The Body Shop UK falls into administration; UK wage growth and US inflation hit rate cut hopes – as it happened

Closing post

Rivals have stolen a march on what used to be the Body Shop’s “unique eco-credentials”, say Susannah Streeter, head of money and markets at Hargreaves Lansdown:

In the 1980s, the Body Shop was the place to go for young shoppers to splash out on fresh scented bubbles and beauty ranges, with a deep environmental conscience and a focus on social justice and conserving nature.

But now stores like Lush hold the bigger pocket money draw for tweens and teens, lured in by fragrant bath bombs and innovative product ingredients.

Body Shop stores could be forced to close unless a buyer is found for them, warns Roger Hutton, insolvency expert at law firm Clarion.

Following the appointment of FRP Advisory as administrators today, Hutton says:

News that Body Shop has collapsed into administration isn’t a surprise, given its run of financial challenges.

And with businesses trading against the economic backdrop of tighter lending and higher cost inflation, it’s a difficult environment for the retail sector as a whole.

While the Body Shop stores will continue to remain open while the firm is in administration, if a buyer for its stores is not found soon, they may be forced to close.

While it’s unclear whether this could have been prevented, the earlier a business gets advice the better. The earlier interventions are taken, the more solutions there are, such as securing financing on better terms, allowing more time to engage with shareholders and getting a head start on restructuring.

Now, time is of the essence here to secure the future of the brand. The focus needs to be on the UK arm of the business and effectively communicating a plan to employees and creditors.”

Appointing administrators will hopefully act as a springboard for The Body Shop’s future survival, says Jason Freedman, fraud and asset recovery partner at the law firm Gowling WLG.

While drastic changes will need to be made to its business model, the significant resonance which the brand still has with consumers can still be capitalised on if operational changes and a focus on cost reductions at all levels can be aligned with delivering against customer needs.

“That insolvencies are increasing will be of no surprise to anyone who has been paying any attention to the economy recently, Freedman adds:

Companies continue to weather the storms of Brexit, labour shortages and high inflation, often with balance sheets that are struggling to recover from the hit of the pandemic, and with the cost-of-living crisis hitting employees and customers alike.

Now, a prolonged higher interest rate environment is chipping away at margins and threatening to pick companies off as they need to refinance.

Directors of struggling companies need to be aware that there are many options now available to them to save or rescue their businesses, as long as they get the right advice as early as possible and engage with key stakeholders. The longer this is delayed, the fewer options remain.”

Today’s fall into administration comes 48 years after environmentalist and human rights activist Anita Roddick founded The Body Shop, in Brighton, in March 1976.

It was bought by cosmetics giant L’Oreal in 2006. But after an unhappy decade, The Body Shop was sold again, to Brazilian cosmetics maker Natura&Co for €1bn in 2017.

Six years later, Natura sold up to private investor Aurelius Group, in a deal worth £207m last November.

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Here’s Tim Symes, partner in the Insolvency and Asset Recovery team at law firm Stewarts, on the appointment of administrators to run The Body Shop today.

“This could be a tactical administration appointment designed to shed creditors and cut costs following the purchase by new owners just before Christmas, or the directors simply had no choice.

Putting the business through administration will give immediate respite from creditors and allow a leaner, viable business to emerge, albeit with substantial creditor casualties in the form of suppliers and landlords.

As with Wilko, the business left standing is likely to be focussed on its online offering.”

The news that The Body Shop was heading into administration has sparked a flurry of reminiscences on social media, and memories of much-loved products:

US inflation higher than expected, at 3.1%

The administrators taking control of The Body Shop have a number of options.

Jeremy Whiteson, restructuring and insolvency partner at legal firm Fladgate, explains:

Administrators have broad powers including to sell a business as a going concern, continue the trade, or break up the business and sell stock, brand and other assets.

Which of these routes they take will depend on the state of the company and the level of interest of potential buyers.

The administrators should try to act in the best interest of creditors. This makes for a worrying time for the staff of the groups’ 200 stores.

High street retailers are having a tough time, Whiteson adds:

They have been besieged by multiple challenges- the pandemic, restricted supplies after Brexit, tighter labour markets (leading to upward pressure on wages) and high fuel costs. For Body Shop, with its private equity owners, there is likely to be substantial debt that poses an additional concern as high interest rates increase the burden on the company.

It is hoped that a solution can be found which safeguards the jobs of staff. However, it seems likely that many buyers will simply be interested in the brand and stock, shifting the business to an online operation or to be integrated into a multi-brand retailer (such as Next or Frasers).

Heightened competition to blame for The Body Shop’s downfall, says GlobalData