CASE STUDIES

The Body Shop case study

Retaining core business practices after a takeover
Reference Code: CSCM0114
Publication Date: March 2007

DATAMONITOR VIEW

CATALYST

When L'Oreal acquired The Body Shop in March 2006, critics were skeptical that the company could maintain its ethical
business under such as global player. However, The Body Shop has increased sales and store numbers under its new
owners, while retaining its ethical focus, enhancing its global marketing efforts by utilizing L'Oreal's substantial marketing
budgets.

SUMMARY

• The Body Shop has defied the critics by achieving further growth under L'Oreal, increasing sales and its global
store numbers. The company has utilized L'Oreal funding to increase its masstige image, refurbishing existing
stores to be more upscale, while also focusing on growth in emerging markets such as India.

• By operating independently under the L'Oreal wing, The Body Shop has retained its ethical focus, continuing to
campaign for human rights such as children affected by domestic violence. L'Oreal has also used the company to
learn about more ethical business practices, such as The Body Shop style community trading programs.

• The Body Shop's marketing has traditionally focused on humor to attract consumer attention, raising issues such as
body image in a comical way. Recent marketing has been represented more seriously, such as a partnership with
MTV to promote HIV. The campaign was promoted through a new spray in Body Shop stores, as well as Spray To
Change Attitudes marketing on the MTV channel.

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ANALYSIS

Purchase by L'Oreal enhances The Body Shop's global positioning

The Body Shop defies critics by increasing sales under L'Oreal

When L'Oreal purchased The Body Shop in March 2006 for US$1.2 billion, many critics were sceptical that the ethical
skincare retailer could survive under such as global personal care giant. The Independent reported three weeks after the
acquisition that the company's "satisfaction" rating had dropped by 11 points to 14, on the UK's daily BrandIndex (a
monitor of public perception of consumer brands). The sale was criticized mainly due to L'Oreal's practice of carrying out
animal testings on a small number of its ingredients, compared to The Body Shop's anti-animal testing stance.

Despite these criticisms, however, the company has performed better than expected under L'Oreal. For the six months
ending December 2006, The Body Shop achieved consolidated net sales growth of 9.7%, with sales reaching £290 million
(US$569m). It achieved particularly strong sales in the UK, Norway and Japan, benefiting from L'Oreal funding and its
ability to enhance marketing and store expansion.

The Body Shop moves towards masstige positioning through store refurbishments and packaging updates

The Body Shop has utilized L'Oreal's financial backing to enhance its position as a massige retailer. This has involved
refurbishing stores to make them look more premium, whilst retaining its mid-price point.

In the UK, the company has plans to revamp its shop portfolio into what is has dubbed the Shop Me design, including
putting in place better lighting and wooden flooring. The format, expected to be implemented by 2009, is designed to give
the stores a more premium image, positioning the company in the same line as L'Occitane and Crabtree & Evelyn. It
currently features in around 100 of its 300 plus UK stores.

The Body Shop's managing director stressed it was important for the company to move to a masstige positioning as
consumers desire for premium products grows: "People's expectations and demands have moved with the product. We
are gradually moving our price positioning on this journey towards masstige." (Retail Week, February 2007).

Figure 1: A typical Body Shop store

Source: BBC News website DATAMONITOR

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Expansion is targeted at growing economies

The Body Shop is to utilize L'Oreal's financial backing to enhance its global store growth, particularly in emerging
economies such as China, Brazil, Argentina and Chile. Jean-Paul Agon, CEO of L'Oreal, said he believed The Body Shop
had worldwide potential: "It is already in more than 50 countries and 2,000 stores but in a few years from now it could be
in 100 countries and 5,000 stores," (Financial Times, October 2006).

The company launched its first stores in India in 2006, opening five stores in four cities, including Mumbai, with plans to
open another 50 in the country by 2008. Company founder Anita Roddick stated that India had good growth potential for
the company: "The potential here, in the next five to 10 years is stunning," (CosmeticNews, November 2007). This
enthusiasm was also felt by Arun Bhardwaj, managing director of Indian Body Shop franchisee Quest Retail: "The
response to the first five stores has been tremendous, with sales exceeding our expectations," (CosmeticNews).

The Body Shop states it is currently in discussions to introduce the brand into China, although in 2005 Anita Roddick told
The Telegraph that the firm was banned there; "We are not allowed into mainland China. They have banned us. They said
that you have to test your products on animals." (The Telegraph, December 2005). Getting its products sold in China
would therefore be a major achievement for the company.

The Body Shop has attempted to retain ethical focus under a global leader

The Body Shop retains core values by operating independently with the L'Oreal Group

By operating independently within the L'Oreal Group, The Body Shop has maintained its core ethical values: an opposition
to animal testing; supporting community trade; activating self esteem; defending human rights; and protecting the planet.

The company has utilized L'Oreal's substantial marketing budgets to raise awareness of these values, which has the
added advantage of also raising the profile of The Body Shop brand. Recent issues recently raised by the company that
feature on its website include global warming and domestic violence. The former is highlighted to publicise The Great
Warming, a film on the impact of global warming, while the latter relates to the release of a UNICEF and Body Shop report
on domestic violence against children.

In addition, when announcing The Body Shop's entry into India, the company stated that its main franchisee in the
country, Quest Retail, would be donating 1% of its sales to selected non-governmental organisations working in
development projects in the country. The company would therefore be helping improve conditions in India, where it had
sourced ingredients for 20 years – establishing a community trade program in 1987 with Teddy Exports in Tamil Nadu –
before establishing a retail presence.

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Figure 2: The Body Shop's five core values

Source: Thebodyshop.com DATAMONITOR

L'Oreal announces ethical changes after purchase

L'Oreal's chief executive, Jean-Paul Agon, hit back at criticisms that L'Oreal was an unworthy suitor for The Body Shop's
line of ethical business, stating his belief that it operated to a high standard of ethics: "When we read in the papers that
they were ethical and we were not, people were quite shocked in this company because they all know that in fact, globally
the business works with a very high degree of ethics," (Financial Times, October 2006).

However, the company is making changes to its business practices, post Body Shop purchase, stating it has ambitions to
phase out animal testing, in line with The Body Shop's philosophy. "The big ambition in terms of animal testing is to make
animal testing disappear completely and forever in the beauty industry. And we absolutely share this vision with Anita
Roddick and the Body Shop. Except that our way to achieve it is not to say that we are going to be out of the categories
that require (animal testing) today but that we are investing like crazy on alternative methods for the future," Jean-Paul
Agon (FT, October 2006).

Anita Roddick is also working with L'Oreal to embrace community trading programmes similar to those already established
by The Body Shop, working with the company for 25 days a year to promote these programmes, which involve purchasing
ingredients for products that are harvested by family farmers. This fits with Roddick's recent general call for retailers to
develop strategic partnerships outside the sector, to help develop better ethical practices.

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The Body Shop marketing centers on humor as well as global issues

Adverts aim to be humorous to catch the consumer's attention

Many of The Body Shop's traditional advertising campaigns have relied on a cheeky kind of humour to be effective, such
as one for a deodorant which stated, 'Make your armpits into charm pits', and one which used a picture of an oversized
doll to promote the notion that its stores sell beauty products to women of all shapes and sizes. The latter, which ran in
1998, was particularly controversial; Mattel sent a 'cease and desist' order to The Body Shop in the US over its use of the
rubenesque doll, demanding it be removed from shop windows as it felt it was insulting to its Barbie doll.

Nonetheless, Roddick has stated her belief that this was an effective form of advertising: "With our campaigns we decided
to be humorous so they caught attention", (DNA, November 2006).

Figure 3: The Body Shop advertising aims to be humorous

Source: ciaadvertising.org DATAMONITOR

A Partnership with MTV promoted HIV campaign, while attracting new custom

More recent campaigns have focused less on humor, utilizing L'Oreal's substantial marketing funds to raise the profile of
global issues that concern the company, as well as promote The Body Shop brand.

A major new marketing campaign for The Body Shop has been its partnership with MTV to promote HIV awareness.
Formed in January 2007, the two-month campaign aimed to raise awareness of HIV and Aids prevention through the
promotion in 44 countries of a limited-edition, co-branded fragrance called Rougeberry Eau de Toilette. Profits from each
£8 (US$16) bottle of the scent – £4.50 (US$9) – will be donated to the Staying Alive Foundation, which educates young
people about HIV and AIDS prevention worldwide.

MTV will support the perfume launch by airing Spray To Change Attitudes, an ad campaign to promote the perfume
alongside the HIV and AIDS awareness cause. The campaign will also appear in over 2,000 Body Shop stores in 44
countries, demonstrating the global nature of this marketing initiative.

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APPENDIX

Case study series

This report forms part of Datamonitor's case studies series, which explores business practices across a variety of
disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and
insurance, pharmaceuticals and software.

Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations,
highlighting the ways in which the company has become one of the best in its field or how it deals with different problems
encountered within that sector.

Methodology

A variety of research was carried out for this case study. This included researching the personal care market on
Datamonitor's Interactive Consumer Database and on the Productscan Online Database of new products, alongside an
extensive review of secondary literature and other in-house sources of information.

Secondary sources

• Body Shop goes for growth after premium store triumph; Retail Week (February 2007)

• Roddick calls for ethical retail push; Retail Week (January 2007)

• The Body Shop grows in India; CosmeticNews (December 2006)

• Turning armpits into charm pits; Daily News & Analysis (November 2006)

• Body Shop's popularity plunges after L'Oréal sale; The Independent (April 2006)

Further reading

Understanding New Personal Care Behaviors & Occasions (Datamonitor, DMCM2469, 29 December 2006)

Masstige & Super-Premium Consumers: Attitudes & Buying Habits (Datamonitor, DMCM4518, 7 December 2006)

Wellness Trends in Personal Care: How to profit from the health and beauty crossover (Datamonitor, DMCM2408,
17 March 2006)

Ask the analyst

The Consumer Knowledge Center Writing team askcm@datamonitor.com

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