Topic > Body Shop International Case Summary - 905

Body Shop International Case SummaryThe Body Shop International case is an interesting case study in the miscommunication of owners' and shareholders' interests regarding financial conditions. Anita Roddick, the founder of The Body Shop, had no financial experience and thought that all she needed to do was expand her business and the financing would take shape as she developed her business. Although Anita's product concept of a natural skin care line was good; his lack of experience in financial matters took a toll on his business. The company's growth expansion was too rapid and as a result sales, margins and stock prices began to decline. The growth rate declined rapidly as competitors such as Bath & Body Works flooded the market. This decrease in market share has led to poor decision making on the part of the owner. The Body Shop quickly saturated the market and began to dilute their brand. It quickly became a mass-market line franchised in every suburban mall and street corner. In 1998, many attempts to strategize the company were made by both Anita Roddick and Patrick Gourney. Unfortunately the damage had already been done. Revenues continued to grow; however, pre-tax profits continued to decline in subsequent years. In 2001, Gourney attempted to reinvent the company and employed several strategies that continued to fail, suggesting greater investment in stores, and attempted to achieve operational efficiencies by reducing product and inventory costs. Case Analysis As I analyzed the data for The Body Shop International case, I noticed some trends and made my assumptions for the next three years. I compiled pro forma statements for fiscal years 2002, 2003, and 2004. These figures are based on the percentage of sales method for pro forma financial modeling. Simply put, I used sales data from the last three years 1999, 2000 and 2001 and applied a 13% growth rate to sales. Below are some additional hypotheses I have created to illustrate how the company can become profitable by increasing market share and maintaining shareholder interest within the company over the next three years. SALES 0.50 0.49 0.48 INTEREST RATE 0.06 0.06 0.06 TAX RATE 0.30 0.30 0.30 DIVIDENDS 10,900 10,900 10,900 CURRENT ASSETS/SALES 0.32 0.34 0.34 CURRENT LIABILITIES/SALES 0.28 0.27 0.27 FIXED ASSETS 110,600 110,600 110,600 OPENING SHAREHOLDERS' EQUITY 121,600 147,029 181,368 The advantages of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the company's low profit margin is operating expenses.