Does A Change In Image Makeover Await The Body Shop Once L’Oreal Sells It?

by Trefis Team
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A few months back we discussed how the global beauty leader, L’Oreal, was on the lookout for buyers to sell its natural and organic beauty brand, The Body Shop. There have been developments in that area that might suggest that The Body Shop’s erstwhile all natural, organic, and ethical image might undergo a major makeover in case things go a certain way. Also, the forecasts for the brand’s future profitability seem weak, thereby signaling that L’Oreal might not be able to sell the company for the price it originally hoped for, that is, a possible value between €800 million to €1 billion.

The Body Shop’s Dwindling Performance 

According to reports, L’Oreal has mentioned that The Body Shop’s earnings before interest, tax, depreciation and amortization (EBITDA) might decline from €80 million in 2016 to €65 million in 2017. Its cash flow is also expected to be around €15 million this year, around half that of 2016. The Body Shop’s financial report card has displayed persistent deterioration over the last few years.

Offers On The Table

Some of the offers that The Body Shop received till now are from CVC Capital Partners, the erstwhile owners of Formula One motor racing; Investindustrial, the Italian investor that owns stakes in companies like Aston Martin and Sergio Rossi; and Fosun, a Chinese conglomerate. Investindustrial is said to have invited the investment arm of Chinese e-Commerce giant Alibaba’s founder Jack Ma to submit a joint bid amounting to over €800 million.

Will There Be An Image Makeover For The Body Shop?

It is noteworthy to mention here that selling the brand to a Chinese investor might signal the end of the ethical era for The Body Shop as China has a history of unethical beauty practices, including animal testing. The Body Shop was founded in 1976 by Anita Roddick as an ethical and environment friendly brand which never subscribed to practices like animal testing. However, currently the brand is under threat by bigger and more powerful competitors in this field, such as premium ethical brands like Dr. Hauschka, Chantecaille, and Lush and Neal’s Yard.

The brand might need to seriously think about its image in order to once again appeal to its consumer base. One of the reasons for its declining popularity is that after L’Oreal bought the company from Ms. Roddick in 2006, the ethical fiber of the company has eroded gradually. Though the company 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.

In its choice of either becoming a mass market commercial brand (like a Maybelline or a Garnier) or a brand built over social and environment consciousness, it seems that The Body Shop might opt for the former image in case it is taken over by a Chinese company. In case that happens, it will be interesting to see how customers will react to its newly positioned brand image. It is more common to see brands become more socially conscious with age, to opt for the opposite path might generate doubts about the brand’s core principles in the customer’s minds. However, if the brand completely reinvents itself in terms of offerings, brand messaging etc, and also if it becomes a part of a bigger beauty company that molds it according to its image, then there are chances that The Body Shop might just click once again with beauty users.

Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at content@trefis.com

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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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