Strategy Field Project

The Body Shop

EXECUTIVE SUMMARY

Today "The Body Shop" is one of the best and well-known brands available in the Cosmetics industry especially in the
natural product category. The company founded in 1976 by Anita Roddick, has presence in 51 countries with 2000 stores
worldwide in the year 2004. The company operates in 4 markets; Americas, Europe, Middle East/Africa and Asia.

The company is into the industry that is on the verge of maturing though it throws the opportunity to expand the horizon
into fast growing markets like Eastern Europe, Brazil and Asia where the purchasing power is increasing rapidly. The
company has deep pockets and has a visible brand image that can help it to establish strong presence in these markets.

The company uses differentiation strategy with regional self-contained structure for its existing business units in the four
markets. The company has come out of bad performance it had showed during late 1990's and has performed well in the
year 2004. For consistent performance and growth, the company will have to fill up the gap wherever it exists internally or
externally and will have to bring consistency in its operations and should look at integrating vertically.

Some of the details are confidential and are not available as the company is publicly listed only in the UK and not in other
regions such as USA. Thus, the best effort has been put forth to get the information from various sources. Wherever
information was not available to fuller extents, some assumptions was formulated from the available material.

Overall, this report is an endeavour to provide the outline of the company's internal and external activities, finding out the
factors that can be instrumental in achieving long term and continuous growth, suggesting the strategy to be used to achieve
this growth, and finally an action plan to be implemented and recommendations for success.

Table of Contents

Executive Summaryii
Backgrounds Information1
Industry and competitive analysis2
Overview of the Industry2
Competitors3
Dominant Economic Features3
Industry stage in the life cycle4
Porter's 5 Forces4
Rivalry Among Existing Incumbents5
Threat of New Entrants5
Substitute Products6
Bargaining Power of Suppliers6
Bargaining Power of Buyers6
Attractiveness of the industry7
Driving Forces and Success Factors7
The Internet7
Globalization7
Change in the Industry Growth Rate7
Regulatory pressures to protect the environment8
Product Innovation8
Public Judgment8
Competitive Positioning9
Industry Key Success Factors10
Value Chain Analysis11
Procurement11
Outbound Logistics11
Marketing12
Sales12
Human Resource Management13
Summary13
SWOT Analysis13
Strengths13
Strong Brand/ Global Name Reorganization13
Support from Head Office14
Leader of Animal Protecting14
Community Trade Program14
Weaknesses14
Deteriorating Image14
Low Wages and Human Rights Issues15
Packaging and Transportation Problems15
Supply chain Issues15
Transparency and Communication16
Pricing16
No Specific Product Lines in Asia16
Difficulties in Managing and Controlling the Regional Business and Suppliers16
Opportunities16
Increasing Global Presence17
Expanding Product Lines17
Expand The Body Shop at Home Program17
Expand E-Commerce Activities17
Searching for Alliance or Joint Venture Partner18
Threats18
Competition in Cosmetic Industry18
Risks in Material Supply18
Adverse Shift in Foreign Exchange Rates18
Trade Restrictions and Governmental Regulations18
The Body Shop's Financial Position18
Financial Analysis19
Solvency19
Liquidity20
Debt Management and Interest Coverage21
Organizational Design22
Structure22
Organizational Structure23
Style24
Staffing24
Systems25
Alternatives26
Vertical Integration26
Horizontal Integration27
Unrelated Diversification28
Decision Making Process29
Recommendations30
Structural30
Green Marketing31
Product and Packaging31
New Markets32
Action Plan32
References35
Appendix 1: The Body Shop Time Line37
Appendix 2: The Body Shop's Competitors41
Top Competitors41
All Competitors41
Exhibit 1: Backgrounds Information on Bath & Body Works41
Exhibit 2: Sales Growth of Estée Lauder Products42
Appendix 3: The Body Shop's Dominant Economic Features43
Figure 1: The Global C&T Market43
Figure 2: The C&T Market by Sector43
Figure 3: The C&T Market by Sector and by Country44
Figure 4: Category growth rate-historical and forecast44
Figure 5: Growth by sector in Country45
Appendix 4: Further Financial Analysis46
Appendix 5: The Body Shop's Organizational Structure49
Exhibit 1: Break down of Retail Locations by Region49
Exhibit 2: Organizational Chart50
Exhibit 3: Key People51
Exhibit 4: Key Accountabilities52
Appendix 6: Staff Demographics53
Appendix 7: Decision Matrix54

BACKGROUNDS INFORMATION

According to the Body's Shop website, their "business is about engaging and inspiring customers around their individual
needs for skin care and hair care... this relies on attracting and retaining the skills, knowledge and creative talent to deliver
excellent products with exceptional service to [their] millions of customers worldwide". The company has a presence in
over 51 countries, conducts business in 21 languages, operates nearly 2000 stores (about 70% are franchised), and employs
over 6000 people in company stores, regional offices and UK-based Service Centre. Products are also sold via the Body
Shop at Home, an in-home sales program that operates in 48 US states and Australia and via a company website in the US.
The company's mission statement is as follows (www.thebodyshop.com, 2004):
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, while making fun, passion and care part of our daily
lives.
The company promotes "beauty is in the customer's eye instead of the beholders" (Hoovers, 2004). Based on this
philosophy they sell a wide range of natural skin and hair care products to their customers. Examples of their wide range of
products include Peppermint Foot Lotion and Banana Shampoo. The Body Shop combines activism with marketing,
encouraging women to focus on self-esteem and environmental issues; and is committed to a concept that they refer to as
sustainable governance. Sustainable governance means that the "directors [of The Body Shop] are committed to integrity
and accountability in the stewardship of the Company's affairs... this includes social and environmental performance, and
animal protection" (www.thebodyshop.com).
The Body Shop was founded in 1976 by Anita Roddick, hoping to earn enough money to support her and two children
while her husband Gordon was on a two-year horseback trip through the Americas. Anita wanted to create cosmetics using
natural ingredients that she learned about in her world travels. She approached several large cosmetic makers; however
none would manufacture her strange concoctions; so she contacted an herbalist to make her products. To save money
during the early years packaging consisted of urine sample bottles and refills were offered to customers who returned them.
The first store was opened in Brighton, UK, and by 1978 the first franchises were awarded. In 1984 The Body Shop went
public on the London exchange.
In 1988 the first US store was opened and in 1998 the management of US operations was turned over to a new joint venture
formed with Bellamy Retail Group. This signalled massive restructuring that occurred in 1999, when the company sold its
two manufacturing plants (both located in the UK) to South Africa's Pac Creative to focus on its retail operations. At this
time The Body Shop also began buying franchised locations in the UK to gain control. During 2000 the company formed a
new company to develop its online activities, to be called The Body Shop Digital, with SOFTBANK Venture Capital. In
February of 2002, the Roddicks stepped down as co-chairmen of the company to become one of the non-executive directors.
For a complete time line/ company history, refer to Appendix 1.
Since losing market share to Body & Bath works, the Body Shop began paying more attention to their bottom line. A new
management team has been put in place, goal of developing new products faster has been identified, and manufacturing has
been farmed out to third parties.
INDUSTRY AND COMPETITIVE ANALYSIS
Overview of the Industry
The Body Shop International Plc is listed under different related and synonymous industries. In the UK, the company is
listed under the medicine industry. Globally, it is operating in the Cosmetics and Toiletries (C&T) industry. This industry is
synonymous to Fragrances and Care Industry, Personal Care Industry, Chemical Industries Manufacturing Beauty Products,
Beauty Industry, and Consumer Products-cosmetics Sector Industry. For the purpose of the project, we would like to focus
on the Global/Regional C&T industry, which is the main industry where The Body Shop, is operating in (MSN money,
Hoover's online, 2004).

Structure of the Industry

The Body Shop operates in the global cosmetic and toiletries (C&T) industry. From Euromonitior, the C&T industry
includes the following broad group of products; baby care, bath and shower products, deodorants, hair care, color cosmetics,
men's grooming products, oral hygiene, fragrance, skin care, sun care and depilatories. These products can further be
segmented into two categories based on product ingredients - those made from natural materials and those made from
synthetic chemicals. One point is noteworthy here, segment boundaries are getting blurred day by day as producers are
trying to achieve market share in both the segments. According to Hoover's, The Body Shop's top competitors include, Bath
& Body Works, Boots Group and Estee Lauder. A full list of their competitors can be seen in Appendix 2.
Competitors
For the Body Shop, there are mainly three players in the market niche of cosmetics that are based on natural ingredients,
Boots Group, Bath & Body Works, and Estee Lauder. They are all competing head to head with the Body Shop and each
other in the high-end natural personal care product market.
Boots Group operates in several industries ranging from selling the OTC drugs to providing eye correction services. The
beauty and toiletries are sold in about 1,400 drug shops in UK and Ireland and its 1,892 million GBP profit in 2004 accounts
for more than 20 percent of its total turnover. (Boots Group annual report, 2003) Boot Group is the largest competitor for
the Body Shop in the UK since it has no business in the US currently.
Bath & Body Works is a US based firm with a history of about 13 years. As a division of Limited Brands, it operates more
than 1,700 stores across the world, among which 1,200 stores are located in the US. (Bath & Body Works, 2004) Its total
sales in 2003 reached US$1,934 million. (Hoovers, 2004) Its success in brand building through emphasizing on innovation
from nature, colorful packaging and effective point-of-purchase added pressure on the Body Shop's operation, especially in
the U.S. (Don Davis, 2002) However, the number of shops and selling square foot of the company has been shrinking in
recent years, refer to Appendix 2, exhibit 1.
Unlike the Bath & Body Works, the Estée Lauder Companies Inc. has been experiencing a high growth rate for over
20 years, refer to Appendix 2, and exhibit 2. Founded by Estée Lauder in 1946, the Estée Lauder
Companies Inc. has the largest market share among the top four. Its total sales in 2003 were US$5,117.6 million. (Hoovers,
2004) People from more than one hundred countries use Estée Lauder's cosmetics, fragrances, and skin care
products in their daily life. It is said to be the closest friend of the women world. (Estée Lauder Annual Report,
2003)

Dominant Economic Features

Market Size
The global market size in terms of sales revenue in 2003 was US$134 Billion approximately. Figure 1, located in Appendix
3, provides a country specific breakdown of the C&T global market - complete with growth rates. Trends observed include,
in terms of sales the western markets are larger than the markets in underdeveloped countries - however the growth of
western markets is on the decline while growth of underdeveloped countries is on the rapid raise. For example the US
market accounts for approximately one third of total C&T sales however in 2003 the market was growing at the mere rate of
0.7% down from 24.3% in 1997. In comparison, sales in Russia accounted for approximately 4% of the total 2003 C&T
sales, however had the largest growth rate being 14.3%. Based on this information it is evident that despite the fact that the
traditional markets for C&T are experiencing dismal growth, the industry can take advantage of many emerging markets (in
Asia, Eastern Europe and Central/ South America) to experience growth. This information supports The Body Shop
strategy for entering into these markets to achieve growth (Euromonitor, 2004).

Industry stage in the life cycle

The C&T industry is viewed as a fairly stable market. Although, most industry experts believe the market is approaching
maturity.

Market share and growth

Figure 2, located in Appendix 3, provides a breakdown of the global C&T market by sector during 2000. The top four of ten
sectors - skin care, hair care, color cosmetics, and fragrances - account for approximately two thirds of the total C&T sales.
A breakdown by sector of C&T sales for 7 countries (France, Germany, Italy, Japan, Spain, UK and USA) can be seen in
Figure 3, located in Appendix 3. This figure shows the same trends as observed in figure 2 - the top four of ten sectors,
account for approximately two thirds of C&T sales.
Figure 4 and 5, located in Appendix 3; provide C&T product's observed and projected growth rate and growth rate by sector
in country. From figure 4 and 5, it seems that overall in the year 2000; global C&T industry grew at a rate of 4.3% to US$
100.7 billion. In terms of C&T products, men's grooming and skin care are the two largest growing sectors. In terms of
country, Spain had the highest growth while Japan had the least. USA was the largest market ($42.6 billion in Sales and
over 40% of global market share) and Japan is the second largest with $21.4 billion. It is expected that by the year 2005, UK
and US will have 8.4% and 8.9% growth respectively (Euromonitor, 2004).
Porter's 5 Forces (Thomson and Strickland, 2001)
A summary of the Porter's 5 forces analysis can be seen on the next page.

Rivalry Among Existing Incumbents

Rivalry among competing sellers in the industry is very high. In the US alone, there are 1000 cosmetics companies; together
they sell more than 20,000 products. Many of these competitors are equal in size and capabilities. The industry becomes
more competitive- as it is characterized by innovation, high quality of products and customer service and promotions.
Globally, there is a stable growing demand for cosmetics products. This leads to more competition among the companies.
The nature of the distribution channels in this industry makes it more rivalrous as well. Cosmetics products are available at
the retail stores, boutique shops, and discount chains such Wal-Mart. Customers in the cosmetic industry experience
relatively low costs when switching to brands of a competitor (Anonymous, 1995).

Threat of New Entrants

Potential entry of new competitors is low. The big players in the industry are carrying out differentiation-based strategies.
Furthermore, they are implementing niche strategies to capture all the untapped customer segments. Big player's brand
name and reputation, high advertisement and promotional activities are blocking new entrants' access in the industry. New
entrants are heavily blocked by scale economies in terms of advertising, manufacturing, financing, customer service, raw
material purchase and R&D. High capital requirements to enter in the industry and competitor's massive distribution
channels are other reasons of new entrants' difficulty to access in the industry (Lewis, 2000).
Substitute Products
Competitive pressure from substitute products is very low. At this point in time, the industry is segmented on the basis of
synthetic or natural products. Companies within the industry are competing among themselves. Apparently, there is no or
minimum threat of substitute products.

Bargaining Power of Suppliers

Suppliers in the industry are of two types. The synthetic based producers get their supplies from specialty raw materials
suppliers. Specialty raw materials are defined as differentiated products that confer a distinct performance benefit to a
formulated product. Some of the raw materials are conditioning polymers, cosmetic actives, antimicrobials, specialty
surfactants, and UV absorbers. A wide variety of products are offered, and the supplier base is fragmented with upward of
35 companies participating. This competitive market is currently being impacted by a variety of external and internal factors
resulting in opportunities for current and new specialty raw material suppliers to this business. In addition, degree of vertical
integration is apparently low. Consequently, this segment of the supplier's market possesses high bargaining power, which
is becoming weaker day by day with the increasing competition in suppliers' market.
On the other hand, the natural based producers are in an oligopolistic situation with approximately 5 global companies in
the niche segment of this industry. Suppliers' power in this segment has low bargaining power. Global companies like The
Body Shop, Bath & Body Works get the raw materials from all over the world with strong partnership with the suppliers.
For instance, Body Shop has community development program in many countries from which it gets its supplies. It can be
viewed as a kind of vertical integration. The company sets up all the facilities, but they buy supplies to promote education
and health. Companies in this segment get supplies very cheaply with their broad supplies channels (Johri and
Sahasakmontri, 1998; Lewis, 2000).

Bargaining Power of Buyers

Competitive pressure stemming from buyers is moderate in this industry. In the overall industry, customer-switching cost
can be low to high. Customers do not often switch to competitor products in the high-end C&T products. On the other hand,
dissatisfied customer can switch to a competitor's product. Customers often willingly do this to try out other products
regardless of brand recognition and loyalty. In this regard, switching cost is low. Some of the product segments are
characterized by high switching costs such as skin care and hair care. Some products have low switching cost such as
perfumes and colognes. The number of buyers in the industry is massive. This connotes low bargaining power for the
customers. Their better knowledge about product features gives them high bargaining power. In the natural based product
segment, customer's bargaining power is low as there are many customers and only a few producers to meet the demand.
These niche marketers highly differentiated product features make switching cost very high.

Attractiveness of the industry

From the five forces analysis, it seems that collectively the competitive forces are not strong. The industry is still growing
although it is in a matured stage. This leaves plenty of rooms for the players to still operate in the industry with sufficient
profits. Supplier and customers are in a weak to moderate bargaining position, there are no good substitutes, entry barriers
are relatively high and rivalry among the competitor is very high. We conclude that the industry is moderately attractive.
Driving Forces and Success Factors
In this section the driving forces that are changing the competitive position of the participants are discussed. These forces
are reshaping the industry conditions and creating awareness for change. These forces are described below:

The Internet
To date, customers are more aware and knowledgeable. Before making a purchase decision, they can compare product
features by visiting competitors' web sites. This gives them more bargaining power and increases the industry competition.
In addition customers are feeling more at ease with e-commerce technology.

Globalization
This is a common phenomenon in the C&T industry. Competitors, in the attempt to grab a larger market share and improve
profitability, are expanding their reach globally. Globalization is helping these companies to reduce their labor and supplies
cost. They are also attempting to capitalize on the unexplored and high growth markets in the world such as Asia, Eastern
Europe and South/ Latin America.

Change in the Industry Growth Rate

The industry has been experiencing a stable growth trend. This is one of the reasons of high competition in the industry.
This is causing participants to craft defensive strategies to earn above average profits.
Regulatory pressures to protect the environment
The industry has been facing socio-political pressures to adopt environmentally friendly business strategies. This is causing
them to invest in pollution-control equipment and environment-friendly technologies. These pressures are also causing firms
to redefine their promotional campaigns so as to protect corporate images and launch less harmful products to the
environment. The media is also playing a significant role in creating awareness and educating people about the benefits of
environment conservation to the society. For example, Earth Care and Novarits in the UK built strong competitive
advantage by adopting resource and environment conservation programs (Johri and Sahasakmontri, 1998).
There is a going concern in many countries to stop testing cosmetic products on animals. This has lead many companies to
opt for alternative testing methods. For instance, in 1980 Revlon had donated $750,000 on R&D to find an alternative to
testing dreaded Draize eye test on rabbits. In 1981, the whole industry in the USA funded the Johns Hopkins Center for
Alternatives to Animal Testing and reduced animal testing by 96% (Entine, 1997).

Product Innovation
The industry has been driven by product innovation. All the companies are carrying out differentiation strategy. Product
innovation has enabled participants to rejuvenate industry growth and increase the customer base. Competitors are
innovating products based on the product ingredients, packaging and promotions. For instance, in the natural product
segment, products are based on natural extracts and ingredients and with minimal use of chemicals, which can be harmful to
human lives where quality is of primary concern. Packaging is straightforward which gives customers the impression that
they are not paying extra for fancy wrapper or big advertising campaign. All packaging is made of recycled materials, such
as paper and plastic. Companies in both segments (natural and synthetic) of the industry are now trying to capture a market
share in the other with product innovation (Johri and Sahasakmontri, 1998; Krug, 2003)

Public Judgment
Customers are becoming more aware of the ingredients used in the manufacturing of cosmetics and the effects that those
ingredients have on their bodies and the environment. Natural based producers claim that their products are safer than the
synthetic counterparts and charge a premium price, but in fact, there is no proof of this fact. One research shows that
customers in the UK are well aware of the aforementioned fact. This is leading many customers reluctant to buy natural
based products. There was one incident where the West German government sued The Body Shop in Germany in 1989 for
misleading advertising. The court ruled that since all cosmetic companies use ingredients tested on animals by third parties,
The Body Shop's claims (that its products were "not tested on animals" and that "we test neither our raw materials nor our
end products on animals") were misleading. Body Shop ended up junking its deceptive label, replacing it with the equally
disingenuous "against animal testing." Therefore, natural producer's future might be sensitive in future (Entine, 1997). In
addition, companies are being required to become accountable for their actions with regards to ethics and corporate social
responsibility.
Competitive Positioning
The following table shows top 10 C&T products manufacturers in the world. It is noteworthy that Estée Lauder is a
natural based company holding 6th global rank in the industry.
Global C&T ranking in 2003
1L'Oreal
2Procter & Gamble
3Unilever Group
4Colgate-Palmolive
5Gillette
6Estée Lauder
7Beiersdorf
8Avon
9Shiseido
10Private label
11Johnson & Johnson
Source: Euromonitor
It should be noted that the corporations ranked in the above chart are all conglomerates that have multiple business units
that sell multiple product lines - i.e. the ranking is not based on the sale of natural C&T products only. This is why
companies like The Body Shop do not appear in the ranking. No information could be found on the precise ranking of
natural C&T companies, therefore we calculated an approximation.
In terms of the overall industry, market share of The Body Shop can be calculated as:
(Body Shop's Sales/Total industry Sales) *100.
We approximated the total C&T global industry to be USD 134 billion in 2003, and from The Body Shop's annual report
their annual sales during the period were USD 602 million. Therefore using our approximation formula
US$ 602 million/US$ 134 billion * 100 = 0.45%;
Sales from The Body Shop represent approximately 0.45% of total global C&T sales. This may appear to be an
insignificant market share, however as outlined above in the US alone there are over 1000 cosmetic companies.
To compare The Body Shop's position in the natural based segment, we used the top competitors' total sales as an
approximation of the natural sub industry sales. In 2003, Body Shop's top competitor's sales are given below.
2003 sales US$ in millionMarket Share
Estee Lauder5117.6056%
Bath and Body Works1780.0019%
Boot's Group1676.2618%
Body Shop602.007%
Total sales9175.86100%
Source: Extrapolated from MSN money and Hoover's online.
*Total sales of Boot's Group in 2003 were USD 8381.3 million, however only approximately one-fifth of these sales are in
C&T products.
Based on this analysis, The Body Shop controls approximately 7% of the natural C&T industry.
The ten leading companies account for roughly 63% of total industry sales. Estee Lauder, Limited Brands and Johnson &
Johnson are the major marketers in skin care. L'Oreal, Estee Lauder, and Revlon are dominant in makeup, while Procter &
Gamble, L'Oreal, and Unilever are the leaders in hair care. The top five companies represent 46% of total industry sales
(Source: Euromonitor).
Body Shop positions itself as a retail player and heavily focuses on the skin care segment of product categories. According
to Datamonitor, the total market for skincare products is predicted to grow at a 0.9 percent compounded annual growth rate
(CAGR) in the period 1997-2002. This equates to a market value increase from $5,743 Million in 1997 to $5,988 million in
2002.
Although medicated skincare is one of the slowest growth categories forecasted; The Body Shop (as well as other
manufacturers) is looking at new product development within this segment to encourage growth. In particular, The Body
Shop developed the Tea Tree Line in facial and body care that offers benefits for skin problems traditionally treated with
medicated products.
Industry Key Success Factors
The industry key success factors are listed below:
1.Product innovation.
2.R&D capabilities.
3.Reduction of costs.
4.Globalization.
5.Customer service
6.Store ambience
7.Packaging
8.Environmental-friendly products
9."No-Animal-Testing" products
10.Promotion and advertising
11.Brand recognition
VALUE CHAIN ANALYSIS

Value Chain divides activities within a firm into two broad categories: primary activities and support activities. It highlights
the explorations of internal analysis of a chain of business activities and explores the role and contribution of organization's
resources corresponding to primary and support activities in a cost-effective way to gain cost advantage.
Procurement
As for the Procurement in support activities, The Body Shop has developed long-term sustainable trading relationships with
key suppliers and created a special purchasing programme-Community Trade. This programme trades with communities in
needs around the world and receives ingredients and accessories directly from the developing countries. The Body Shop
substantially benefits from the community trade since more raw materials can be found for inclusion in the best-selling
products. Therefore the supply of raw materials would be cheaper and more stable. So the supply chain management in The
Body Shop performs in a cost-effective manner and better than its competitors. In addition, the Body Shop sets up
guidelines to ensure its supplier to be compliance with ethical policies in purchasing decisions. The unique ethical
consideration builds a very good image to its publics. Comparing with other competitor, the sustainable trading
relationships with suppliers are the crucially important competence of the Body Shop and become a source of competitive
advantage.
Outbound Logistics
For the outbound logistics, the Body Shop distributed its products through both franchised and company-owned stores. So
an important part of the Body Shop value chain is a large network of numerous franchises all over the world. Abroad
franchises use the Body Shop's brand name and sell high quality body care products to the valued customer. Over three-
quarters of The Body Shop stores are franchised and it accounts for the majority of both sales and profits in business. This
model allowed the company to quickly expand across North America and Europe. However the franchising model is the
source of some problems that The Body Shop is experiencing. The franchising system has grown too fast and lacked of
strategic communications with the company head. Recent result of Social Audit also reflects that a substantial number of
franchisees do not strongly relate themselves to Body Shop's campaigns on human rights and environmental protection.
Though the social and environment issues are conveyed effectively but the equally important sales volume and marketing
tactics fail in reaching the expected objectives these years. The most challenging thing for The Body Shop is how to balance
its ethical principles and reasonable revenues for its franchises.
Marketing
Another key component of the value chain of the Body Shop was sales promotion through selected media, which is not in
the conventional way. Competition in cosmetics retailing is intense, heavy input in marketing and sales is crucial to
maintain the prominence of established brand names. The Body Shop has used the media masterfully as a major tool to
promote sales. And strategic promoting its ethical and social stance also helps build brand image to great advantage.
However, the Body Shop usually advertised indirectly and acted as an excellent communicator with customer, not through
the company but through editorial coverage in magazine, newspapers and in-store presentations. Advertising in magazines
is important to enhance sales volumes because any endorsement of a product by their editors is likely to stimulate sales
significantly. It greatly saves the cost of advertising compared to other ways through media such as TV. Other promotion
activities such as point-of-purchase and free gifts are also important, especially to the loyal heavy-users. So The Body Shop
has unique channels to effectively communicate with customers rather than the traditional marketing techniques.
Sales
On the other hand, besides the effectiveness of sales advertising the Body Shop has actively extended alternate distribution
channel through its at home party-plan scheme to face up to the stiff competition. It proves to be an effective distribution
channel for the company and attracts a large number of customers. Moreover, in today's shrinking global community, it is
essential to make innovation in sales to meet customer needs. The Body Shop has started direct selling in US by more
importantly using Internet to conduct e-business. Selling via the Internet not only increase its reach to larger consumer base
but also provides new opportunities to improve the company's financial underperformance it experienced in recent years;
because on-line shop operates at low store overheads, particularly rental costs. On-line selling also sends mixed signals to
current and potential franchisees. People have started realizing the power of direct selling through Internet in recent years
and it may pose a threat to sales through franchise.
Human Resource Management
One of the uniqueness of the HR in the Body Shop is that it integrates social and environmental principles into HR
management system. Such as the inclusion of environmental responsibilities in job descriptions, day cares with children and
even paid hours of work for local charities and community projects etc (Values Reporting: Individual Stakeholder Accounts
for Employees, 2003). The Body Shop considers employees as company's most critical asset an employee not only performs
the daily retailing work, but also fulfils the social and environmental responsibilities. The shop also established the reward
system through financial incentives to motivate the employees to improve the retailing performance as well as promoting
social and environmental changes through campaigning and volunteering. Therefore, the general management views and
culture are responsive to the needs of employees.
Some management problems are also obvious such as high employee turnover. High employee turnover may result in the
additional costs for recruiting and training staffs and inconsistency in managing people. In addition, although the business
has expanded all over the world, strategies and policies embedded in strong personal values of founder Anita. The
relationships with employees have been substantial barrier in being transferred internationally. How to effectively manage
and control the regional business and quickly react to changing markets and competition became a great challenge for the
Body Shop.
Summary
In summary, Value Chain Analysis implied that the internal core competencies of the Body Shop is the environmental green
approach with regards to ethics and social responsibility, long-term sustainable relationship with suppliers, strong franchise
network. Noticing weakness is difficult in managing and controlling the regional franchisees and high employee turnover.
( www.thebodyshop.com)
SWOT ANALYSIS
Strengths
Strong Brand/ Global Name Reorganization
As mentioned in the background section of this paper, The Body Shop has a strong global presence with stores in 51
countries. All of these locations adhere to common standards, to offer their customers a common product. The Body Shop
brand, for many, is associated as being a high quality product - some might say that their products are of better quality than
those of their competitors. Additionally, The Body Shop is also known for strong customer service.

Support from Head Office

Senior Management at The Body Shop displays a genuine interest in company's campaigns. Therefore, a large amount of
money is spent on those PR activities that raise awareness against human rights abuse and environment & animal protection.
In turn, employees at all levels of the company support these activities. Employees are encouraged to volunteer their
campaigns in their local area. Therefore, the PR messages of the company can be spread throughout the world.

Leader of Animal Protection

The Body Shop is the first cosmetic company involved in the campaign for animal protection. People notice the company
when they're thinking of animal protection. This allows goodwill to be developed around the brand name of the company. It
also allows the company to charge a premium for their product.

Community Trade Program

The company has created a special purchasing program, called Community Trade Program. It develops long-term
sustainable trading relationships with communities in needs around the world by helping them to create livelihoods, and to
explore a trade-based approach sustained by sourcing ingredients and accessories directly from the developing countries.
The programme is beneficial to the company since more raw materials can be found for inclusion in the best-selling
products. The supply of raw materials would be cheaper and more stable. Also, the community trade shares the sales of the
company. They now account for almost 10% of the company's total sales. Finally, the programme gives a very good image
to its publics. It helps the company PR very much.
Weaknesses
Deteriorating Image
The company's products are misconstrued (by some) as being trendy, fashionable products rather than essentially green
products. There is a feeling that the recent decline in the performance of The Body Shop in the UK is because the
environmental campaigning may be out of tune with the mood of the consumers. There are doubts about the long-term
sustainability of a firm's competitiveness built purely on the basis of a green marketing framework. UK consumers tended to
doubt the marketer's green claims and based their purchase decisions on their environmental consciousness as well as other
product and company attributes
The Body Shop's carefully worded promotions create the impression that none of its products or ingredients has been tested
on animals. Cosmetic authorities call Body Shop a "bathtub" company. Literally founded in a backroom, it never tested its
cosmetics or ingredients because it couldn't afford to. It uses mostly off-the shelf formulas made with petrochemical-based
colors, fragrances, preservatives and key base ingredients that have all been tested on animals. By promoting its opposition
to animal testing, it turns its weakness -- relying on responsible companies that do invest in product safety - into a-brand
marketing point-of-difference.

Low Wages and Human Rights Issues

The Body Shop pays their workers low wages and are opposed to trade unions, ensuring that they keep labour costs down
and that employees are not able to organize to improve their working conditions and control over their working lives.
Human Rights - The Body Shop have stated that responsible companies should not deal with governments with poor human
rights records [e.g. speech by Anita Roddick to International Chamber of Commerce in Oct 93.] Yet for more than 10 years,
the company has been purchasing baskets from China in huge quantities produced by cheap labour, including during the
Tiananmen Square protests and massacre. The starting rate of pay for shop assistants at the Body Shop in the UK is between
£4.37 and £5.18 per hour (depending on the location of the store) In 1997 the Council of Europe set a
'decency threshold' to pay minimum of £6.60 per hour.

Packaging and Transportation Problems

The Body Shop uses plastic containers made from petrochemicals, which are not recyclable in the vast majority of markets
in which the company operates. The recycling capability of the packaging materials is limited and the cost of recycled paper
is higher than prime paper. Transportation - The mass production of Body Shop products and their transportation over large
distances not only results in environmental damage but also necessitates the products containing many preservatives and
other synthetic ingredients.

Supply chain Issues

The Body Shop does not have consistency with suppliers, which can be identified from the example given below:

The Body Shop had over many years sourced a substantial amount of babassu oil for its 'Rainforest Bath Beads' from Croda
Chemical Company (which processed the oil from nuts not growing in the rainforest) and from Cultural Survival
Enterprises that stated it sourced most of its supply from the mainstream commercial markets. Testimony at the trial by a
Body Shop representative confirmed that the Body Shop experienced delays in getting babassu oil from South America, so
it bought in babassu oil from Croda "rather than have to stop the product and thereby not being able to launch the Trade Not
Aid material"
The Body Shop state in their literature that if a supplier does not comply with their policy, they will find an acceptable
alternative supplier or, failing that, will scrap the ingredient] In 1989-90, the company did not cut off the supplier of bath
salts Heinrich Hagler after it learned that its ingredients were being tested on animals [documents disclosed during the Body
Shop law suit against Channel Four in 1993.]

Transparency and Communication

The company has not demonstrated adequate openness and transparency, accuracy in its general communications and
willingness to entertain constructive criticism. It notes that it has reacted poorly to criticism even from 'friends', franchisees
and employees.
Pricing
Customers feel that the prices are higher as compared to traditional chemical-based cosmetics and toiletries. They also feel
that enough discounts are not given that makes the product costlier than others.

No Specific Product Lines in Asia

As the company focused its market in Europe in the past years, most of its products were designed for western countries.
Almost all of its product designers were foreigners who might have difficulties when they're designing products for Asians.
This prohibits the development of the company in Asia.

Difficulties in Managing and Controlling the Regional Business and Suppliers

To solve this problem, the company has tried to restructure its businesses in 1999. It involved developing new regional
business units in UK, Europe, the Americas and Asia, setting up guidelines for Community Trade and reorganizing the
supply chain on regional basis
Opportunities
Increasing Global Presence
As seen in the industry analysis section of this paper, demand for C&T products is beginning to level out in The Body
Shop's traditional markets - Western Europe and North America. However, demand for these products is increasing in
Eastern Europe, Asia, and Central/South America. The economies in these regions are beginning to strengthen and these
consumers now have more deposable income to spend on products that were previously classified as luxury goods. The
Body Shop could take a lead and enter into these markets ahead of the competition and receive first mover advantages.
Therefore it is a definite opportunity for The Body Shop to enter these markets.

Expanding Product Lines

Recently, The Body Shop launched a line of at Home Spa products to capitalize on the growing popularity of individuals
relaxing and 'pampering' themselves. The company could choose to expand their product lines to meet a broader range of
customer demands.

Expand The Body Shop at Home Program

A potential opportunity for The Body Shop is for them to expand upon their current Body Shop at Home program that is
currently only offered in Australia and US. This program capitalizes on the re-vitalization and growing popularity of 'girls'
nights' and parties where merchandise is sold. It is modeled on the traditional 'Tupperware Parties'. The benefits of these
parties are that customers (women) get the opportunity to socialize and try products before they purchase them. This model
allows the company to reach customers who they may not have been able to reach previously at a cost that is less than
opening a new franchise. A benefit to it is that positive results are currently being observed where it is in place.

Expand E-Commerce Activities

The Body Shop could expand their E-Commerce program that is currently available only in the US. This would allow the
company to reach individuals that they previously could not reach because their retail stores are only available in large
urban centers. This would increase the level of brand awareness while dramatically cutting business costs - because the e-
commerce technologies cost less to set-up and maintain than a traditional bricks and motor retail environment. The
company could consider the possibility of partnering or outsourcing their e-commerce aspect of business to a company that
specializes in e-commerce technology.

Searching for Alliance or Joint Venture Partner

Finally, in an attempt to increase their market share, The Body Shop could look for a company to strategically align
themselves with. The ultimate purpose of this would be to expand the firm's market coverage and boost its competitive
capability.
Threats
Competition in Cosmetic Industry
As competition within the C&T industry increases profit margins are being squeezed. This affects the company's bottom
line. Additionally, increase in competition means that consumers have more choice in the products that they are purchasing
which can potentially have a derogatory affect the market share that the company controls. Finally, the markets that The
Body Shop currently operates are experiencing growth that is plateauing and in some instances actually declining.

Risks in Material Supply

Most of the ingredients in its products are plant based. The growth of plants is highly dependent on factors that cannot be
readily controlled - weather, fires, and insect infestations. Also as the climate changes and rain forests are being destroyed
plant species are being lost.
Adverse Shift in Foreign Exchange Rates
As The Body Shop operates in an international arena, fluctuations in exchange can have a serious effect on their bottom
line.

Trade Restrictions and Governmental Regulations

Finally, because many ingredients that The Body Shop uses to make the products are imported, any restrictions in trade
could potentially affect their business. If materials cannot be sourced than products cannot be manufactured. Additionally,
changes in governmental regulations - such as testing for human safety and environmental protection, e.g. recycling or
pollution - could affect their bottom line if they have to adapt to an external environment.
THE BODY SHOP'S FINANCIAL POSITION

The Body Shop's year versus year sales is only growing at 0.8% against industry growth rate of 23.1%. Its current P/E ratio
(14.3) is greater than the industry P/E (9.7). It seems to have performed really well in terms of profitability. Its current net
profit margin is 5.7% against the industry profit margin of
-1,014.6%. It seems to have depended more on debts (lower leverage) against the industry. It's D/E multiple is 0.66 against
the industry average of -11.18. Body shop (current ratio 1.5%) has lower short-term solvency than the industry (current ratio
3.8%). It has a higher interest paying capability than the industry (interest coverage). For the last five years, Body shop
(9.9%) on average outperformed the industry (-27.9%) on its return on invested capital. Its management performed really
well against the industry average. Body shop employees have successfully generated higher income (3699) than the industry
(-85,445), although revenue per employee is lower (Body shop 64,473, industry 93,790). It has a higher asset turn (1.8) but
lower inventory turnover (2.5) than the industry (0.7 and 11.3 respectively). Please refer to the appendix 4 for details of
these figures (Source: MSN money and Hoover's online).
Financial Analysis
Note: Any discrepancies between the financial ratios reported above and those reported below is the result of different
definitions of the ratios.

It is important to analyze the financial viability of The Body Shop through short-term liquidity and long-term solvency to
determine its sustainable growth. Based on annual financial statements for the years ending 1999-2003, we believe an
analysis of the company's liquidity, profitability, solvency and financial flexibility will help determine the company's
resource and financial capabilities.
The analysis is comprised of 4 business aspects.
1.Solvency
2.Liquidity
3.Debt Management and Interest Coverage
4.Profitability

Solvency
An analysis of the current ratio, quick ratio, net working capital, and net liquid balance aids in determining the solvency of
the company.

Current Ratio:
19992000200120022003
1.371.201.141.101.23

The current ratio has been around 1.20 since 1999, which indicates that the Body Shop's ability to cover short-term
liabilities with current assets in the event of liquidation is good. The Body Shop's current liabilities cover a substantial
portion of the company's total liabilities and equity. The current ratio can cover the liability.

Net Working Capital (000's GBP):

19992000200120022003
30,30019,40014,70010,30022,000

Net working capital is the amount of long-term funds that are used to finance current assets. The Body Shop had a
diminishing positive working capital balance from 1999 to 2002. The Body Shop's NWC balance from 2002 to 2003
indicates its current assets increase much more than its current liabilities, which leads to better solvency.
Based on the growing current ratio and net working capital, the financial data indicates that the company is solvent with
growing capabilities to cover short-term liabilities.
Liquidity

Cash Flow from Operations (000 000's GBP):

19992000200120022003
5031.421.444.751.5

Positive cash flows from operations are vital for the survival of any business. Cash is the most important asset for the Body
Shop. A positive cash flow from operations enables the company to serve creditors, cover interest and bank charges and
membership fees. The decrease in sales in 2000-2001 affected the company's ability to generate cash from its operations,
thus reducing the amount by nearly half. It is important for the Body Shop to increase its sales in order to increase cash,
which is an important asset used for debt, salary and rent payments. The positive amount, however, indicates that the
company is liquid, whereas the continuous decline may cause a liquidity threat to the business.

Defensive Interval/Time to ruin

19992000200120022003
43.823.614.15.526.5

The defensive interval indicates how long a company will be able pay its bills in the event that revenues are disrupted. The
Body Shop fluctuated widely from 43.8 days to 5.5 days.
The data indicates that The Body Shop has a stable liquidity position since 1999. Overall, the company is liquid and has
cash to cover unforeseen needs and opportunities. However, its' liquidity is subject to the direction of sales revenues and
expenses.

Debt Management and Interest Coverage

Long-term Debt to Capital:

19992000200120022003
3.22%2.18%2.95%2.44%2.48%

The stable long-term debt to capital ratio indicates that the company has no change in its long-term debt position. The
company depends on short-term liabilities and retained earnings to finance operations, providing much more financial
flexibility due to the low rate.

Total Liabilities to Total Assets:

19992000200120022003
43.05%44.94%47.15%45.61%44.27%
This ratio has stayed the same point around 45%, indicating its capital structure did not change so much since 1999. The
company should continue to decrease short-term borrowing and increase usage of retained earnings and put borrowing as
the last resort.

Performance
Return on Equity (ROE) - before taxes:
19992000200120022003
(4.02)15.167.814.3510.79

The poor performance in 1999 resulted in a negative return on equity, so was in 2001 and 2002. During that period, the
equity holders received only 10 percent of their investment.

Return on Assets (ROA) - before taxes:

19992000200120022003
(2.29)8.344.132.376.02

The Return on The Body Shop's assets was increased from 1999 to 2000. The declination in 2001 and 2002 is mainly due to
reduced sales. The positive return in 2003 indicates that each dollar of The Body Shop's assets provide a 6.02% return as
profits. The assets are used favorably in generating sales.
Gross Profit Margin:
19992000200120022003
5.80%6.03%6.02%6.08%6.22%

Net Profit Margin - after taxes:

19992000200120022003
-1.52%5.57%2.54%1.42%3.57%

Positive margins indicate a profitable business. However, the vast differences in gross and net profit margins indicate that
expenses reduced profit margins substantially. The Body Shop is relatively profitable since 1999. Its favourite liquid,
solvent profitable is well managed. Adjustments of its expenses emphasis on increasing sales, which help The Body Shop
grow and compete with its competitors.
ORGANIZATIONAL DESIGN
Structure
The Body Shop International is a public Company listed on the London Stock Exchange. It has over 2000 stores in 51
markets around the world. Refer to appendix 5; exhibit 1, to view the breakdown of retail stores per region. The Company
operates as head franchisee in the UK, USA, Mexico, Austria, France, Germany, Denmark and Singapore with the
remaining 42 markets owned and operated by independent head franchisees. The Company currently has over 6,000
employees worldwide in Company stores, regional offices, and the UK-based Service Centre. Indirectly there are tens of
thousands employed thorough the global franchisee network and supply chain.
In 1999, The Body Shop created four new business units for the UK/ROI; the Americas; Europe, Middle East and Africa;
and Asia-Pacific. Company has reorganized itself into a regional structure, outsourced main manufacturing operations, and
made changes to the leadership team. The aim has been to achieve more retail focus and operational efficiency, while
respecting values.
The regional centres carry self-contained units that have full profit responsibility managing all retail and franchise activities,
whilst also interacting with the Service Centre in the UK to adapt the consumer offer to local needs. This structure
significantly enhances company's ability to effectively deliver a tailored offer to customers. In addition to the four regional
units, the Service Centre provides a core group of professionals responsible for delivering product, store and
communications strategies to the regions. The Company retains ownership of Soapworks Limited, a soap making and
product packing facility based in the Easter house district of Glasgow, Scotland.

Organizational Structure
Exhibit 2 located in appendix 5, contains an organizational chart for The Body Shop. The chart has been formed by the
group after going through various sources and as the exact structure is confidential and not available. The Main Board
comprises eight members, two of whom are women. The Executive Committee comprises eleven people, four of whom are
women. Over 80% of all employees are female.70% of employees work in retail outlets. Approximately two-thirds of retail
employees work part-time. Approximately 30% of worldwide stores are Company-owned. The majority of Company stores
have women managers.
The CEO has ultimate accountability for the safety, health and well being of employees. S/he also has a moral obligation to
ensure that fair and decent labour practices are upheld in franchisee and supply chain networks. He is kept informed about
performance in these areas via monthly HR KPI reports, minutes of the Corporate Health and Safety Group and periodic
updates on supply chain issues.
There are two Board committees that operate within defined terms of reference: the Audit Committee and the Remuneration
Committee. Management of the Group's operations is delegated to the Executive Committee, which includes the Chief
Executive Officer (CEO), Finance Director, HR Director, Head of Values and other senior managers. Sub-Committees of
the Executives exist to help direct the social and environmental performance of the business. These include a Corporate
Health and Safety Strategy Group, an Environmental Steering Group and an Animal Protection Steering Group. Minutes are
shared with the Audit Committee, Chairman, CEO and Executive Committee. The average age of board members is 53
years and many of the company' executive directors have experience in retail industries including Gucci Group, Danone,
The Gap Inc, Kraft International, and the General Foods Group. Exhibit 3 located in appendix 5, containing information on
the executives of The Body Shop; and exhibit 4 located in appendix 5 outlines the functions of each executive.
Style
The management style of the Body Shop is employee involvement style, or so called "participative style". Actually before
starting Body Shop, Anita and Gordon Roddick blew their first retail venture, a restaurant. The disaster held important
lessons: "We had done everything wrong. ... What saved us ... was our willingness to recognize that we were wrong and our
ability to move swiftly to the next idea." That determination to "try anything" reflects a management style Roddick
describes as "loosely structured, collaborative, imaginative and improvisatory." She says that she and Gordon have "fostered
a kind of benevolent anarchy by encouraging everyone to question what they (do) and how they (do) it." The peripatetic
Roddick herself desperately pursues new ideas: "We have learned to love change. ... I will go anywhere to talk to people
who say they are doing things in a better way." (Tom Peters, 2001). In the Body Shop, top management has only a limited
affect on the individual sales of each separate store. Management has faith that franchise owners will maintain the integrity
of the name and conduct business according to the philosophy determined at the beginning of development and traditions of
the original store. (Debra Thompson, 2000)
Staffing
According to the company website, over 80% of their employees are female, 70% of their employees work in retail outlets,
approximately two thirds of those employees work part-time, 30% of their retail stores are company owned and the majority
of these are run by female managers. To effectively manage these individuals the company has implemented a 'think
global, act local' strategy for their human resource functions; this strategy recognizes employees as the company's most
valuable assets. The strategy focuses on 'providing a unique employment proposition that supports the Company's retail
vision, respects [their] social and environmental mission, and enables employees to use and develop global skills"
(http://www.thebodyshop.com/, 2004). Their strategic approach focuses on four distinctive factors:
1.Engaging employees behind the vision of the business
2.Creating a high performance culture that delivers the best service to customers and rewards success
3.Investing primarily in leadership development and training and development of store managers, especially around product
knowledge and brand differentiation
4.Ensuring that the Company's values remain strong in the perception of employees

To accompany their formal global HR strategy the company outlined HR objectives for the 2003/04 on their website, these
included;
To establish a global 'Centre of Excellence' for learning and development of retail employees that identifies and delivers
best in class customer service.
To implement a Leadership Development program and develop succession planning for senior managers across the global
business which optimizes performance and encourages internal promotion at senior levels.
To develop appropriate HR processes and products to help improve individual and organizational performance.
To enhance reporting of key HR key performance indicators and other information to the Executive Committee and other
senior managers, as well as employees.
To maintain and develop alignment and consistency in HR processes, organizational structures and standards of service
across the Regions and the Service Centre.
To develop technology to support and improve HR service delivery, with a particular emphasis on paperless management.
Although, specific information on The Body Shop's recruitment, selection and development policies could not be found, it is
assumed that more managers would place more emphasis on qualities of individuals rather than the qualifications of
employees. This assumption is based on the fact that personality, energy and attitude are things that a person is born with
and are extremely difficult to teach. These are required for an individual to be a successful in a retail/ sales environment. In
addition, it is assumed that the company is an equal opportunities employer.
With regards to franchising, The Body Shop has a very rigid approach to find the right person to be its franchisee. A
successful franchisee among 5000 candidates has to experience a three-year process involving a personality test, a home
visit, and an assessment of the candidate's business acumen and attitude towards people and the environment. By doing so,
only those who fit the corporate strategy and culture may make it through. More than 90% of its franchisees are female,
since the company believes that the cosmetic industry is women's.
However, the Body Shop utilizes a loose control over those who successfully become one of them. As a franchisee, she
could do what she can to promote and increase sales. Staffs in the Body Shop are encouraged to get involved in decision-
making. They can have their voice heard by managers. "How can we ennoble your life?" and "How can we make your spirit
sing?" are most commonly asked questions within the group by managers.
Systems
Control systems are used to ensure that good achievement will occur. Due to aspects confidentiality, direct information
regarding controls systems could not be found. At the retail level it is assumed that The Body Shop is using behavioural
output control systems and at the corporate level behaviour control systems. Information on reward and motivation systems
could not be found.
However, information on management systems was found. The Body Shop has developed a number of management
systems and processes used to support their social and environmental policies. These include a supply chain integrity
programme, a monitoring system for their Against Animal Testing policy, and an environmental management system.
According to their website "Integrating social and environmental principles - such as the inclusion of environmental
responsibilities in job descriptions - remain an important part of [their] HR management system". To support these policies
and practices a number of HR processes were developed including the Consultation and Representation Committees
(CRCs), European Works Council, and Advocacy in Action.
ALTERNATIVES
Given the growth of The Body Shop and its recent restructuring, we believe it is critical for The Body Shop to focus on
improving their operational efficiency. In our opinion, the best way to achieve this is through reducing their inventory
holdings and improving efficiencies within the supply chain. This can be achieved through implementing one of two broad
strategies - vertical and horizontal integration (related and unrelated diversification). The advantages and disadvantages of
the three alternatives will now be discussed.
Vertical Integration
Vertical integration extends a firm's competitive scope within the industry that it competes in. It involves expanding the
firm's range of activities backward into sources of supply and or forward end users of the final product. In the case of The
Body Shop we would be recommending that they secure agreements with their suppliers.
Advantages
'Strong Selling Point': A strong selling point would result because the company would know actually where all the materials
used for the production process originated. This would also allow the company to form strong relationships with their
suppliers; so in the event that a short of raw materials was to result the supplier would likely fill the originating from The
Body Shop before an order originating from another company. Finally, this would allow the company to better ensure the
quality of the materials that they received.
Signals to Stakeholders a 'World Community': This is important because it allows stakeholders to see that as a company
they are practicing what they preach, i.e. they are being a socially responsible company and following through with their
business principles.
Disadvantages
Open up for Criticism: These criticisms would result from damage occurring to the environment or if human or animal
rights violations occurred. The company would be required to be more transparent in their reporting and could no longer
stand behind the blemish that they were not aware of what was going on - in the event that a discrepancy occurred. If
business discrepancies occur and are probably dealt with, than there is the risk that the good image of the company could
become tarnished.
Increased Overhead Costs: These would result because it would become more difficult to mange the day-day operations of
the company.
Horizontal Integration (Related)
Advantages
Economies of scope: Body shop can concentrate on high growth sectors and markets of C&T industry, which are not of
prime focus as such. It also can attempt to grab a share in the synthetic segment of the industry. This would enable it to
share technology, R&D ventures, distribution and marketing and furthermore, its strong brand name in the new product
category. These economies of scope will allow it to reduce costs (cross-business opportunities) and enhance competitive
advantage.
Strong Brand Loyalty: The Body Shop name already has strong loyalty from its customers and worldwide recognition for its
commitment to the environment and its superior products that can help them to horizontally increase its product portfolio
and services.
Strategic fit: Diversifying into related businesses will be a strategic fit that would enable Body Shop to transfer its skills and
knowledge, combine its value chain activities to lower costs and collaborate to create new resource strengths and
capabilities.
Disadvantages
Weakened Branding: Any failure into the extended range will weaken the existing brand image. Besides the existing
concentrated efforts on the current product range will take a hit also and may result into overall downturn due to reduced
sales.
Staffing: Company will need new staff members to develop the extended product range that may fit with existing culture or
the current staff members and control systems and, if not, it can create the problem in existing structure and may lead to de-
motivated employees and low employee morale.
Increased Costs: Increased costs result because the company would be required to manage more business lines and promote
more business lines.
Spacing problems in stores: The current vast product range requires enough space and one of profitability criteria for shops
is the self -space so company operated stores or franchisees may find it difficult to accommodate the extended range and
may oppose it.
Horizontal Integration (Unrelated)
Advantages:
Reduce business risk: Related companies' financial risks are highly related and unrelated companies are not. As unrelated
diversification operates in totally different technologies, competitive forces, market features and customer bases, it reduces
business risk. Therefore, Body shop can acquire an unrelated company and reduce its business risks especially in the UK
(listed in the LSE). Potential acquisition company's resources can be very advantageous. A company's cash flow with low
growth and high profitability can be diverted to acquirer's high growth and profit potentials. Unrelated diversification
implies that the cyclisity of two different businesses is different. Hence, bad time in one business can be offset by good time
in another. Unrelated diversification can enhance shareholder value by acquiring a company, with high profitability, for less
than its market value.
Brand recognition and loyalty: Body shop might be very successful to capitalize on its brand loyalty and recognition in new
markets and realize more profit potentials.
Disadvantages:
Knowledge and skill required: Unrelated diversification will make decision-making processes very difficult, as Body Shop
will lack expertise and knowledge in another company operating in a solely different environment. If the new companies
underlying industry is very competitive, then Body shop will face difficulty to penetrate in the market.
Loss of Differentiation: One of the KSFs in the industry is ability to differentiate products in C&T industry. Investing in a
different line of business may jeopardize Body Shop's financial and human capabilities and dilute its focus on its basic
business.
Increased cost: Unrelated diversification may lead to higher costs stemming from the lack of knowledge and expertise to
manage a different business line (Thomson and Strickland, 2001).
DECISION MAKING PROCESS

To arrive at a decision regarding which of the three alternatives would provide the most desirable outcome for The Body
Shop, each alternative was evaluated using a series of five criteria. This analysis was performed using a matrix, to view
refer to appendix #7. The criteria used included: (1) cash requirements, (2) customer satisfaction, (3) employee morale/
motivation, (4) ease of implementation, and (5) corporate image. Each criterion was assigned a weight based on the
perceived impact and importance that the criteria has on the day-to-day operations of the firm. Each alternative received a
red, yellow, or green dot- for each criterion. The color of the dot corresponds to a score; red dots receive a score of 1,
yellow a score of 2, and green a score of 3. Higher scores represent expected outcomes that are more desirable. Using this
system, a weighted average was calculated for each alternative and the alternative with the highest weighted average is the
most feasible and therefore should be implemented.
It was determined that corporate image/ ease of attracting future employees was the most important criteria and therefore
received the highest weighting. In the case of The Body Shop it is their image that allows them to justify their premium
pricing. Therefore, the image of the brand must be protected at all costs. It was determined that the employee morale and
motivation criterion was the most important, and hence was assigned the highest weight. This is because at the time of the
case, the internal conflicts within the organization appeared to be affecting the work environment.
Customer satisfaction was determined to be the second most important criteria, and was assigned the second highest weight,
because without customers there would be no business or reason of existence for the firm. Therefore, any decision that is
made must be in the best interest of the customers and the client files must not be interpreted during any internal
restructuring process.
Employee morale and motivation was ranked third, because employees are partly responsible for sales as they have the
primary contact with the client in the retail environment. The goal for The Body Shop should be creating repeat customers.
Customers are more likely to be repeat shoppers if they enjoyed their shopping experience. At the corporate levels
employees are responsible for new product development. Without the continuous introduction of new products customers
would likely switch brands to that of a competitor- if the competitor offered products that better suited their needs.
Cash requirements were ranked fourth, because even though The Body Shop is an international company with access to
more than sufficient cash for operating purposes, cash is still very important. For example, if an employee were to sue the
firm for wrongful termination, this cost would likely be passed on to clients through increases in fees.
Finally, ease of implementation was ranked fifth, because no matter how good a decision looks on paper it still has to be
successfully implemented for the desired outcome to be observed. The time it takes to implement a decision is included
within this criterion. As previously stressed, it is essential that any implementation be as quick as possible.
RECOMMENDATIONS

Based on the results from the decision matrix (appendix 7) and decision analysis (advantages vs. disadvantages) the best
alternative is for The Body Shop to use a vertical integration strategy to further expand upon their growth. This strategy
does not dilute their brand name with other products, whether related or unrelated to their core product line. The Body Shop
already prides itself based on the fact that they purchase their supplies from Global Suppliers; therefore partnering with or
owning some of these suppliers would be strengthen their position. Also sense they have a major focus of reducing their
operational expenses, having some control over their suppliers would mitigate the 'middle man' expense. This strategy
could be achieved through two different means; the first is forming strategic partnerships/ alliances with suppliers who are
globally conscious, and the second through outright purchasing suppliers. Based on The Body Shop's past experience with
'owning their suppliers', we recommend that the management should consider creating partnerships. This would enable the
company to conserve their financial resources, while 'testing out the water' and gaining experience. After sufficient
experience is gained, then we advise management to consider the possibility of purchasing suppliers. Before making any
decision regarding the purchase of suppliers, management must answer one question 'are we increasing stakeholder value,
both financially and in a socially-conscious fashion'? If the answer to the question is no, than the purchase should not be
made and alternative should be identified.
Structural
There are several changes that should be made to the structure of The Body Shop. The first is that more interaction between
departments and offices is required. This interaction would allow the company to adopt the experiences and best practices
to meet particular market requirements. To achieve this some information system of interaction frequently can be
developed. Another structural change is to put the decision-making authority in the hands of the people closest to and most
familiar with the situation and train them to exercise good judgement.
After the implementation of the above changes, the organization structure will be much flatter and more decentralized. This
will create an environment that promotes employee empowerment; which will lead to shortening of organizational response
time, and spur new ideas and creative thinking. With employee empowerment, jobs can be defined broadly and several tasks
can be integrated into a single job. This reduces the number of managers that would be required while leading to
improvements in employee morale and productivity.
Green Marketing
It is suggested that The Body Shop should continue building formal and informal alliances with environmental groups to
improve their credibility. This also gives the company a sense of direction for their green marketing programs. Green
marketing initiatives are very important for The Body Shop, as market expansion is taking place in the green product
category. Products made of natural raw materials and packed in simple recycled plastics have significant perceived and real
benefits for the customers and this is leading to the creation of a new product category. Based on this it is recommended
that The Body Shop evaluate the feasibility of re-introducing a bottle-recycling program.
Product and Packaging
The Body Shop offers high quality products based on natural extracts and ingredients and with minimal use of chemicals,
which can be harmful to human lives. Quality is a primary concern. Once a product reaches the shop shelf the company
underlines its value with simple, straightforward packaging and a hype-free presentation. The company uses minimal
amounts of packaging. Thus, customers know they are not paying extra for a fancy wrapper or a big advertising campaign.
All packaging is made of recycled materials, such as paper and plastic. The packaging is limited only to its usefulness and
the company ensures that packaging material is durable, easy to clean and suitable for recycling several times. However the
products of the company have not been adapted to suit the preferences of Thai customers. Some Thai customers feel that the
fragrance is too strong and packaging looks "unfashionable". Additionally, some customers have complained about allergic
reactions from the company's products. Therefore, we recommend that the company should perform a higher degree of
market research before entering into new markets.
To prevent further customer dissatisfaction, The Body Shop's suppliers should have strong ecological credentials. In
addition suppliers should provide safe working conditions for their employees, not damage the environment, and not use
child or 'sweat shop' labour. These factors are very important because the company must remain transparent and adhere to
the high standards that they have set for themselves and that their customers demand. Association with suppliers who do
meet these high standards would affect the image of The Body Shop brand. We do not want The Body Shop to become the
next Nike, with regards to public image.
Finally, with regards to suppliers it is recommended that the Body Shop work with a limited number of suppliers who are
located closer to the manufacturing base. It is important to have pre-set contracts with these suppliers. This
recommendation will save The Body Shop money because transportation expenses will decline and economies of scale can
be observed because they would be purchasing supplies in higher volumes.
New Markets
Based on the industry growth statistics introduced in the industry analysis section of this paper, we recommend that The
Body Shop investigate the potential of entering markets in Eastern Europe, Asia, and Latin/ South America - as these are
markets that are emerging and therefore are showing rapid growth; whereas the traditional market growth is experience
relatively no growth. It is recommended that the company use their franchise model discreetly in these new markets. In
place of the franchise model it is recommended that they open company owned stores - this would allow management to
more effectively monitor operations and ensure that the highest standards are being observed.
We also recommend that The Body Shop expand the use of e-commerce and The Body Shop at Home program (direct home
selling program) beyond the US. Based on our primarily investigation it is unlikely that these programs would show
success in most of the Asia, Eastern Europe, and Latin/ South America - due to poor electronic infrastructure and personnel
beliefs of individuals surrounding the security issue. However, in North America, Western Europe and Australia it is
believed that the success currently observed in the US trial would be universally observed. These programs would provide
customers with convenient alternatives to the traditional retail-shopping environment. At the same time these alternatives
are cheaper to implement than opening a new store. With regards to the e-commerce aspect, strategic alliances could be
formed with companies that have an established e-commerce framework or distribution channel. The Body Shop also has
the opportunity to outsource all and parts of the e-commerce framework. To deal with the issue of payment security via the
web, the company could subscribe to services such as verified by visa.
ACTION PLAN
Immediate:
Improve brand image
Use in-store 'memos' to educate customers about products - in particular the ingredients and testing of the products. The
purpose of these would be to provide consumers with additional information, so that they can make informed decisions.
These memos could be stored in a binder to make referencing them easier.
Educate employees through informal training sessions designed to allow employees to assist consumers in making educated
decisions. The most practical and feasible way to achieve this is allowing employees to watch video segments/ live web
broadcasts or read information packages. The focus of the sessions should be on promoting the natural aspects of The Body
Shop products.
Finally, The Body Shop should use their current web site, as a means of educating their consumers. Content could be
placed on the site regarding the ingredients of products.
The ultimate purpose of these three points is to improve the brand image through educating the consumer. At all times
when these communications are occurring, the company must remain transparent.

Evaluate supplier relationships

The goal of this portion of the action plan is to find a way to reduce the number of suppliers and establish long-term
relationships with remaining suppliers. To achieve this goal, The Body Shop should:
Hire an outside consultant to perform of supplier feasibility study. It is important that the consultant be from outside of the
organization because this allows the person who is performing the evaluation to remain objective. This feasibility study
should contain analysis on costs and benefits as well as risks associated with maintaning the status quo and making
adjustments to supplier relationships.
The Community Development Plan should continue while a feasibility study is being performed on it. The purpose of the
study would be to determine if the plan should be expanded to service more suppliers and more countries. Again, an
outsider should perform the analysis as they objective and not attached to the project.
Finally, a search should be initiated to find suppliers who are located closer to the factories where the final products are
produced. The purpose of this is to reduce transportation costs.
It is assumed that all of the above changes will enable The Body Shop to purchase their products at a lower price. In return,
a portion of the cost savings will be passed on to the end consumer.

Promote Interaction between the departments (structure)

Research must be undertaken to determine what the best practices are within The Body Shop. This information then would
be entered into an IT system where employees could easily access it. It is suggested that an out-of-the-box solution be used
for this because it is assumed that the company does not have employees who pose this knowledge.
Use best practices and experience, implement on global scale and make modification to tailor to local tastes.

Evaluate a bottle recycling program

Conduct a feasibility study regarding the possibility of re-introducing the bottle-recycling program. Internal employees
could perform this study because no program is currently being used - therefore no conflict of interest would result. It is
likely that a separate study may be required for each country that The Body Shop operates in. This is because countries
have specific environmental and health/ safety regulations.

Conduct research
The initial feasibility study could be performed in house, through the marketing department. The purpose of the research is
to determine how the company can increase its market share.
The first area to study is emerging markets (Eastern Europe, Asia, Central/ South America). This initial research should
direct The Body Shop what areas of the world to focus on. After first level of research is conducted, outside consultant
should be brought in who specializes in conducting business in that particular country. This person/ agency will be
responsible for giving country specific recommendations and latter facilitating the entrance into the new market - assist with
getting proper business permits.
High growth products within the C&T industry. This point is relatively self-explanatory; therefore no further explanation is
given.
Further research will be conducted on the e-commerce aspect of conducting business because the framework is proving to
be very successful in the US.
Finally, further research will be conducted to examine the feasibility of extending the Home selling program, outside of the
US.
Continuing
Retail
Open stores in markets, as determined feasible through market research
Corporate owned stores
Develop home selling programs in the western countries
Develop e-commerce platforms
Develop home selling programs in other western markets

E-commerce
Find partner to outsource technological - Ex EDS
Find supply chain partners - Ex FedEx

Product
Based on research, develop new product mix - Ex At Home Spa products

Suppliers
Continue working on developing supplier relationships
Invest in facilities of efficient suppliers by devoting resources in efficient suppliers

Brand Image
Work on enhancing worldwide image
Ensure that they are conducting business in a manner that promotes corporate social responsibility/ ethics

REFERENCES

(Body Shop v Channel 4)

["Social Evaluation: The Body Shop International 1995"; New Consumer (Feb 94).]

['Business Ethics' magazine (1994).]

[Figures provided by Body Shop UK headquarters (27/2/98)]]

[Govt. New Earnings Survey 1997].

[Internal Body Shop document and transcribed testimony from a court case (libel action against Channel 4 in 1993)]

[Jon Entine, 'Green Washing' (Nov 95).]

[Letter from the editor of 'Business Ethics' magazine (13/9/94)

123students: Management and The body shop: http://www.123student.com/enivornment/1584.shtml

Anonymous, 1995. The prestige market. Retrieved: June 10, 2004. < http://gateway.proquest.com/ openurl?url_ver=Z39.88-
2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/ fmt:kev:mtx:journal&genre = article&rft>

Bath & Body Works, (2004) Bath & Body Works, retrieved from http://www.bathandbodyworks.com/index.jsp

Boot Group, (2004) Boot Group 2003 annual report, retrieved from http://www.boots-ir.com/boots/companyinfo/reports/
Page 10

Carol Warner Wilke, Olivia Tong, Christopher Ferrara. 26 November 2001. Global cosmetics & Toiletries Market
Analysis. Credit Suisse First Boston Equity research.

Charles Wallace. 1996. Can the Body Shop shape up? Retrieved: May 25, 2004. < http://gateway.proquest.com/openurl?
url_ver=Z39.88-2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft>
Company Structure,:www.thebodyshop.com :

Corporate Profile, The Body Shop: http://www.tradenex.com/sites/Tbodyshop/f_main.htm

Don Davis, (September 1, 2002), Unforgettable: Anita Roddick went against the grain in making a rousing success of Body
Shop International against the opposition of the cosmetic establishment, retrieved from
http://www.jonentine.com/reviews/GCI_Roddick_against_grain.htm

Estee Lauder annual report, 2003. http://media.corporate-ir.net/media_files/NYS/EL/reports/ Interactive03/ EL_AR03.pdf

Est&eacute;e Lauder Company (2004), Est&eacute;e Lauder 2003 Annual Report,

http://ccbn28.mobular.net/ccbn/7/282/293/

Eurominitor, 2004. Cosmetics & Toiletries: Some key global trends. Retrieved: June 5, 2004. < http://www.in-
cosmetics.com/files/Euromonitor_In_Cosmetics_presentation.pdf>

Green Companies, The Body Shop International: http://docs.wri.org/2003_bell_21_gray_bodyshop.doc

Hoover (2004), Hoover Online 1, retrieved from http://www.hoovers.com/bath-&-body-works,-inc./--ID__104462--/free-
co-factsheet.xhtml

Hoover (2004), Hoover Online 2, retrieved from http://www.hoovers.com/est%C3%A9e-lauder/--ID__40148--/free-co-fin-

factsheet.xhtml

Hoovers Online: The body shop International

http://www.econ.iastate.edu/classes/econ535/hayenga/protected/2003papers/BodyShopKrug.pdf>

Jamee Krug, 2003. The Body Shop-Acting Local. Retrieved: May 28, 2004. <

Jon Entine, 1997. Vivisecting the anti-vivisectionist movement. Retrieved: June 5, 2004. <
http://gateway.proquest.com/openurl?url_ver=Z39.88-
2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft>

Lalit M. Johri, Kanokthip Sahasakmontri. 1998. Green marketing of cosmetics and toiletries in Thailand. Retrieved: May
27, 2004. < http://gateway.proquest.com/openurl?url_ver=Z39.88-
2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft>

Morgan Stanley Equity Research North America- Household and Personal Care Products Industry Overview.

MSN money, http://uk.moneycentral.msn.com/investor/research/profile.asp?Symbol=GB%3ABOS

Patrick Reilly. 1994. Retailing: Shoppers buy up a bounty of natural beauty products. Retrieved: May 30, 2004.
http://gateway.proquest.com/openurl?url_ver=Z39.88-
2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft_dat=xri:pqd:did=000000004368947&
svc_dat=xri:pqil:fmt=text&req_dat=xri:pqil:pq_clntid=15814

Social Audit report: The Body shop:http://www.thebodyshop.com.au/upload/socialaudit_1998.pdf

Tara Rummell. 1999. Global Cosmetic Industry. Retrieved: May 30, 2004. http://gateway.proquest.com/openurl?
url_ver=Z39.88-2004&res_dat=xri:pqd&rft_val_fmt=info:ofi/fmt:kev:mtx:journal&genre=article&rft

The Body shop employees: http://www.thebodyshop.com/web/tbsgl/employees.jsp

The Body Shop: Employees: How we operate http://www.thebodyshop.com/web/tbsgl / emp_how_we_operate .jsp#ms

Thompson, A. and Strickland, A. 2001. Crafting and Executing Strategy: Text and Readings. 12th ed. NY: McGraw-Hill
Irwin.

Values Reporting Individual Stakeholder Accounts for Employees

2003http://www.thebodyshop.com/web/tbsgl/images/tbs_employee_stakeholder_account.pdf

William Pecoriello, Javier Escalante, Michael Steib, Phebe Apgar. May 19, 2004

APPENDIX 1: THE BODY SHOP TIME LINE

Note: This information came from the www.thebodyshop.com

Company landmarks
The seventies
1976

26th March 1976 - The Body Shop opens for business.

The Body Shop brings the benefits of previously unheard of natural ingredients to the high street - aloe vera, jojoba oil,
rhassoul mud, cocoa butter - and many more.
1978
A kiosk in Brussels becomes the first overseas franchise in 1978. By 1982 new shops were opening at a rate of two per
month.

The eighties
1982
New shops opening at a rate of 2 per month.

1985
In 1985, in its first year as a public company, The Body Shop sponsored posters for Greenpeace. A year later, it created an
Environmental Projects Department of its own. Save the Whales, with Greenpeace, in 1986 was the first major campaign for
The Body Shop.
In 1985, in its first year as a public company, The Body Shop sponsored posters for Greenpeace.
1986
The first Community Trade product for The Body Shop was a footsie roller, produced in 1986 by a supplier in southern
India. This trade in footsie rollers has evolved into the current trade with Teddy Exports in India.
The Body Shop sets up its own in-house Environmental department.
The Body Shop ran its first major campaign in alliance with Greenpeace; Save the Whale.
1989
Our 'Stop The Burning' campaign, called for the Brazilian Government to bring a halt to the mass burning of the tropical
rainforests. One million customers signed the petition that Anita presented to the Brazilian embassy.

The nineties
1990
In 1990, just one year after launching in the USA, there were 2,500 applications for a franchise. Demand for The Body Shop
product is vast, driving a geographical expansion that saw the company trading in 39 countries only fourteen years after the
first shop opened.
The establishment of The Body Shop Foundation in 1990, a charity which funds human rights and environmental protection
groups.
1991
The Big Issue homeless paper which started as a project of The Body Shop Foundation was launched in 1991.
1992
The introduction of The Body Shop Tour at the UK Head Office for the general public in 1992.
1993
In 1993 the Company launched an international campaign to raise awareness of the plight of the Ogoni people and their
leader Ken Saro-Wiwa, persecuted for protesting against Shell and the Nigerian dictatorship over exploitation in their
homeland.
1994
The Body Shop At Home, the direct-selling arm, was launched in the UK in 1994, Canada in 1995 and Australia in 1997.
Today in the UK alone, there are over 3000 consultants who introduced 940,484 customers to The Body Shop and its
product at 103,762 parties in 2000/2001. Spring 2001 sees the launch of The Body Shop At Home in Ireland and the USA
later in the year.
The Body Shop continues to increase its environmental practices. The Body Shop invested a 15% stake in a wind farm in
Wales in 1994 to help offset electricity used in its UK operations. In 2001, The Body Shop UK region and service centre
head offices switched to Ecotricity providing them with energy from renewable sources. In addition, 127 of The Body Shop
UK stores have now converted to green electricity with the rest of the stores due to follow suit.
1995
The New Academy of Business, an initiative of Anita Roddick, was established in 1995. The innovative management
degree, addressing social, environmental and ethical issues, is run at The University of Bath.
1996
Campaign successes including the Against Animal Testing campaign, which led to the largest ever petition (with four
million signatures) being delivered to the European Commission in 1996. The campaign led to a UK-wide ban on animal
testing on cosmetic products and ingredients in November 1998.
1997
In 1997, The Body Shop was the first international cosmetics company to sign up to the Humane Cosmetics Standard
supported by leading animal protection groups.
The Body Shop Values Reports in 1995 and 1997 were recognized by United Nations Environmental Programme and
Sustainability, as trailblazing, and ranked highest in their review of International Corporate Environmental Reports.
In 1997, The Body Shop celebrated its 21st birthday with the launch of a new flagship store design which won the
prestigious Retail Week Store Design of the Year Award.
1998
To celebrate the 50th Anniversary of the Universal Declaration of Human Rights in 1998, The Body Shop launched a joint
worldwide campaign with Amnesty International to highlight the plight of human rights defenders around the world,
encouraging customers to 'Make their Mark' for human rights. Three million people signed up to the campaign.
The Body Shop Foundation part-funded the launch of The Big Issue in Los Angeles in early 1998.
1999
A loyalty scheme for customers was introduced to the UK in the autumn of 1999. It provides incentives to customers,
including the option to donate reward money to selected campaign organizations, including World Society for the Protection
of Animals and the Missing Persons Helpline.
In 1999, The Body Shop created four new business units in the UK, Europe, the Americas and Asia, shifting its operational
and management structure out to the regions. The change was implemented to focus more of our resources closer to the
markets and to create a more flexible and efficient operating structure across the Group. It is believed that this decentralized
structure will significantly enhance The Company's ability to deliver a tailored offer to our customers faster and more
efficiently.

The nineties
2000
In February 2000, the Company completed the sale of its Little Hampton manufacturing business to Creative Outsourcing
Solutions International Ltd (COSi).
The Body Shop Human Rights Award was launched to media, non-governmental organizations and the public in June 2000.
The Award has been set up to seek out and recognize individuals and grassroots organizations focusing on social, economic
and cultural rights. Every two years, The Body Shop Human Rights Award will acknowledge community based projects
around the globe, giving them not only recognition, but also practical and financial help. The theme for the 2000 Award was
child labor and its role in denying children, particularly girls, a basic education.
In 2000/2001, The Body Shop purchased over &pound;5 million worth of natural ingredients and accessory items through
the Community Trade Programme including nearly 400 tones of natural ingredients.
2001
The Body Shop branches into South Africa. In June 2001, The Body Shop agreed to appoint a major South African retailer,
New Clicks Holdings, as The Body Shop direct franchisee in South Africa. New Clicks has a strong commitment to
corporate social responsibility through its New Clicks Foundation. The first The Body Shop stores will open in Cape Town
and Johannesburg in October 2001.
March 26th 2001 Happy Birthday! The Body Shop celebrates 25 years of 'business as unusual.' Celebrating 25 years of a
great experiment - an experiment which proved it is possible to build a huge global enterprise and still challenge, campaign,
trade honorably, give back to the community and have a good time while doing it.
September 2001: Choose Positive Energy was a joint campaign run in partnership with Greenpeace International, which
helped highlight the importance of renewable energy in the fight against global warming.

1.6 million customers and cyber activists signed the global petition urging politicians at the United Nations (UN) Earth
Summit in August 2002, to make renewable energy more accessible to 2 billion people without access to energy.
2002
October 2002 marked the second The Body Shop Human Rights Award. The Right to Housing was the theme of this year's
Award, and four winners, chosen by our independent, international jury shared the $300,000 prize.
2003
March 8th 2003. Women all over the world joined with The Body Shop to celebrate our first ever International Women's
Day on March 8th 2003. Stores across the world held parties to celebrate women have fun and share inspirational stories.
The Body Shop highlighted the stories of two women-only organizations, which supply us with ingredients for some of our
best-selling products. These groups have worked to bring about change in their lives and communities.
The journey continues
Activism has been part of the DNA of The Body Shop. The past has been a testament to an extraordinary partnership with
millions of men, women and children all over the globe. And what about the future? The unique blend of product, passion
and partnership that characterizes the story of The Body Shop will continue to evolve. It is a shared vision. So the great
experiment goes on.

APPENDIX 2: THE BODY SHOP'S COMPETITORS

Note: This information is from Hoover's

Top Competitors
Bath & Body Works
Boots Group
Est&eacute;e Lauder
All Competitors

Alberto-Culver
Aloette
Avon
Bath & Body Works
BeautiControl Cosmetics
Boots Group
Coles Myer
Colgate-Palmolive
Coty Inc.
Dial
Dillard's
Dr. Bronner's
E Com Ventures
Eckerd
Est&eacute;e Lauder
Federated
Forever Living
Gap
Gillette
Henkel
Johnson & Johnson
Kiehl's
Kingfisher
Longs Drug
L'Or&eacute;al
Mary Kay
May
Nordstrom
Procter & Gamble
Revlon
Rite Aid
Saks Inc.
Shiseido
Target
Unilever
Walgreen
Exhibit 1: Backgrounds Information on Bath & Body Works

Bath & Body Works

200220032004 planed
Stors1,6391,6041,570
Selling Square Foot3,568,0003,542,0003,572,000

http://www.limited.com/includes/ltd_2003ar_financials.pdf

Exhibit 2: Sales Growth of Est&eacute;e Lauder Products

http://ccbn28.mobular.net/ccbn/7/282/293/

APPENDIX 3: THE BODY SHOP'S DOMINANT ECONOMIC FEATURES

Figure 1: The Global C&T Market

The World's Largest C&T market in 2003
US$ Billion% Vs 03% Vs 97
USA45.40.724.3
Japan21.93.28.1
France12.1533.6
Germany11.61.422.8
UK10.14.721.6
Italy8.52.527.4
Brazil7.312.2113.7
China67.863.2
Spain5.75.656.7
Russia5.314.331.3
Source: Euromonitor
Figure 2: The C&T Market by Sector

Source: Jamee Krug, 2003, Euromonitor.

Figure 3: The C&T Market by Sector and by Country

Share of sales of cosmetics and toiletries for each sector by country, 2000
Data in %
CategoryFranceGermanyItalyJapanSpainUKUSA
Baby care21.21.31.321.21.7
Bath and Shower7.18.410.78.46.510.410
Deodorants5.355.51.458.64.6
Hair care18.321.415.418.516.820.619.5
Color cosmetics1312.212.6181212.616.6
Men's Grooming56.26.99.76.56.45.6
Oral hygiene6.910.310.39.18.611.69.9
Fragrances19.11312.12.422.312.114.2
Skin care20.61921.630.315.313.315.4
Sun care213.514.93.12.5
Source: Euromonitor

Figure 4: Category growth rate-historical and forecast

Category growth rate-historical and forecast

1997-2002 (%) 2002-2007 (%)
Professional
Colorants65.8
Styling3.53.3
Shampoo & Haircare3.23.2
4.44.3

Consumer
Haircare3.33.3
Make-up5.95.8
Skincare4.44.4
Fragrances2.93.2
Other2.72.7
4.14.1

Luxury
Skincare4.84
Fragrances42.7
Make up5.95
4.83.7

Other2.72.7
Total Cosmetics4.34

Source: Euromonitor (historical) Morgan Stanley Research (projection)Projections

Figure 5: Growth by sector in Country

Growth by sector in Country, 1999-2000

Data in %
CategoryFranceGermanyItalyJapanSpainUKUSA
Baby care33.73.31.764.610.5
Bath and Shower5.50.31.51.87.42.82.5
Deodorants4.242.915.39.83.84.5
Hair care5.49.22.20.811.81.92.5
Color cosmetics418.210.3-0.89.83.95.8
Men's Grooming6.35.46.84.412.26.45.7
Oral hygiene7.15.33.8-0.38.6-0.83.8
Fragrances2.823.73.911.61.62.5
Skin care4.36.911.71.985.87.8
Sun care2-57.94.423.42.47.1
Total 4.56.76.091.510.72.94.5
Source: Euromonitor

APPENDIX 4: FURTHER FINANCIAL ANALYSIS

Note this information is from MSN Money. All information in columns entitled 'company' refers to the Body Shop and all
information in columns entitled 'industry' refers to the global C&T industry - including the synthetic and natural segments.
2003 figures in British pounds and percentages.
Growth Rates %CompanyIndustry
Sales (Year vs. Year)0.8023.10
Income (Year vs. Year)59.6098.50
EPS (Year vs. Year)57.40144.60
Sales (5-Year Avg)4.6539.06
EPS (5-Year Avg)-9.829.07
Dividends (5-Year Avg)NA-1.12
Industry: Medicines
Computed ratios are based on latest 12 months' results.
Prices in British pence
Other financial data in British pounds

Price RatiosCompanyIndustry
Current P/E Ratio14.39.7
P/E Ratio 5-Year High19.536.7
P/E Ratio 5-Year Low10.410.0
Price/Sales Ratio0.8161.37
Price/Book Value2.391.65
Price/Cash Flow Ratio7.50-42.40
Industry: Medicines
Computed ratios are based on latest 12 months' results.
Prices in British pence Other financial data in British pounds

Profit Margins %CompanyIndustry

Gross Margin63.1-62.0
Pre-Tax Margin7.5-1,049.0
Net Profit Margin5.7-1,014.6
5-Yr Gross Margin (5-Year Avg)61.3-19.9
5-Yr Pre-Tax Margin (5-Year Avg)5.6-653.2
5-Yr Net Profit Margin (5-Year Avg)3.8-634.4
Industry: Medicines
Computed ratios are based on latest 12 months' results.
Prices in British pence Other financial data in British pounds

Financial ConditionCompanyIndustry
Debt/Equity Ratio0.66-11.18
Current Ratio1.53.8
Quick Ratio0.63.1
Interest Coverage16.8-1,393.6
Book Value/Share0.640.75
Industry: Medicines
Computed ratios are based on latest 12 months' results.
Prices in British pence Other financial data in British pounds

Investment Returns %CompanyIndustry

Return On Equity17.9-31.9
Return On Assets10.4-22.1
Return On Capital13.5-35.2
Return On Equity (5-Year Avg)11.6-42.7
Return On Assets (5-Year Avg)7.4-20.6
Return On Capital (5-Year Avg)9.9-27.9
Industry: Medicines
Computed ratios are based on latest 12 months' results.
Prices in British pence Other financial data in British pounds
Management EfficiencyCompanyIndustry
Income/Employee3,699-85,445
Revenue/Employee64,47393,790
Inventory Turnover2.511.3
Asset Turnover1.80.7

APPENDIX 5: THE BODY SHOP'S ORGANIZATIONAL STRUCTURE

Exhibit 1: Break down of Retail Locations by Region

Regions% of total2003 Stores
UK/Ireland63742
Americas26488
Europe, Middle East
& Africa8426
Asia Pacific3312
Total1001968

StoresNo.
Franchised1,397
Company owned571
Total1,968

Exhibit 2: Organizational Chart

Exhibit 3: Key People

TitleName
Chairman Adrian D. P. Bellamy
CEO and Director Peter Saunders
Financial Controller, Group Finance Director Peter Youngs
Managing Director, Asia-Pacific Colin Buchanan
Managing Director, Europe and Middle East Roger Baxter
Managing Director, UK Bernie Foster
President, Body Shop North America Joanne D. Calabrese
Secretary Jeremy A. Kett
Director, Logistics and Technical Services Paul Alvey
Director, Supply Chain and Information Technology Andrea Alvey
Executive Director and General Manager, The Body Shop Hong Kong Karen Ong
UK Marketing Director Joe Irons
Head of Global Corporate Public Relations Bill Eyres
Head of Investor Relations Rita El-Ali
Head of Values Steve McIvor
VP, e-Commerce, Body Shop North America Mariam Naficy
Director, Marketing Communications, Body Shop USA Kim Burrs

Exhibit 4: Key Accountabilities

APPENDIX 6: STAFF DEMOGRAPHICS

APPENDIX 7: DECISION MATRIX

Vertical IntegrationHorizontal IntegrationUnrelated Diversification

Corporate Image
40%*
Customer Satisfaction 30%*
Employee Morale/ Motivation
15%*
Cash Requirements 10%*
Ease of Implementation 5%*
*=3 *=2 *=1
Weighted Average2.952.001.55