Days after The Body Shop said it was “fundamentally reassessing every aspect of its business” after a streak of dwindling profits, its Brazilian parent company Natura &Co announced that it was exploring “strategic alternatives”, including a potential sale of the business.
While Natura said “there can be no assurance that this process will result in a sale”, the news came as a surprise to many, especially at a time when the ‘lipstick effect’ has buoyed health and beauty.
The sector has been remarkably resilient in spite of the economic headwinds that have rocked retail, demonstrated by beauty giant Sephora’s UK comeback and the beauty category driving much of the growth seen by high street giants Boots and Superdrug.
Retail analyst Nick Bubb, said: “The Natura/Body Shop news is a conundrum. Although I can see why Natura might need to now raise some money and rationalise its operations after its recent acquisition spree, it’s surprising to hear that Body Shop has been struggling. Post-lockdown, health and beauty has been one of the strongest non-food markets in the UK, as evidenced by the recovery of Boots.
“But the supermarkets now sell a lot of similar eco-friendly toiletries and cosmetics lines, at much lower prices, so it looks as if Body Shop is failing to justify its premium positioning against the background of the cost-of-living crisis.”
Here, Retail Week takes a closer look at what went wrong and what could lie in store for the future of The Body Shop.
What went wrong under Natura?
Natura reportedly paid around €1bn for the Body Shop when it acquired the brand from L’Oreal in 2017. Being a leader in the cosmetic market in Latin America, with particular expertise in direct selling, buying a foundationally strong business like The Body Shop was a stepping stone in the Brazilian conglomerate’s global ambitions.
The bath and body retailer was intended to serve as a platform for Natura, catapulting its name internationally and growing its portfolio to compete with global cosmetic giants like L’Oreal, Estée Lauder Companies and Unilever.
Shortly after the company set out a transformation plan for The Body Shop, it also acquired another struggling cosmetics brand, Avon International, in 2020.
The acquisition and the added complexity of the Covid-19 pandemic resulted in the group’s resources being stretched.
“Will the next owner value and appreciate what makes The Body Shop distinctive and different? Will it lose the magic that the brand has? That’s the question everyone is waiting to see answered”
A source close to the retailer said: “Natura has been a Latin American business with a particularly strong hold in the Brazilian market. Apart from owning Aesop, when the company acquired The Body Shop, it didn’t have any real international experience or knowledge of global markets.
“Being leaders in direct selling in the Latin American market, the group never fully understood or embraced retail and tried to apply its local expertise at a global level with its acquisitions.
“It also acquired Avon around the same time as the COVID-19 pandemic hit, which led to the group’s resources being stretched as it took on two major turnaround projects.”
With financials taking a hit, the group offloaded Aesop to L’Oreal in April as it said “a strengthened financial structure and a deleveraged balance sheet” would mean the group could focus on its investment plan in Latin America and “concentrate on continuing to improve The Body Shop’s business and refocusing Avon International’s footprint”.
Three months after that decision, The Body Shop still faces challenges and its fate in the group is uncertain.
Who can be the next buyer?
The last two owners of The Body Shop have been strategic buyers. L’Oreal acquired the business from the Roddick family in 2006 for £652m. It was part of L’Oreal for 11 years before the business was sold to Natura.
With both strategic buyers failing to turn around the business, it has raised questions about whether there’s anyone willing to take on the brand and its challenges.
One Body Shop insider said: “At the moment, the most likely home is private equity. But the big question is: will a private equity firm be able to nurture the brand to deliver long-term value or will it be focused on taking cost out and breaking the business up and potentially risking the future health of the brand?”
Historically, The Body Shop has relied on its rich history and the strong values set out by its founder Anita Roddick, to scale and differentiate itself from other players in the market.
If private equity does turn out to be its salvation, will the harsh cost-stripping of that world be the best fit for the business? The insider we spoke to has concerns.
“The magic of a business like Lush or The Body Shop is everything you can buy at these stores, you can buy at Boots or Superdrug. The reason you go into these stores is not because of operational excellence like you get at Boots. You go into these stores because the brand really speaks to you and resonates with you,” they said.
“Will the next owner value and appreciate what makes The Body Shop distinctive and different and its long authentic history in social justice, the environment, animal rights and all these foundations that the business is built on? Will it lose the magic that the brand has? I think that’s the question that everyone is waiting to see answered.”
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