Body Shop

Anita Roddick, OBE, and The body memory International Plc FEDBACK FOR foreland WEEK 3 for week commencing 19. 03. 12 1. Evaluate the Financial thought of the Company (at the time of the case get) and comment upon the app bent achievement or otherwise of its dodging, based on your findings. Introduction We may overturn a familys strategy from a n chocolate of aspects, nevertheless primarily we argon interested in practiceing the question How well is the callers present strategy working? To understand and analyse success in terms of strategy, we mustiness begin by understanding what the strategy is.From Thompson, Strickland and lay on the line (2012) we energy examine the following areas * Identify competitive progression * Low-cost leadership? * Differentiation? * Best-cost provider? * Focus on a particular market niche? * Determine competitive scope * liberal or narrow geographic market coverage? * In how umteen stages of industrys harvest-homeion/distri scarceion chain does the troupe moderate? * Examine recent strategic moves * Identify functional strategies We can similarly assess performance in terms of both quantitative pass judgments (financial and strategic achievements against budget, plans, and so on and look to see if its performance is above or below the industry average. We can also look at qualitative mea sure enoughs (such as brand awareness /status, consumer attitudes to the union, and so on). There is just limited randomness in the case regarding both(prenominal) of these areas, but I go forth get down to look first at the strategy followed by automobile trunk grass, consequently at the financial dimensions based on its figures, non-financial measures and hence finally drop back conclusions that attempt to answer the question.Strategy being followed by physical structure stock porters beers Generic strategies, as am exterminateed by Hitt, Ireland and Hoskisson (2002) are shown below. If we consider first, their competitive approach, there is no evidence in the case study that torso browse has any concern close to Cost Leadership, and in fact we know from the Trading Charter and Mission (case, page 539) that the incorruptible pays above market rates for goods it buys from suppliers in poorer countries, where it can, which is not something a cost-leadership company would normally do.We also waste plentiful evidence from the case that clay wander occupies a grotesque position in the cosmetics retailing industry, as it takes a highly high-principled stance on many issues, as implyd in my earlier answer to question 2, and shown in the firms mission statement, which mentions many areas of Corporate Social Responsibility ecological and greenness issues, human and civil rights, against animal testing of cosmetics, and so on. The company must therefore be following a Differentiation strategy.The question then is whether this is broad or narrow in focus, as suggested by Thompson, St rickland and Gamble, as mentioned earlier their competitive scope. The decision here rests on how one defines the market bole Shop is a retailer that also manufactures, within the cosmetics industry. It is a specialist retailer, not alloting anything apart from its own products and is not piece and structured like bigger retailers such as in the UK polarity of Fraser, Debenhams, Boots, Marks and Spencer or Tesco, all of whom retail cosmetics amongst many other product ranges.I therefore conclude that Body Shop is a Focused Differentiator. Firms that try on differentiation, according to Porter, seek higher advance margins through finding something unique about themselves, which consumers value more than the offerings of competitors. In the case of Body Shop we might see this as being their highly visible and principled ethical stance, and the range of products which they trade, being organic, fair trade and ethically produced and traded, so their competitive approach and sc ope is Focus Differentiation, as such a stance is not likely to invoke to all shop classpers.Similarly, some, at to the lowest degree would be indifferent to the organic/fair trade/human rights etc appeal of the stores and others might consider the range of products to be relatively limited and not of sufficiently high brand status, as the products in Body Shop stores fit in price and value terms between the affordable products offered in stores like Sainsbury and Tesco, and the high-end cosmetics of Helena Rubenstein, Elizabeth Arden etc, sold via stores such as hall of Fraser and Debenhams.In terms of recent strategic moves, we can see from the case only that the firm has spread out reasonably rapidly, via franchising mostly from the case it seems that about 80% of stores are franchised out. In terms of functional strategies, we can see the crushed amount of vertical integration mentioned in the case, whereby the largest part of the backup is affect in running the owned shops and franchise, and a small amount of manufacturing in terms of soap products, etc.It is important to note that for the next section, examining Body Shops finances, the franchising approach is important, as it has a major impact on r so farues however successful a store is, the majority of revenues depart go to the franchisee, not the Body Shop. According to Cavusgil, Knight and Reisenberger (Called CKR in future from p 246), the initial revenue to Body Shop will be from the franchising fee, but then they will get regular revenues from product sales to the stores and from the royal house fees. This is likely to amount to about 30% of revenue in centre (25% from product charges and 5% royalty fee).Body Shops Financial localise We are asked to evaluate the firms financial position. Briefly, Body shop is a retailer that sells in around 45 countries and uses a complex mode of Franchising and FDI though posting in owned retail stores. So far as I can tell, about 80% of the 1,208 stores are franchised. Franchising is a particular form of retail expansion, where, according to Cavusgil, Knight and Reisenberger, an enterpriser buys into an established brand system. The best known franchise is probably McDonalds, but Body Shop is a medium-sized international franchise, given its range of countries and umber of stores (much smaller than McDonalds, which has over 33,000 restaurants worldwide, and annual revenues (2010) of about ? 15 billion. I will come back to this more modern selective information later in my answer. When examining the financial basis of a dividing line, there are according to Thompson Strickland and Gamble five areas which can be studied 1. Profitability (the gain grounds do by the handicraft on its activities), 2. Liquidity (the ability of a business to pay its debts creditors and collect money from customers debtors), 3.Leverage (the amount of money invested in the business by addressholder v the amounts borrowed from financ ial institutions, to fund the business and invest in its future), 4. Business Activities (amounts of stock held in the business, how quickly it turns over, and so on), and 5. stockholder Interests (the amount of money remunerative in dividends, value changes in share prices, etc. ) * According to the lecture notes in week 10, Ratio outline can be used to * Compare the performance of a company over a period of time. Compare the performance of your own company with that of one of your competitors or the industry sector. * Detect weaknesses in aspects of your operations, e. g. debt management, stock levels etc. which you can improve. * Assess a companys exposure to piddling term danger through its liquidity (ability to meet debts). * Determine a companys profitability. Much of this entropy is useful only when considered against the performance of other firms and we pee-pee no data from the case to illustrate any of this. However, I realize approached the financial business offi ce analysis in two ways.First I look at the grassroots ratios for the firm and comment on them second, I have compared the latest data for Body shop, with a number of its contemporaries, both in retail and in franchising, in order to make some valid equivalences. Profitability the commonest ratios are Profit before Interest payments on loans, Taxation, Depreciation and other better costs like mortgage payments. Often referred to as operating profit or EBITDA for Body Shop in 1995 I have work out this as Profit for the year/turnover*100 (from figures, case pp553/4), this is 33. 5/219. 7*100 = 15. 24%.Calculated in the same way, net profit would be 21. 8/219. 7*100 = 9. 9%. Liquidity the commonest ratio here would be the Current Ratio, which measures balance of current assets against current liabilities, which for Body Shop yields a ratio of 2. 291. Similarly the Quick Ratio, which is a similar calculation but ignoring inventory or stock, would yield a ratio of 0. 831. This indica tes that the business is not perfectly liquid and would repugn a little to pay off all of its debts (a ratio of 11 indicating perfection here) but this is not seen as a line of work when the ratio is over 0. . Without any share price data it is unworkable to look meaningful ratios for stockholders, so we can only note that the dividend paid to stockholder starts high, at ? 11. 50 per share for 1995 (case, p. 554). A major measure for stockholders, however, might be Return on Shareholders equity, as this is the best comparison to the return that the investor might make if he or she had invested their money in a bank Savings account. For Body Shop I calculate this as Net profit/Total Equity*100 or 21. /110. 6*100 = 19. 7%. However, these numbers by themselves, tell us only that the business is profitable and is a sound going concern, with a decent profit margin and a fair coverage against its debts. For shareholder it is making a very good return on invested amounts of just abo ut 20% at a time when savings accounts would maybe have yielded 6%) and is paying a handsome dividend. We might conclude that the business is financially sound, therefore.Moreover, using Franchising as a way to expand internationally is a relatively low cost and low-risk method, according to CKR, as the franchisee pays for the initial setting up of the store the stock staff recruitment and pedagogy and advertising and promotion. They also pay in this case to Body Shop PLC for the stock they must subsequently sell in their store and the franchise royalties on turnover. This is a very effective business model and allows a strategy of international expansion to take place reasonably quickly and at reasonably low risk. Conclusions General comments about the success of the strategy and body Shops financesBased on this evidence, it is possible to state that Body Shops financial position is clearly comfortable and they appear to have a sensible strategy for international expansion, whi ch is sustainable, in that they have transferred the majority of risk for their expansion to the franchisee. The group should be able to advantageously expand its foreign operations in this manner, for a number of historic period. However, at the moment, as I indicated in my answer to question 1, the company at present has a very simple structure and this may have to change as the number of stores, and the number of countries in which they operate, continues to grow.We also know, from my answer to question 2, that in terms of what we might call non-financial measures, Body Shop is highly regarded as an excellent example of an Ethical and Corporately Responsible company. We might therefore conclude that both the financial and non-financial evidence as presented supports the ingest that B0dy Shop is a well-run business and has a sensible strategy that will allow it to expand. Comments updating Body Shops Position Without relative data, however, it is impossible to make much more o f an analysis or pass away conclusions from the business.We know that the case ends in 1995/6 and that about ten years after this, the firm was sold to LOreal, a very large, French-based cosmetics producer. This caused some controversy as it was not clear if LOreal still tested products on animals (they do) and if so, how such a principled owner as Anita Roddick could sell out to a large corporate that seemed to embody many of the things she had purportedly dedicated both her personal and professional life to fighting. However, the sale went ahead(predicate) and the business has been part of the French company now for 7 years.Today (2011) it has expanded to 2,748 stores, of which 1,639 (59%) are franchised. This is interesting as it tells us that the proportion of franchised stores has fallen since 1995, even though the number of stores has more than doubled in 16 years. This would indicate a change in strategy, but it is not clear whether this was pre or post the LOreal takeover . Finally, in order to look at Body Shop in relative terms, I prepared data for them and a number of rivals, which is presented below. Revenue ? billion EBITDA ? one thousand thousand EBITDA % Net profit? million Net Profit % House of Fraser 0. 596 36. 8 6. 7 8. 2 1. 3 Debenhams 2. 112 189. 7 8. 98 97. 0 4. 6 Boots 23. 330 1,444. 0 6. 17 221. 0 0. 9 Marks and Spencer 9. 50 852. 0 9. 00 523. 0 5. 5 Tesco 60. 93 3,810. 0 6. 25 2,670. 0 4. 4 Body Shop 1. 01 144. 4 14. 2 41. 2 4. 1 McDonalds 15. 06 4,670. 6 31. 0 3,093. 1 20. 5 I chose data for several large retailers, like Tesco and M&S who sell at least comparative products to Body Shop, House of Fraser and Debenhams because they sell higher level products and McDonalds as the most obvious franchiser example.Regarding the large retailers, although Body Shop remains a small business, internationally speaking (just about ? 1 billion in turnover), its net profit margins are at the top end of those of its retailing rivals, but f all well short of its main franchise rival. My conclusion which I made at the end of question 2s answer that I am sure the impact of the ethical stance affects the performance of the company is thus impel into some doubt, but it would need much more research into the comparative financial data in order to prove or refute this view.