Shortly after The Body Shop was sold in 2017, its then chief executive shared a blunt diagnosis of the British ethical beauty retailer’s woes.
“Why should The Body Shop be operating today?,” David Boynton rhetorically asked staff as he sought to reinvigorate the brand under its new owner, Brazilian group Natura. The retailer known for its anti-animal testing campaigns and environment-friendly ethos had “run out of steam” under its previous parent, French cosmetics giant L’Oréal, he said, recounting the anecdote in a speech.
The same question applies six years later in the wake of Natura’s sale of the 47-year-old chain to European private equity firm Aurelius.
The acquisition, which was announced this week, values the retailer at £207mn — of which £90mn would be payable in five years if the company met certain undisclosed targets. This is a fraction of the £880mn that Natura paid L’Oréal for it.
“It’s lost its way,” said Catherine Shuttleworth, who runs digital marketing agency Savvy. “It has lost people who were real avid fans, and it has not connected with new consumers.”
The Body Shop, founded by the late trailblazer Anita Roddick in 1976, was among the first companies to argue business could be a force for good. In the 1980s and 1990s, it earned its place as a household name with products including White Musk fragrance, Dewberry oil and Peppermint foot scrub. The brand helped change 24 laws in 22 different countries by mobilising its customers, including campaigning against animal testing in cosmetics, said Boynton, who stepped down earlier this year.
But other retailers and brands have since caught up with the trend to attract more eco-conscious shoppers. One example is Aesop, the Australian high-end soap maker known for its vegan products, which Natura sold to L’Oréal in a $2.5bn deal earlier this year.
“There is a lot more competition in that sphere of the industry,” said Natasha Van Boxel, an associate analyst at GlobalData.
Shuttleworth said: “They’ve just got to redefine themselves for the modern day but stick back to those ethical and sustainable things because I bet a lot of young shoppers don’t know what we know [about the brand].”
The Body Shop, which has about 2,500 shops in more than 70 countries, has struggled with a slump in sales amid increased competition and surging inflation. It recorded a pre-tax loss of £71mn last year, according to UK public filings.
Revenues slid from £507mn in 2020 to £408mn in 2022, according to the filings. Its UK market share dropped to 0.8 per cent last year, from 1.4 per cent in 2020, and is expected to be flat this year.
Some critics blame Natura for failing to revive the chain. It was the Brazilian group’s mistake to assume that its mastery of selling directly to South American consumers could transfer into running a network of stores in territories it was unfamiliar with, they say. The São Paulo-based company also owns door-to-door cosmetics seller Avon, which it bought for $2bn in 2019.
Thiago Macruz, head of research at Itaú BBA, said Natura took on the “global turnaround of a retailer” with The Body Shop. “It really wasn’t their skillset.”
He added: “Even though they had some initial success . . . They were never able to really rethink this company’s growth opportunities.”
Natura’s chief executive Fábio Barbosa admitted this week that it did not have the “retail expertise” required to return The Body Shop to its former glory.
Despite a recent uptick in profit margins amid a cost-cutting drive, growth has proved difficult for the chain. It has been rolling out a new store format, with fewer products and refilling stations that avoid packaging, but revenues have continued to decline.
“We had success working on margins and the brand itself — this was the good part,” Barbosa said. “The difficult part is how you get movement back into stores, following the big drop during Covid.”
He added: “The lesson was, we don’t know retail enough around the world — [in] England, the US, New Zealand and Australia — to be the ones to make the necessary changes.”
Aurelius should focus on widening the appeal of the brand through partnerships or concessions in other retailers, said GlobalData’s Van Boxel. It should also offer more products at a lower price to prevent cash-strapped shoppers from defecting to cheaper rivals, she added. A chamomile cleansing butter costs £30 per 100ml, while its shea body butter is £19 per 200ml. At UK chemist Boots, its own-brand moisturising cleansing butter is £7 per 100ml, while the shea body butter is £8 per 250ml.
“When the cost of living crisis hit, consumers just weren’t interested in sustainability as much as they were in saving money,” Van Boxel said. “And because The Body Shop just sells its own brand products, it doesn’t really have anywhere for consumers to trade down to, whereas other retailers are able to offer cheaper alternatives. They lost out on that because it just couldn’t offer anything.”
“It needs to be ready for the TikTok generation,” said Shuttleworth, referring to Generation Z and Alpha, who could be lured by modernising some of The Body Shop’s stores and even making them “interactive”.
“The brand needs to be updated and made more desirable,” said Itaú BBA’s Macruz.
Aurelius’s endeavour to reignite The Body Shop comes amid favourable winds in the beauty sector. The skincare market, worth $131.5bn in 2022, is expected to grow at a compound annual rate of more than 3 per cent between 2022 and 2027, according to GlobalData.
The private equity firm plans to build out the company’s online presence, making it less dependent on sales from its physical stores, Aurelius partner Tristan Nagler said in an interview.
Aurelius, which also acquired sportswear retail chain Footasylum and the parent company of LloydsPharmacy last year, takes a more hands-on approach to the companies it owns than a typical private equity fund manager.
The firm would parachute executives with experience running companies into its businesses to help improve operational performance, for instance. This can include embedding staff with a company for a year while they seek to turn the company around, Nagler said.
It will also attempt to recapture lost ground in ethical capitalism, Nagler added, and make the company as relevant to new generations as it was during its heyday. “The Body Shop is a business many of us grew up with,” he said.
Despite its experience reviving ailing companies, Aurelius’s investment in The Body Shop means it is increasing exposure to a sector that has hurt the reputation of many of its private equity peers.
Private equity has presided over the high-profile failures of UK high-street stalwarts including Debenhams, Maplins and Phones4U, among others.
In the UK this has attracted the scrutiny of politicians including shadow Labour chancellor Rachel Reeves who has accused buyout groups of asset stripping, citing their roles in companies such as HMV and Maplin falling into administration.
To avoid their fate, Aurelius needs “to go back and learn from [founder] Roddick’s playbook”, said Shuttleworth. “This business is bound to fly because it’s everything that consumers say they want.”
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