As The Body Shop’s woes deepen and one of its international businesses after another follows the UK arm into administration, Retail Week takes a look at what role the ownership of the retailer’s IP will play in shaping the brand’s future
The Body Shop may have thought its worst fears came true when it fell into administration in its largest market in the UK in February. Less than a month later, the situation at the ethical beauty chain has only worsened, both at home and abroad – with operations in Europe and North America falling into bankruptcy one after the other.
While investors, employees, consumers and the wider retail sector all wait to see what comes of the administration process of this household brand, it seems the outcome may already be a foregone conclusion.
The retailer doesn’t own any of its store freeholds, manufacturing infrastructure or distribution network – the things of value it does own are its brand name and intellectual property.
Its private equity owner Aurelius knows this because the chain’s brand and IP have been left out of the administration process in the UK and are still owned by the firm.
A source close to the situation said the administration deal may be structured in a way that Aurelius could be the most likely buyer at the end of the process and that any other party that might be interested in buying The Body Shop out of administration will have to incur the costs of licensing fees for the use of its trademark in any way, making a part-ownership structure less attractive.
“The real control is over the use of the trademark,” the source said. “That is the main thing of value [with the brand].”
Travails abroad
While The Body Shop UK undergoes intense restructuring – slashing its store estate in half and reducing its workforce under administrators FRP Advisory – the situation is even more bleak internationally.
In one of its first moves to strengthen the business, Aurelius offloaded The Body Shop’s European arms to an international family office it has previously done business with called Alma24. Soon after, Retail Week reported the beauty chain’s businesses across continental Europe were in danger of collapsing, leaving the fate of over 2,000 jobs and hundreds of stores in multiple countries in the balance.
A source close to the company in Europe said operations in the region have suffered because The Body Shop’s head office in the UK has failed to pay its third-party distribution centre in Frankfurt, Germany, and confusion prevailed over who owned the business.
At the beginning of the administration process in the UK, the retailer assured its international staff that its overseas operations in countries like the US, Canada and Australia would be unaffected by any restructuring, like its global franchise partners.
However, weeks into the administration process, The Body Shop’s international businesses have been laid aside, with the retailer’s US arm the most recent international arm to cease trading, shutting 50 stores and putting over 400 jobs at risk.
The retailer’s Canadian arm has shut 33 of its 105 stores, leading to 200 redundancies, as cash shortages and the ceasing of US operations had a direct impact on the business.
A source with an understanding of the company’s operations in the region said the retailer had to file for bankruptcy, despite being profitable, as it struggled with cash shortage issues after funding was cut off by its international parent company, The Body Shop International, which is owned by Aurelius.
After the company changed ownership in December, access to these funds was cut off as The Body Shop International failed to fulfil payments, creating a backlog of overdue debt coming nearly $3.3m (£2.6m).
This is owed to landlords, logistics providers, marketing agencies, insurers, utility providers and freight services.
Filings in Canada revealed that The Body Shop International continued to take money out of its US and Canadian arms until a day before the UK business went into administration.
The filings report said: “The Body Shop International did not warn the company of its intention to file and has since provided little to no guidance. Instead, the UK parent, the UK administrators and Aurelius informed the company that the cash pooling arrangement was no longer in place and The Body Shop Canada must now use its own cash or to finance all market activities.”
The Australian arm may be heading towards a similar fate as it struggles to pay suppliers in the country.
All of The Body Shop’s troubles can be traced back to the UK division. But as sources speculate, it seems most likely that Aurelius will ultimately buy back a greatly reduced retail chain, given that it will continue to own the most attractive assets of the company including its brand and IP.
The Body Shop’s fate remains in the hands of its private equity owner. But if there’s anything to learn from how it has dealt with operations abroad, collapsing into administration may just be the beginning of the pain for The Body Shop’s UK staff and customers.
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