L’Oreal Allegedly Found 15 Prospective Bidders For The Body Shop; What Lies Ahead For The Brand?

by Trefis Team
-9.55%
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42.08
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38.06
Trefis
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L'Oreal
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L’Oreal mentioned that it was looking to sell off its ownership of The Body Shop in its Q4 2016 earnings call held in February of this year. Recent reports suggest that L’Oreal has attracted bids from 15 private equity firms and companies that include CVC Capital Partners, Carlyle Group LP, BC Partners, Bain Capital and Advent International Corp, and South Korea’s CJ Group. There will be a shortlisting next week to select bidders for the next round. However, none of the bidders or L’Oreal has confirmed this news so far. L’Oreal is aiming to sell the brand for a possible value of €1 billion. The persistent weakness in the performance of the Sussex-based beauty retailer known for its natural and fair-trade ingredients, has made L’Oreal come to this decision. L’Oreal had acquired the company in 2006 for £652 million.

Founded in 1976, The Body Shop is currently present in over 3,000 stores across 66 countries. Its sales fell by ~5% to reach €920.8 million in 2016 while its operating profit declined by 38% during the same period to reach €33.8 million. The company’s operating margin fell below 4% in 2016 while that of L’Oreal’s main consumer business stood at 20%.

What Were The Reasons Behind The Body Shop’s Downfall?

Some of the loyal fans of The Body Shop felt frustrated when the brand, known for its ethical practices, was taken over by a commercial giant. This might have been one of the reasons behind The Body Shop’s declining demand. Also, the concepts such as not testing on animals is not an uncommon practice for other beauty brands in today’s world. It doesn’t provide The Body Shop an edge over others as before. The Body Shop fell behind bigger and more powerful competitors (mainly premium ethical brands) such as Dr. Hauschka, Chantecaille, and Lush and Neal’s Yard.

Also, although L’Oreal is a digitally advanced company, it has done little to connect this brand with the younger consumers of today through these means. In an age when the brick and mortar stores are losing relevance and the digital sales are rising, The Body Shop continued spending money to build a larger store network.

How Can the Brand Be Revived?

The Body Shop is making new promises to reinvent and reinforce its older image once more under its current CEO, Jeremy Schwartz, however, the brand has a tough challenge ahead of itself. Last year, the brand tried to revive its image with 14 goals for 2020 that included promises like all its natural ingredients would be sustainably sourced (as opposed to just under 50% of its ingredients falling under this category currently) and ensuring that almost 70% of its packaging would not originate from fossil fuels (as opposed to 30% today). However, The Body Shop needs to seriously think about its brand image in order to once again appeal to its consumer base. In case The Body Shop gets sold to one of the bidders, the brand might need to undergo an image makeover in order to appeal to its target client base once again.

The beauty company might go back to focusing on its previous image when it was known for its ethical products, natural and organic ingredients, environment friendly practices, and social activism. Or else, it might have to become a mass market commercial brand and undergo a complete makeover to appeal to a different set of audience.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for L’Oreal
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