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					BodyShop.com
   1/2003
            Body Shop: Sources of Value
• What does the Body Shop need to do to continue
  its 1980s success during the 1990s?
  – In the U.K.
  – Outside the U.K.?
  – In the U.S.?
• Why has the Body Shop been successful?
  – How has it kept competitors at bay?
  – What are its core capabilities?
                      Anita Roddick’s Roles
                • Roddick articulated a social
                  mission & a business vision
                   – High PR value
                   – Understood by all employees
                   – Social mission fuels Body Shop
                     business growth via employee loyalty
                     & customer preferences
• Over time, she created a business with a complex
  web of functional & organizational capabilities
  • Substantial value to customers
  • Unique
  • Difficult to imitate
   Inner-city production    Corporate-owned stores for learning

 Innovative product development                        Body Shop Web of
 Animal-free products                                       Capabilities
                           Desirable               Committed franchisees
Environmental support
                           products
                                        Great        Friendly, knowledgeable staff
 Refillable containers
                                        service     On-site day care
Emerging economy development
                                                       Above-average wages
Realistic portrayal of women
                                    Lower costs
                                    Moderate prices No mass marketing
                     The Body Shop remained a
Regional managers support stores
                                    Many storesStrong word-of-mouth
                            Roddick-centered
                                 Strong
Constant communication
                          informal organization Free PR by public press
                                 culture
Strong corporate influence on stores                      Community activity

 Corporate brochures                               Franchise stores for growth
                        Business Capabilities
• Functional & organizational capabilities
  – Functional: What you can do
  – Organizational: How you do it
• Necessary capabilities: Maintain pace with rivals
• Core capabilities
  – Distinct skills that provide competitive advantages
  – Attributes: Valuable, unique, inimitable
Core capabilities often involve informal webs of
 functional & organizational capabilities
  • Difficult for competitors to imitate
  • Informal webs need complementary formal organization
• Core capabilities: Valuable,      Core Capabilities
  unique, inimitable
• Retain value long enough to makein the Value Chain
                                    money!
    Nokia            Tata      Siemens     Walmart

          Organization/Leadership/HR             Nike

                 Financial support
SAP
        R&D/          Logistics/     Mkt/Dist/
        Design       Production      Service

                                                 Unilever
 3M                 Toyota    GSK         Dell
          Honda          Boeing
                          Core Competence: Using A Focal Core
R&D/ Logist/ Mkt/          Capability to Enter New Value Chains
Design Pdn      Svc
     R&D/ Logist/ Mkt/
     Design Pdn     Svc
          R&D/ Logist/ Mkt/       R&D/ Logist/ Mkt/
          Design Pdn    Svc       Design Pdn      Svc
                                       R&D/ Logist/ Mkt/
                                       Design Pdn     Svc
                                            R&D/ Logist/ Mkt/
                                            Design Pdn    Svc
Honda: Engine-intensive
industries

   Cooper: Production-intensive            R&D/ Logist/ Mkt/
   tool businesses                         Design Pdn      Svc
                                                R&D/ Logist/ Mkt/
                                                Design Pdn     Svc
        Unilever: Global marketing &                 R&D/ Logist/ Mkt/
                                                     Design Pdn    Svc
        distribution
    Contrast with “Focal” Capabilities: Often, Many Small
  Valuable Capabilities Add up to A Core “Capability Web”

                      • Individually imitable
 Body Shop
                      • In aggregate, unique & hard to copy


             Organization/Leadership/HR
                  Financial support

        R&D/           Logistics/     Mkt/Dist/
        Design        Production      Service

  Toyota
Production
  System            Southwest
             Strengths & Weaknesses of
                       Capability Webs
• Strength: Unique & hard to copy
  Provide effective entry & mobility barriers
• Weakness: Hard to adapt, replicate, & manage
  Difficult to change when competitive models
   emerge that reduce their value
  Difficult to adapt for opportunities with slightly
   different needs (e.g., other countries)
  Difficult to apply to new industries
  Sometimes out-pace formal organizational skills
         Business Capabilities at The
                          Body Shop
• Necessary capabilities
  – Store management, production (?), …
• Core capabilities
  – Culture, service, PR promotion, …
  – Small skills add up to a capability web
Questions
  – How sustainable are the Body Shop’s advantages?
  – Does the Body Shop have an organizational
    structure that will support growth?
                                                           Growth Issues
• Is the Body Shop’s profitability “sustainable” or
  “growth-driven”?
• Troubling financial trends in 1991
      – UK same-store, constant-$ sales flat (up 1% 1990-1991)
      – Overall sales/outlet trends declining

50%

40%                                                          Is there sustainable
30%                                                            strength to replace
20%
      Growth in Total Sales/Outlet,                                growth-driven
      1985-1991                                                          success?
10%

0%
      1984   1985   1986    1987     1989    1990   1991

                       Sales/Outlet growth
18%                                                        £140
16%                                                        £120
14%
                                                           £100
12%
10%      Body Shop                                         £80
8%                                                         £60
6%
4%
2%
0%
                                                           £40

                                                           £20
                                                           £0
                                                                  Growth Issues
      1984   1985   1986    1987     1989    1990   1991

                     Sales (L mln)     ROS



• Rapid expansion often drives short-term success
      – Failure is common once reach expansion limits
      – Unless firm creates sustainable business capabilities
      – Examples: USOP, Tyco, Vivendi
• Body Shop: Business model concerns emerging
Capability webs create both advantages & limits
      • Requires formal organization to manage growth
      • Will BS out-pace their Roddick-centered organization?
                       Body Shop Growth
                                 Options

• UK: Add stores, maintain informal organization?
  – Eventually, they will saturate market
  – Competition will emerge at some point
• Continue global growth?
  – Sustainable?
                        Global Growth

• How successful has the Body Shop really
  been outside the UK?
700

600
                                                                                           Body Shop
      Total outlets
500                                                                                          Growth,
400

300                                                                                        1984-1991
200

100                                                                                         Faster outlet
 0                                                                                         growth abroad
      1984   1985     1986      1987      1989                 1990       1991

             Outlets: UK     Outlets: non-UK            Total outlets



                                                       500

UK sales/outlet higher                                          Sales/outlet
                                                       400

 Sales/outlet flat                                    300
                                               L 000




Foreign growth will                                   200

not drive profits                                      100

                                                        0
                                                                 1984      1985     1986     1987        1989        1990      1991

                                                             Sales/outlet: UK     Sales/Outlet: Non-UK          Sales/outlet: Total
                           Global Issues

• Overall global patterns raise concerns
• What can we tell by looking more closely at
  individual markets?
Country       1st year Years since entry Stores, 1991   Region
Total/Median med=1984     median=7           586
UK
Belgium
Sweden
               1976
               1978
               1979
                              15
                              13
                              12
                                             174
                                               4
                                              30
                                                        UK
                                                        Europe
                                                        Europe
                                                                         Body Shop Global
Greece
Canada
Iceland
               1979
               1980
               1980
                              12
                              11
                              11
                                              14
                                              87
                                               0
                                                        Europe
                                                        Americas
                                                        Europe
                                                                              Units, 1991:
Finland        1981           10              11        Europe
Denmark
Eire
Holland
               1981
               1981
               1982
                              10
                              10
                               9
                                               5
                                               5
                                              23
                                                        Europe
                                                        Europe
                                                        Europe
                                                                               Entry Year
France         1982            9               3        Europe
Australia      1983            8              31        Asia-Pac
Germany        1983            8              28        Europe
Switzerland    1983            8              18        Europe
Singapore
Cyprus
               1983
               1983
                               8
                               8
                                               6
                                               1
                                                        Asia-Pac
                                                        Europe
                                                                   Expansion pattern from UK:
UAE (Dubai)
Italy
               1983
               1984
                               8
                               7
                                               1
                                              22
                                                        Mid East
                                                        Europe     => Europe
Hong Kong      1984            7               7        Asia-Pac
Malaysia W
Malaysia
               1984
               1984
                               7
                               7
                                               7
                                               3
                                                        Asia-Pac
                                                        Asia-Pac
                                                                      => British heritage nations
Norway         1985            6              13        Europe
Bahamas
Bahrain
               1985
               1985
                               6
                               6
                                               4
                                               1
                                                        Americas
                                                        Mid East
                                                                          => Middle East
Spain
Austria
               1986
               1986
                               5
                               5
                                              17
                                               5
                                                        Europe
                                                        Europe               => Tourist islands
Portugal       1986            5               5        Europe
Oman
Kuwait
               1986
               1986
                               5
                               5
                                               2
                                               0
                                                        Mid East
                                                        Mid East
                                                                                => US
Saudi Arabia   1987            4               6        Mid East
Antigua
Bermuda
               1987
               1987
                               4
                               4
                                               1
                                               1
                                                        Americas
                                                        Americas
                                                                                 => non-UK Asia
Malta
USA
Taiwan
               1987
               1988
               1988
                               4
                               3
                               3
                                               1
                                              39
                                               3
                                                        Europe
                                                        Americas
                                                        Asia-Pac
                                                                    Few new markets left:
Gibraltar
New Zealand
               1988
               1989
                               3
                               2
                                               1
                                               3
                                                        Europe
                                                        Asia-Pac    Requires growth within markets
Indonesia      1990            1               1        Asia-Pac
Japan
Grand Cayman
               1990
                 ??
                               1
                              ??
                                               1
                                               1
                                                        Asia-Pac
                                                        Americas
                                                                    & greater formality to integrate
Qatar            ??           ??               1        Mid East
Country       1st year Years since entry Stores, 1991   Region
Total/Median med=1984     median=7           586
UK             1976           15             174        UK
Canada
USA
Australia
               1980
               1988
               1983
                              11
                               3
                               8
                                              87
                                              39
                                              31
                                                        Americas
                                                        Americas
                                                        Asia-Pac
                                                                           Body Shop Global
Sweden
Germany
Holland
               1979
               1983
               1982
                              12
                               8
                               9
                                              30
                                              28
                                              23
                                                        Europe
                                                        Europe
                                                        Europe
                                                                                Units, 1991:
Italy          1984            7              22        Europe
Switzerland
Spain
Greece
               1983
               1986
               1979
                               8
                               5
                              12
                                              18
                                              17
                                              14
                                                        Europe
                                                        Europe
                                                        Europe
                                                                                  # of Stores
Norway         1985            6              13        Europe
Finland
Hong Kong
               1981
               1984
                              10
                               7
                                              11
                                               7
                                                        Europe
                                                        Asia-Pac
                                                                    # of stores:
Malaysia W
Singapore
Saudi Arabia
               1984
               1983
               1987
                               7
                               8
                               4
                                               7
                                               6
                                               6
                                                        Asia-Pac
                                                        Asia-Pac
                                                        Mid East
                                                                   • Home country dominates
Denmark
Eire
Austria
               1981
               1981
               1986
                              10
                              10
                               5
                                               5
                                               5
                                               5
                                                        Europe
                                                        Europe
                                                        Europe
                                                                   • Commonwealth countries strong
Portugal
Belgium
               1986
               1978
                               5
                              13
                                               5
                                               4
                                                        Europe
                                                        Europe     • US already # 3
                                                                   • only 2 exits
Bahamas        1985            6               4        Americas
France         1982            9               3        Europe
Malaysia       1984            7               3        Asia-Pac
Taiwan
New Zealand
Oman
               1988
               1989
               1986
                               3
                               2
                               5
                                               3
                                               3
                                               2
                                                        Asia-Pac
                                                        Asia-Pac
                                                        Mid East
                                                                   • France weak despite early entry
Cyprus         1983            8               1        Europe
UAE (Dubai)    1983            8               1        Mid East
Bahrain        1985            6               1        Mid East
Antigua        1987            4               1        Americas
Bermuda
Malta
Gibraltar
               1987
               1987
               1988
                               4
                               4
                               3
                                               1
                                               1
                                               1
                                                        Americas
                                                        Europe
                                                        Europe
                                                                     Mainly a few stores/country,
Indonesia
Japan
               1990
               1990
                               1
                               1
                                               1
                                               1
                                                        Asia-Pac
                                                        Asia-Pac    suited to informal organization
Grand Cayman     ??           ??               1        Americas
Qatar            ??           ??               1        Mid East
Iceland        1980           11               0        Europe
Kuwait         1986            5               0        Mid East
             What Does This Mean
           for Growth in the U.S.?
• Market positioning?
• Body Shop organization?
                                     U.S. Market?
• There will be a large U.S. market for Body Shop-
  type products, but with major differences
• Consumer differences: Ad mentality, mall
  culture, sheer market size
• Social & regulatory differences: FDA, litigation
• Aggressive competition
  – Mall retailers will imitate “natural” products
  – Different approach to same market: Product-driven
    rather than social-driven
  – Competitors will pre-empt malls if BS is slow
  – Example: Benetton v. The Gap & The Limited
                      U.S. Organization?
                • How can the Body Shop offer
                  quick hands on support for a
                  U.S. network?
                  – Requires U.S.-based staff with
                    Body Shop values
                  – Heavy cross-Atlantic training
                    requirements
                  – Requires Roddick to focus on
                    building a U.S. organization

U.S. growth will soon surpass Body Shop’s
Roddick-centered approach
               Body Shop at the Organizational Cross-
                                               Roads
                                            Maintain model
                       Light-weight             But face
                       U.S. & other            increasing
    1992:              foreign scope        competition &
  Roddick-                                 saturated markets
               Expansion goal?
   centered
organizational                         Institutionalize values
                      Full-scale
    model                              • U.S. regional staff
                        U.S.
                                       • Revise marketing
                     penetration
                                       • Regulatory demands
                                       • Franchisee selection
  Requires major refinement            • Training systems
Similar issues will arise with Asia    • While retaining values
                     Post-Case Trends

• Attempted to maintain traditional approach
  to growth & informal organization through
  the 1990s
Body Shop Regional Store Growth, 1991-2001
            800

            600

            400

            200

              0
                  UK/Ireland   Eur / M   Americas    Asia-
                                East                Pacific

                          1991 stores     2001 stores

• Still largest number at home (suits informal organization),
  but facing stronger competition from Boots Drugstores
• Some U.S. growth, but Bath & Body Works now much
  larger (1,600 v. 300 U.S. stores in 2003)
        Body Shop Regional Sales/Store, 2001
  40%                                                          $400,000

  35%                                                          $350,000

  30%                                                          $300,000

  25%                                                          $250,000

  20%                                                          $200,000

  15%                                                          $150,000

  10%                                                          $100,000

  5%                                                           $50,000

  0%                                                           $-

         UK/Ireland Eur / M East   Americas     Asia-Pacific

           2001 Sales (%)     2001 Stores (%)       Sales/Store

 Lowest sales/store at home (home market saturated)
 Continued domestic growth not possible
              Body Shop Image: Brand
                             Success

• 1997: 28th top brand in the world (Interbrand
  survey)
• 1998: FT ranks Body Shop 27th most-
  respected global company
      18%                             7,000
      16%
      14%
                                      6,000                  Body Shop
      12%                             5,000
      10%
                                                             Financials,




                                              Employees
       8%                             4,000
ROS




       6%                             3,000
       4%
       2%                             2,000
                                                             1984-2002
       0%
                                      1,000
      -2%
      -4%                             0                    Financial
       19 4
       19 5
       19 6
       19 7
       19 9
       19 0
       19 1
       19 2
       19 3
       19 4
       19 5
       19 6
       19 7
       19 8
       20 9
       20 0
       20 1
         02
                                                          mediocrity
         8
         8
         8
         8
         8
         9
         9
         9
         9
         9
         9
         9
         9
         9
         9
         0
         0
       19




               employees   ROS




                           Body Shop v. the Dow
 Company is
too big for
informal
organization
       Organization: Still Struggling
• 1998: New CEO (Patrick Gournay, Danone)
• 1998: Bellamy Retail Group took over US management
  after Bath & Body Works surpassed BS
• 1999: Restructuring -- Sold mfg to focus on retail
• 2000-2001: Attempted Body Shop Digital
• 2001: Roddicks retook U.S. control from Bellamy
• 2002: Anita & Gordon Roddick left as co-chairs
   – Tried to sell Body Shop, no buyers
   – Only new stores opened were in Asia (39 stores)
   – U.S. leaders became chair (Adrian Bellamy) & CEO
     (Peter Saunders) – now trying to Americanize BS
Little time left to redefine the company
                                          1/2003




                       Body Shop Themes
• Business vision  Social vision
• Global strategy: Tension between local tailoring
  & corporate coordination
• Growth-driven v. sustainable profits
                                               Concepts
• Capabilities within the value chain
  – Functional & organizational capabilities
  – Core (unique, valuable, inimitable) v. necessary
  – Core competence: Apply focal core capabilities to
    multiple industries
  – Sustainability of competitive advantage
• Webs of inter-related capabilities
  –   Basis of profitability, initially deters imitation
  –   Creates limits to expansion
  –   Ultimately, competitive models emerge
  –   Requires complementary formal organization
• Business dynamics: Change the model when
  you reach its limits
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