May 31, 2002
Body Flop: Anita Roddick proclaimed that business could be caring as well as capitalist. Today The Body Shop is struggling on both counts.
By Jon Entine
It was early one Sunday morning and the thick scent of patchouli filled The Body Shop. It evoked memories of my own hippie days, but the overflow crowd at this freshly minted franchise shop was more Britney than bohemian. Girls in designer jeans chattered away on purple cellphones, standing painted nails-to-painted nails beside moms carrying Gucci bags.
Anita-everyone calls her by her first name-was there to open yet another store in what is now a 50-country cosmetics empire. This was San Francisco in 1994, but it could have been any time and any mall from the Eaton Centre in Toronto to the suburbs of Tokyo. Body Shops are packaged with a precision that would make Ronald McDonald blush with envy.
Anita launched into a spirited attack. Corporate executives? "Robber barons," she shouted. Investment bankers, the ones who floated the stock that made her fabulously wealthy? "Blood-sucking dinosaurs." They were rough words, but delivered and received with an unmistakable sincerity. There is a magnetic force about her. Charisma.
It was still the best of times for Anita, at least in the eyes of the media that had been so instrumental in the success of The Body Shop International PLC. She had created an empire by promoting herself as a trailblazing feminist who packaged an activist social philosophy in every bottle of facial cream.
"I'd rather promote human rights, environmental concerns, indigenous rights, whatever, than promote a bubble bath," she gushed, her raven hair flying. It was impossible not to notice the shelf stacked high with bath bubble gel, one of 14 Body Shop varieties that framed Anita almost perfectly.
The contradictory faces of Anita Roddick reappeared last February when she and her husband, Gordon, announced, not for the first time, that they were reducing their management roles. They stepped aside as co-chairmen, and director Adrian Bellamy, who oversaw Body Shop's recent strategy of sweeping up ailing U.S. franchises, was elevated to executive chairman. North American boss Peter Saunders, formerly chief operating officer of Eatons, took over as CEO. The announcement came after many months of failed negotiations to sell the company. A series of teams on a short leash had been installed over the years to reverse Body Shop's fortunes; now a new set would try.
After a previous round of takeover talks collapsed last summer, Roddick herself was quoted calling Body Shop a "dysfunctional coffin." Only a decade ago, journalists were hailing her as the Mother Teresa of Capitalism. Here was a harbinger of the New Age, weaned on can-do chutzpah and do-right rhetoric. Then came an almost endless series of ethical blowups, franchisee spats and organizational make-overs.
Body Shop stock peaked in 1992 at £3.72 on the London Stock Exchange. Once known as "the shares that defy gravity," they rediscovered Newton's Principia, plunging to their present level near 95 pence. That's a decline in market value of about £500 million.
It's a big comedown from the time when Body Shop grew as lushly as the Amazon rain forest. Early on, Gordon Roddick realized that, with the young company's borrowing potential tapped out, the best way to expand was by shifting the cost to others through "self financing"-franchising.
It was a brilliant formula for a while. During the boom times, when Body Shop was annually adding scores-sometimes hundreds-of stores, franchising was a cash cow. Body Shop International pocketed a chunk of each franchisee's start-up investment, which, in the U.S., now ranges from $318,700 to $774,750 (U.S.) per shop. In addition, franchisees are locked in as buyers of Body Shop's cosmetics and sundries, and pay royalties of 5% on sales. For the idealistic young women that Body Shop has attracted, such costs have been a daunting, sometimes insurmountable hurdle in the low-profit business of running storefront franchises.
In the good times, many franchisees prospered in tandem with the company. But by the 1990s, Bath & Body Works in the U.S., Boots in Britain, and even some department stores had developed similar lines, backed by fresher promotions. Body Shop continued to expand, but per-store sales declined for much of the decade. The 119 Canadian franchised shops have had far less competition and have not been hit nearly as hard. Nonetheless, some Canadian franchisees say that Body Shop Canada, which is privately owned by Margot Franssen, her husband, Quig Tingley, and her sister, Betty-Ann Franssen, has been "entertaining offers" and has been "very hopeful of finding a buyer" in recent years. (Body Shop Canada declined my requests for interviews for this article.)
The financial problems that began for Body Shop in the 1990s were compounded by its cosmetic line. When it came to phasing out synthetic colourings and artificial fragrances, the onetime innovator now appeared no better than premium competitors such as Aveda, Lush and Origins. That Body Shop had lost its edge became clear when even women's magazines, which had long lavished unqualified praise on the company, began taking potshots. In a 1995 article, Women's Wear Daily quoted a consultant who sniffed that Body Shop products are "low-end...at a premium price."
The fading cachet of Body Shop products intensified the plight of those franchisees who struggled to cover their debt as sales slumped. Yet even as complaints mounted-one typical article, in Britain's Sunday Times in 1996, blared, "Roddick faces franchise rebellion"-Body Shop continued to sell new franchises, require ever-larger investments from franchisees, and push products through the pipeline.
The rubber band has finally snapped. Over the past half-dozen years, Body Shop has been sweeping up hundreds of outlets around the world (some at just pennies on the dollar), shuttering its manufacturing operations, and adding debt. "They haven't had positive net cash flow for five years," noted John Stevenson, a London analyst with ING Barings Charterhouse Securities, in January. (In May, however, the company reported positive cash flow for fiscal 2002.)
Body Shop remains a mostly franchised operation. Only 29% of its 1,954 stores are in company hands. Body Shop executives would not grant me an interview for this article, but the company did release a statement, which cited strengthening sales in major markets. Still, "Our earnings profile over the last three years has inevitably reflected the very significant changes taking place within the business."
Stevenson, one of only three analysts who still follow the company, thinks that the issue is the company, not the sector. "Roddick is right, they're dysfunctional," he says. "And their competitors have a similar political message and products that are at least as good. As an innovative leader and growth company, Body Shop is a dead concept."
Despite that assessment, Anita Roddick made it clear during the February shakeup that she has no intention of stepping into the shadows. In her new role as a consultant to the company, she will offer "essential expertise in product, marketing and values." She added: "Being now a non-exec is going to be much more fun for me because you can be much more of a tyrant."
Anita Roddick's and Body Shop's stature as symbols of socially responsible business is not all hype. Body Shop is a pioneer of social and environmental accounting, in which companies report on their own ethics, warts and all. In a survey published in December by the Financial Times, media and non-government organizations ranked Body Shop second (after BP) among the world's companies for managing its environmental resources. Body Shop's reputation as a social marketer dates to a 1986 collaboration with Greenpeace U.K. It sold jojoba oil in a "save-the-whale" promotion (the oil was marketed as a substitute for whale spermaceti, which had not been used in mass-market cosmetics for years). The media lapped it up. Bolstered by the free publicity, Body Shop attracted waves of new customers. Ever since, the company has aligned itself with one politically correct cause after another: supporting the rain forest and recycling, battling domestic violence and globalization. At every turn, Roddick likens Body Shop to a grand experiment in "profits with principles."
Such rhetoric makes former franchisee and Toronto native Toni Lambert wince. Lambert, who first became a franchisee in 1985, put her stores into bankruptcy protection five years ago and remains locked in a bitter legal wrangle with Body Shop.
It's hardly surprising to find frustration among the hundreds of thousands of people who have bought franchises of one brand or another across North America. Franchising is often a precarious business. It's not long before eager but frequently naive entrepreneurs realize they are at the mercy of a big company with its own agenda. But Body Shop's hard-nosed tactics have come as a shock to franchisees attracted by its progressive reputation. The company has faced suits by at least 15 franchisees-and many additional threatened suits-over the last decade, including an action involving nine U.S. franchises that is set to go to trial as early as this fall.
Lambert was a management trainee at Royal Bank in the early 1980s when she wandered into a Body Shop and was charmed by its sense of fun. "I was 24 years old and for the first time, I knew that this is what I wanted to do," she says. Lambert came to own two Toronto-area franchises. These were the golden days for Body Shop and its partners. Franchisees, then paying a pittance for the right to open a shop, often made out famously. But as evolving franchisors are apt to do, Body Shop began to enforce stricter specifications on store design and the myriad details necessary to create a consistent shopping experience. Being a Body Shop franchisee gradually became more costly.
Lambert says that the Franssen-Tingley trio, which then also controlled franchise rights for the northeastern United States, approached her about buying two flagging shops near Detroit, with a promise of rights to the entire region. She jumped at the chance. In 1992, Lambert convinced her husband, John, to quit his job as head of trading and sales at Nomura Canada, a Bay Street brokerage. They sold the Toronto stores and moved to Detroit.
Business went like gangbusters-at first. Within a year, the Lamberts were offered a third shop, which they also revived. The problems started, they say, when they agreed to take over a struggling location in a crime-ridden mall. "No cherry picking," Toni Lambert says they were told. Rather, the company said, they'd be looked on favourably for future stores if they took over the money-losing one. Despite the erosion showing up in other franchises, the Lamberts took the deal.
Even as her profits began to slide, Lambert added two more stores. She also reached out to other franchisees as a member of the Committee for Progress, which the company set up as an advisory board to field franchisees' beefs. The committee presented Body Shop with a list of issues that mirror complaints by franchisees over the years: poor marketing and advertising, competition from company-owned stores and catalogues that operate with larger margins, and supply-chain screwups. According to court filings in the U.S. action involving nine franchises, Body Shop consistently understocked franchisees by as much as 40% and discriminated against them in favour of company-owned stores.
"The playing field between corporate and franchise stores was not even," Lambert contends. "It was like they were running two separate businesses." The final blow came in a disastrous 1996 Christmas season. The Lamberts ended up with a warehouse full of inventory. With Body Shop unwilling to help ease them out of their plight, she contends, Lambert and her husband put their business in bankruptcy protection. "We felt we had no choice. Under the basic franchise agreement, Body Shop had the right to take our assets and terminate our franchise at any time [if any of certain conditions of the wide-ranging agreement were breached]. They could have taken the stores." (Many companies' franchise agreements have such clauses.)
"For 12 years, I put everything I owned into that company-my life, my home," Lambert says. "I even adopted a new country."
Body Shop International's position on the dispute is that the Lamberts "reneged on a debt of over $1 million owed to us and subsequently moved to Canada." The company expects to prevail in court.
Toni Lambert is one of dozens of franchisees who have contacted me to tell their own Body Shop saga. The calls began in 1993 and led to the publication of my article "Shattered Image" in Business Ethics magazine. Some callers had complaints that were strictly business-franchisee revolts were simmering in the U.S., Asia and Europe. But more often, they painted a picture of Body Shop that was at odds with the company's image. The file grew fatter over the years. Some examples:
Cumulatively, these episodes made Body Shop less of a magnet for the well-informed conscientious consumer: Maybe Body Shop wasn't about doing business differently after all. In 1987, the Roddicks made a fateful expansion decision: They moved into the world's most lucrative but most competitive market, the United States. But before they did, they had to deal with their long-simmering "Berkeley problem."
One of the foundations of the Anita Roddick myth is that she invented the Body Shop concept. In fact, the saga began not in Brighton in 1976 but one day early in that decade in the Bay Area of California. That's when the young Anita Perella, with a child in tow and pregnant, travelled with her boyfriend, Gordon, to visit Gordon's best friend, David Edward, in San Francisco.
David's former wife, Alma Dunstan-McDaniel, remembers dragging Anita to her favourite shop, a tiny toiletries store filled with tie-dyed decorations and redolent with incense. Anita was taken by the shelves stacked high with hand-cut soaps, loofah sponges, and exotic-sounding potions in small plastic bottles with hand-written labels. "We were young women and that was the place to buy your shampoo and your body cream, and it was hip and cool," Dunstan-McDaniel says. The owners, Peggy Short and Jane Saunders, had carved the original store in the little chain out of a converted garage, cleverly calling their creation The Body Shop.
Years later, back in England, a close friend of Roddick's remembers her excitedly going through dog-eared, hand-drawn brochures of the original Bay Area Body Shops. The breakthrough recycling policy, the products, and, most important, the California Body Shop's fun ethos all predated the version Roddick would launch in 1976.
Comparisons of the brochures of the two Body Shops are telling. Short and Saunders broke out their products under the categories "For the Hair," "For the Bath," "Creams," "Lotions" and "Essential Perfume Oils." They cut freshly made glycerine soaps in lemon, rose and strawberry scents, and poured perfume oils scented with linden, magnolia, "woody sandalwood" and ylang-ylang.
Roddick's brochures, put out years later, had nearly identical categories and many identical product names-or variations. Berkeley had "Four O'clock Astringent Toner"; England, "Five O'clock Witchazel Astringent." Berkeley offered "Beauty Grains: A natural cleanser made from finely ground Japanese Azuki beans." Brighton did too, save for the word "Japanese." The top of a California brochure stated, "All of our products are Biodegradable & made to our specifications in Berkeley"; and "Bottles 20¢ or bring your own." The top of a U.K. brochure read, "All our products are biologically soft and made to our specifications"; and "Bottles 12p, or bring your own."
In 1987, when Short and Saunders were happy proprietors of six Body Shops, the Roddicks offered them $3.5 million (U.S.) in exchange for the name. They snapped up the offer, converting their own stores to Body Time over a period of five years.
It is not illegal to copy a business concept; nor is it generally illegal to use a company name in a country where it has not been trademarked. Over the years, however, these otherwise mild-mannered women became resentful when customers accused them of stealing Anita Roddick's concept. Some would even show them comparison copies of the brochures.
"What really got them angry," says a colleague, "was the ongoing deception-Anita's lie that she originated the idea, the colour scheme, the products, all the things that gave the company its unique identity. Never in our wildest imagination did we think that Roddick, with all her claims about being so honest, would keep this fabrication going."
Body Shop has been adamant that its concept and name did not originate in California, and has used legal warnings to prevent or water down published reports to the contrary. The claim brings a blunt response from Dunstan-McDaniel, the witness to the borrowing. "That's bullshit, because I took her there. It felt unsavoury from the beginning. Anita ripped them off."
The buyout proved a short-lived triumph for Roddick. Like other European retailers who invaded the U.S. market-Benetton, Laura Ashley, Tie Rack, Sock Shop-Body Shop stumbled. Look-alike competitors, in particular Bath & Body Works, whose locations now outnumber Body Shop in the U.S. by about 5 to 1, came to dominate the premier malls, offering fresher products with sharper marketing and pricing.
In recent years, Body Shop has bought out or shuttered 160 franchisee stores in the U.S. Threatened suits by franchisees, including one by the Careless Group in England, and others in France, Spain, Germany and Austria, have also led to buyouts in some cases.
Body Shop's U.S. franchise offering documents provide details of other franchise dustups that actually made it to court. In one of several cases that allege breach of contract or fraud, Body Shop paid $878,900 in 1995 to its former Norwegian head franchisee. Earlier that year, Anne Downer, who had franchise rights for eight countries in Asia, collected $6.2 million (U.S.) to settle a dispute that exploded when Body Shop forced her to close her 12 Singapore stores.
Toni Lambert's case came to a head last June. Body Shop, which the Lamberts say had tried previously to petition them into personal bankruptcy in Michigan but failed, filed again in Canada. The Ontario Superior Court denied the company's motion. Judge Donald R. Cameron scolded Body Shop for attempting "an egregious breach of widely accepted commercial morality... not consonant with our system of justice and general moral outlook." Body Shop is appealing the decision. As a result of Judge Cameron's decision, the Lamberts, who say they owe Body Shop nothing, countersued in Michigan, claiming damages of $500,000 (U.S.).
These disputes have been costly for Body Shop. And they come on top of other outlays. In the past five years alone, Body Shop has paid out at least £80 million to acquire franchises, and another £20 million for restructuring. The way the restructuring costs have been accounted-as one-time rather than ongoing occurrences-has raised some eyebrows. "The recurring nature of the costs being treated as below-the-line led us to move some of them back above-the-line," says Matthew McEachran of Investec Henderson Crosthwaite in London.
Despite the prospect of further franchisee spats, London-based Seymour Pierce analyst Richard Ratner believes the company can at least stabilize its business if the founding couple's handpicked chief, Adrian Bellamy, "can keep the Roddicks at a distance." Considering that the founders hold 51.6% of the voting stock (including Bellamy's shares), and control the board, he's not optimistic about Bellamy's prospects. "In the end, the Roddicks are just not suited to be running a public company."
Bellamy did move quickly to address the franchisee situation. "I don't think we've used their knowledge and expertise as effectively as we might have," he said. Within a week of his assuming control, the Lamberts received a phone call from Body Shop Canada inquiring if they were open to a settlement, they say. "Bellamy wants to move on. He's a businessman," they quote Quig Tingley as saying. The Lamberts say they are continuing to press their legal case.
With its 25th anniversary just behind it, it's timely to consider the legacy of Body Shop and Anita Roddick. Mark Constantine, an original supplier of Roddick's who went on to found Lush, has mixed feelings. He often thinks back to those fun early days, mixing weird potions in his kitchen while Anita and Gordon looked on like kids in a candy store. "There is still a mass of innocence to those two despite it all," he sighed.
No one can take away Anita Roddick's success in building her empire. But it's increasingly doubtful that she will be remembered in her self-styled persona as the world's most socially responsible entrepreneur. Roddick may not always have been able to practise her social vision, but she was always able to promote it. She is assuming her place in history as one more beauty baroness who created her own myth to make an entrepreneurial dream come true.
"She stands full square between Estée Lauder and Elizabeth Arden," Constantine said. "They all wrote their own stories."
Jon Entine (firstname.lastname@example.org) is contributing author to Case Histories
in Business Ethics (Routledge, 2002). A previous article on The Body Shop,
"Shattered Image", published in Business Ethics magazine in 1994, won
a National Press Club Award in the United States.