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Paper Reference(s)

6121/01, 6122/01, 6123/01

Advance Information
Edexcel GCE
Business Studies (8076/9076)
Advanced Subsidiary
Advance Notice of Case Study for
Unit 1 – Business structures, objectives and
external influences
Unit 2 – Marketing and production
Unit 3 – Financial management
January 2004
This paper may be opened on
24th November 2003

Information for Candidates

In preparing for the Case Study paper, candidates are advised to undertake general revision as well as
detailed investigation of issues related to the Case Study.
This Advance Notice should not be taken into the exam. The Case Study is reproduced in the exam
paper.

Printer’s Log. No.

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CONTEXT

The Body Shop International plc (The Body Shop)

The Body Shop was founded by entrepreneur Anita Roddick who, in 1976, started by retailing
homemade naturally inspired products with minimal packaging. It rapidly evolved from one small
shop in Brighton on the south coast of England, with only around 25 hand-mixed products on sale,
to a worldwide network of shops. It became a Public Limited Company in 1985, and in 1989 was
launched in the USA. By 1997 the company was operating a variety of franchising arrangements 5
(see Appendix 1). In 2002 the company was trading through more than 1 900 stores in 50 countries
around the world.

According to Anita’s autobiography, in the late 1970s her husband Gordon realised that the best way
to expand was by shifting the cost to others through ‘self-financing’ franchising. Franchising
allowed for rapid growth and international expansion as hundreds of entrepreneurs worldwide 10
bought into Anita’s vision. It soon became a cash cow, with the company receiving a sizeable
proportion of each franchisee’s start-up investment.

However, as The Body Shop grew it charged higher fees (franchisees in the USA can now pay as
much as $774 750, plus a 5% sales royalty). As the costs of franchising escalated, its shops faced
tough competition from copycat companies, and the previously large profit margins began to 15
collapse. Like other European retailers who invaded the USA market – Laura Ashley, Benetton,
Tie Rack, Sock Shop – The Body Shop has found it a tough market. Lookalike competitors came
to dominate US premier shopping malls. In particular, the highly profitable Bath & Body Works
outnumbered The Body Shop in the USA by about five to one in 2002.

A further problem is that some franchisees, past and present, have grievances with the company. 20
According to one UK franchisee (who in 1996 filed a lawsuit claiming negligence and
misrepresentation), “The Body Shop may be a great platform for Roddick’s whims, but as a
business model it just doesn’t work for most franchisees”. “This company has not been straight
with us,” claimed another franchisee who owned two shops in the USA, and was one of nine
franchises expected to take the company to court in autumn 2002. “They can talk about ethics and 25
social responsibility all they want but the proof, or lack of it in our case, is in their relationship with
franchisees.” The lawsuit was expected to allege that The Body Shop consistently understocked
franchisees by 40% and discriminated against them in favour of company-owned stores. This
echoed accusations from franchisees in Britain and other countries.

The Body Shop underwent further change. In 1999, it created four new business units in the UK, 30
Europe, the Americas and Asia. This regionalised its operational and managerial structure, to focus
more of its resources closer to the market and to create a more flexible and efficient structure. It
was hoped that this decentralised structure would enable The Body Shop to “deliver a tailored offer
to our customers faster and more efficiently”.

One of the first steps taken in 2002 by Adrian Bellamy, The Body Shop’s new Executive Chairman, 35
was to assure customers that the company would continue to act as the campaigning face of
capitalism. He commented “We are not bureaucrats – we do not like waiting for reports. We are
bringing vitality and energy to the company.” He stressed that The Body Shop’s reputation for
social responsibility would not be compromised – but neither would its drive to increase profits.
“We have to perform for shareholders,” he admitted. The Body Shop planned to open a series of 40

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concessions in Britain. The new Chief Executive Officer Peter Saunders has confirmed that after a
successful trial in Northern Ireland, it wanted to follow rival retailers in tying up with other store
groups to boost sales. In 2001 Sainsbury put Boots pharmacy concessions into its outlets, and
supermarket group Spar and clothing retailer Peacock later established links with Woolworths.

Saunders and Bellamy also planned to overhaul the supply and marketing of the British business, 45
bringing it into line with USA operations where stocks were slashed. “We looked at how we needed
to improve the flow of supplies on the shop floor. We want the newest products on the shelves,”
Bellamy said. He added that he wanted 30% of all sales to come from new products, and that a new
make-up range was being developed. Saunders also indicated that they would not scrap the most
familiar Body Shop products, unlike the Roddicks who had upset customers when they discontinued 50
proven lines such as banana soap.

At the same time as achieving many praiseworthy objectives, The Body Shop’s stance as an ethical
retailer created difficulties for its new management team. The company positioned itself squarely
in favour of protecting the planet but its unique selling point has been eroded by rivals that caught
on and caught up. Consumers’ concerns about ethical issues are perceived to be so strong that most 55
firms are anxious to position themselves as a caring company. Research by Mintel found that 40%
of customers worry that products should not involve the exploitation of Third World countries,
while more than half insist they would stop buying goods if they knew child labour or animal
research were involved in their manufacture. As a consequence, companies from all sectors are
becoming ever keener to publicise the extent of their corporate social responsibility. 60

Other research by the Henley Centre suggested that only 6% of consumers were actively engaged
in supporting socially responsible companies. “Consumers are selfish: they want fashion, quality,
convenience and a great price,” said George Wallace, Managing Director of Management Horizons
Europe. “It’s a banana skin for companies to behave in an unethical way but if they have an ethical
charter it tends to go over people’s heads.” 65

Founders Anita and Gordon Roddick decided to step down as Co-Chairs in February 2002. Anita
was later appointed “creative consultant”, to offer “essential expertise in product, marketing and
values” – the issues at the very heart of The Body Shop’s recent problems. Anita remains The Body
Shop’s image, something which some analysts say could be a problem.

Adapted from the following sources:

‘Body Shop scents to spread across the UK’ The Business, February 2002;
‘Ethical feels good but can it deliver the goods?’ The Business, February 2002;
‘Even Anita Roddick called it a ‘coffin’. So can The Body Shop spring back to life?’
The Business, June 2002;
The Body Shop International plc Internet site, September 2002.

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APPENDIX 1

The Body Shop International plc

(organisation of its operations in 1997)

Manufacturing, Wholesaling, Marketing, Sales and Administrative Functions

The Body Shop UK The Body Shop USA Singapore Independent

Head Franchise Head Franchise Company Shops Overseas Franchises

Mail Company
Company Area Franchise Area
Order Shops
Shops Distributor Shops Distributor

TheThe
Body
Body Company
Company Franchise Company
Company Franchise Own
Own Franchise Own Franchise
Shop Direct
Shop Direct Shops
Shops Shops Shops
Shops Shops Shops
Shops Shops Shops Shops

Adapted from the following source:

The Body Shop International plc, September 1997.

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APPENDIX 2

Principles and mission statement of The Body Shop

Famous for creating a niche market sector for naturally inspired skin and hair care products, The Body
Shop introduced a generation of consumers to the benefits of a wide range of best sellers from Vitamin E
Moisture Cream to the Tea Tree Oil range and Banana Shampoo.

The Body Shop’s campaigns against human rights abuses, in favour of animal and environmental
protection, and its commitment to challenge the stereotypes of beauty perpetuated by the cosmetics
industry, have all won the support of generations of consumers. The company continues to lead the way
for businesses to use their voice for social and environmental change. For example, in 1999 it
introduced a loyalty scheme for customers. This provided them with incentives such as the option to
donate reward money to selected campaign organisations, including World Society for the Protection of
Animals, and the Missing Persons Helpline.

“The Body Shop has always believed that business is primarily about human relationships. We believe
that the more we listen to our stakeholders and involve them in decision-making, the better our business
will run.”

Mission statement

The Body Shop International plc – a company with a difference

• To dedicate our business to the pursuit of social and environmental change.

• To creatively balance the financial and human needs of our stakeholders: employees,
customers, franchisees, suppliers and shareholders.
• To courageously ensure that our business is ecologically sustainable: meeting the needs of the
present without compromising the future.
• To meaningfully contribute to local, national and international communities in which we trade,
by adopting a code of conduct which ensures care, honesty, fairness and respect.
• To passionately campaign for the protection of the environment, human and civil rights, and
against animal testing within the cosmetics and toiletries industry.
• To tirelessly work to narrow the gap between principle and practice, whilst making fun, passion
and care part of our daily lives.

Adapted from the following source:

The Body Shop International plc Internet site, September 2002.

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APPENDIX 3

Financial information, The Body Shop

“The 2002 financial results were disappointing . . . In the short term, over the next year to year and a
half, we will . . . drive our product development and rationalisation . . . to improve our sales growth and
our margins; we will review all our operations to improve efficiency, lower costs and tighten levels of
working capital . . . We did achieve positive cash flow this year and this can be maintained if we achieve
the goals that I have set out . . .”
Letter from the Chairman (extracts)

“Pre-tax profit of £23.1 million for the 52 weeks to 2 March 2002 compares with £25.0 million achieved
in the 53 weeks to 3 March 2001, with the extra week having contributed an additional profit of
£1.8 million in 2001.

The balance sheet position improved year on year, with net debt ending the year at £43.2 million
compared with £48.2 million in the previous year. This was achieved through positive cash inflows on
inventory [stock], trade debtors and trade creditors.

Our objectives for the current year focus heavily on increasing profitability and cash generation, with
tight control of costs and working capital. We are seeking increased efficiency through improved store
performance, overhead reductions and reorganisation of the supply chain.”
Chief Executive’s Report (extracts)

Adapted from the following source:

The 2002 Annual Report and Accounts for The Body Shop International plc.

Please note: additional information will be provided on the day of the examination within the
Unit 3 (6123/01) paper.

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