The Body Shop International Plc

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Finance bored the pants off me. I fell asleep more times than not.1

—Anita Roddick, founder, The Body Shop International

In the late 1990s, The Body Shop International PLC, previously one of the fastest growing manufacturer-retailers in the world, ran aground. Although the firm had an annual revenue growth rate of 20% in the early to middle 1990s, by the late 1990s, revenue growth slowed to around 8%. New retailers of the naturally based skin- and hair-care products entered the market, bringing intense competition for The Body Shop. Amidst the competition, The Body Shop failed to maintain its brand image by becoming something of a mass-market line as it 1 2

Anita Roddick, Body and Soul (London: Ebury Press, 1991), 105. Jean Sherman Chatzky, “Changing the World,” Forbes (2 March 1992): 87. 3 Anita Roddick, Business as Unusual (London: Thorsons, 2000), 56. This case was prepared by Susan Shank and John Vaccaro under the direction of Robert F. Bruner and Robert Conroy. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. The financial support of the Batten Institute for case development is gratefully acknowledged. Copyright © 2001 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means— electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

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One of our greatest frustrations at The Body Shop is that we’re still judged by the media and the City by our profits, by the amount of product we sell, whereas we want and have always wanted to be judged by our actions in the larger world, by the positive difference we make.3 —Anita Roddick

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Roddick, as self-righteous as she is ambitious, professes to be unconcerned [with financial results].… “Our business is about two things: social change and action, and skin care,” she snaps. “Social change and action come first. You moneyconscious people … just don’t understand.” Well, maybe we don’t, but we sure know this: Roddick is one hell of a promoter.… She and her husband, Gordon, own shares worth just under $300 million. Now that’s social action.2

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THE BODY SHOP INTERNATIONAL PLC 2001: AN INTRODUCTION TO FINANCIAL MODELING

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expanded into “almost every mall in America, as well as virtually every corner on Britain’s shopping streets.”4 Anita Roddick, founder of The Body Shop, stepped down as chief executive officer (CEO) in 1998,5 after numerous unsuccessful attempts to reinvent the company. Patrick Gournay, an executive from the French food giant Danone SA came on board as CEO. However, problems persisted despite the management change. In fiscal year 2001, revenue grew 13%, but pretax profit declined 21%. Gournay said of the results, “This is below our expectations, and we are disappointed with the outcome.”6

If you feel comfortable using Exhibit 8 to prepare the next three years of financial statements and to demonstrate The Body Shop’s debt financing needs, you might be better served by scanning the next few sections on basic financial modeling and concentrating on the last section of the case (Roddick Wants to Know). From experience, however, a vast number of students have found the following exercises to be invaluable in their early understanding of financial modeling.

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Sarah Ellisan, “Body Shop Seeks a Makeover—U.K. Cosmetics Retailer Confirms Sale Talks with Mexico’s Grupo Omnilife—A Long and Difficult Fall from Grace,” Wall Street Journal Europe, 8 June 2001. 5 Anita Roddick remained on the company’s...
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