currently trade in mainland China, in duty-free stores or elsewhere due to its stance on animal testing.
Former UK managing director for The Body Shop Linda Campbell was appointed as global retail director, focused on the rollout of the brand’s Activist Maker Workshop format.
Described as a format where customers “have fun while playing with the products and learning how to impact the world positively”, it has already grown to more than 100 stores.
As well as a growing portfolio of Aesop stores within the UK, Natura &Co could look to partner with a retailer on establishing a physical presence for the Natura brand within the UK in the next few years, with the brand only available via Amazon at present.
5. Barbosa takes the helm
Current chief executive Fábio Barbosa is a recognised leader in the sustainability field and has extensive management experience, having served as chief executive of the Abril publishing group from 2011 to 2015 and of Santander Brazil from 2008 to 2011.
Undoubtedly, he will endeavour to improve margins and group results as well as streamline operations, having taken the helm at the end of June.
With Avon having constrained the total business, each of the brands in the portfolio will be given more control.
“We are strongly focused on improving the fundamentals of our underperforming businesses, which we regard as our principal challenge and main upside driver”
Fábio Barbosa
In its Q2 results, Barbosa said “we are confident that a leaner and more agile structure, built on a strong foundation of accountability for results, will empower the business units to respond with agility to their current strategic and market challenges”.
He added: “At the same time, we are strongly focused on improving the fundamentals of our underperforming businesses, which we regard as our principal challenge and main upside driver.”
With the cost-of-living crisis increasing pressure on retailers’ margins, sustainability is arguably at risk of moving further down the agenda. Recent reversals in strategies by Tesco and Iceland prove how challenging achieving sustainability goals can be.
However, Natura &Co showcase that sustainability goes beyond refillable packaging and is intrinsic to how the company operates.
Sustainability is non-negotiable, with sustainable growth officer Silvia Lagnado stating: “Our path will require innovation as well as collaboration over competition.”
StrengthsB Corp status – The Gen Z demographic is increasingly looking for brands that align with their personal values. As one of the world’s largest B Corps, Natura &Co stands to gain a lot of traction with customers seeking to purchase from brands that are considered sustainable but also have clear diversity and inclusion strategies, as well as looking after the wellbeing of employees. Brand differentiation – Each Natura &Co brand offers the customer something different, and the brand’s individuality ensures there is a clear identity for each in the business. Savvy acquisition – Natura &Co has built up its portfolio of brands to align with its own goals as a company, as well as extend its reach to further countries and demographics. Cult brand – Aesop has developed a clear brand identity and cult status, featuring in many Instagram-worthy posts of customers’ bathrooms. Its luxury credentials, together with its strong brand values, differentiate it from many players within the market. |
WeaknessesWorldwide reputation – Its eponymous label has yet to gain much traction outside of the South American market and it needs to develop a clear strategy to leverage the brand globally. Avon acquisition – The company’s acquisition of the brand caused margins to suffer, with it only starting to see a turnaround in 2021/22. It also suffered a major cybersecurity incident, which took its back-end systems offline. Focus on turning this brand around may have detracted attention and resources from its other portfolio brands. Competition – Natura &Co is competing with a number of other global brands such as L’Oréal and Procter & Gamble, which have much larger market share and global acclaim. Although its B Corp status sets it apart, the business must leverage this point of difference more effectively. |
OpportunitiesBrand growth – Natura &Co has plenty of opportunities to exploit the brands in its portfolio further and is looking to the Chinese market to expand its Aesop brand. Retail partnerships – In a bid for physical space for its own label, Natura &Co could look to partner with a significant retailer within the UK or Europe in order to mitigate the costs of standalone stores. New leadership – Fábio Barbosa took over as chief executive in mid-2022. With strong financial credentials, he will be looking to make cost savings and streamline processes within the business. Subscription model – Locking in customer loyalty, The Body Shop launched its subscription model in July 2022. Undoubtedly, it will evolve this model with a view to expanding it to other brands in the portfolio, such as Aesop. |
ThreatsDiscretionary spend – While the beauty market has been resilient in the face of economic downturns, the cost-of-living crisis will challenge discretionary spending. Brands such as Aesop may suffer as consumers rein in their purchases. UK competition – Within the UK, companies such as Lush are investing in stores and, as such, directly competing with The Body Shop. Imitations – A number of brands have emerged mimicking the Aesop aesthetic, such as Evolve Organic, Baylis & Harding and Meraki, all touting lower price tags. Customers may therefore downgrade when reviewing discretionary spending. |
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